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hances our competitive position in this highly specialized business and enables us to
deliver an even higher level of customer service.
• In June 1996, we announced a strategic alliance with InfoSource, Inc. for the creation
of proprietary computer software training courseware. This alliance provides Comp-
USA with a source of high-quality computer training courseware and skills assessment
software that will differentiate us from the competition and enhance our position as
one of the nation™s premier providers of software training.
876 Case: CompUSA




146 Part 4 Additional Cases




• In May, 1996, CompUSA celebrated our hundredth Computer Superstore with simul-
taneous grand openings in Westminster, Colorado and San Antonio, Texas.
• In November 1995, the CompUSA web site premiered on the Internet at www.
compusa.com, enabling customers to obtain a wide range of information about the
Company and encouraging them to browse through our on-line catalog.
We have consistently stated that CompUSA will sell computers any way that our cus-
tomers want to buy them, and we have structured our operating model to meet that
objective. We believe that the most effective way to meet our customers™ wide-ranging
needs is to operate multiple businesses within our category”Retail, Corporate Sales,
Government Sales, Education Sales, Mail Order, Technical Services and Training”which
build on the strength of our store base. Our goal is to become the premier provider of
products and services in each of these areas. We believe there are strong synergies
among these separate, yet reliant, businesses that fuel CompUSA™s ability to achieve
record operating results.
CompUSA™s signi¬cant sales gains, improvement in gross margin and continuing
reductions in operating expenses as a percentage of sales provide powerful testimony to
CompUSA




the strength of CompUSA™s diverse operating model. Gross margins steadily improved in
¬scal 1996 and in the third quarter reached 1%”one of the highest levels in CompUSA™s
history. Much of this margin improvement was due to sales increases in our higher-mar-
gin service businesses”Training and Technical Services”as well as reductions in control-
lable costs such as shrinkage, freight and variances. Average-sales-per-store also
increased throughout the year, enabling us to leverage occupancy costs, thereby strength-
ening gross margins and reducing store operating expenses as a percentage of sales.
We more than doubled the number of Computer Superstores we opened in ¬scal
1996, opening 20 units compared to nine units in ¬scal 1995. By the end of July 1996,
CompUSA was operating 106 Computer Superstores in 50 major metropolitan markets
across the United States. We continue to strive to improve our Computer Superstores, and
in ¬scal 1996, we tested new store concepts such as the small market prototype. In addi-
tion, we completed the companywide roll-out of our Software Samplersm and Comp-
Kidssm areas to all of our Computer Superstores. We expanded our Technical Services
business by launching CompUSA Integration Services (CIS) units in eight major markets to
meet the growing demand for technical services such as networking. Also, our new deliv-
ery and installation service premiered chain-wide as we introduced technical services
vans at all of our locations.
Fiscal 1996 has been a challenging, yet rewarding, year for CompUSA. It has also
been a year ¬lled with many signi¬cant accomplishments, highlighted by our outstanding
¬nancial performance. Ours is a dynamic industry, however, and to maintain CompUSA™s
leadership position we must remain focused and keep our sights set on the future. Most
importantly, we must remain fully committed to running our business effectively and to
meeting the needs of our customers.
Our team members are dedicated to the success of CompUSA, and we are proud of
their continued hard work and commitment. As always, we also appreciate the con¬-
dence and support of our stockholders and suppliers.
Sincerely yours,


James F. Halpin Giles H. Bateman
President and Chief Executive Of¬cer Chairman of the Board
877
Case: CompUSA




147
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EXHIBIT 4
CompUSA, 1996 Abridged Annual Report (continued)

CONSOLIDATED BALANCE SHEETS

June 29, June 24,
(in thousands, except shares) 1996 1995
..................................................................................................................................................
Assets
Current assets:
Cash and cash equivalents $207,614 $96,494
Accounts receivable, net of allowance for doubtful accounts of $1,692
and $1,176 at June 29, 1996 and June 24, 1995, respectively 148,109 103,934
Merchandise inventories 398,841 312,202
Prepaid expenses and other 15,669 14,506




CompUSA
Total current assets 770,233 527,136
Property and equipment, net (Note 3) 131,184 106,290
Other assets 7,920 7,903
$909,337 $641,329
Liabilities and Stockholders™ Equity
Current liabilities:
Accounts payable $377,774 $282,885
Accrued liabilities (Note 4) 82,178 49,076
Current portion of capital lease obligations (Note 6) 4,382 5,047
Total current liabilities 464,334 337,008
Capital lease obligations (Note 6) 5,066 5,153
Senior Subordinated Notes (Note 8) 110,000 110,000
Deferred income taxes (Note 5) 4,032 2,464
Commitments and contingencies (Notes 6 and 10) ” ”
Stockholders™ equity (Note 12):
Preferred stock, $.01 per share par value, 10,000 shares authorized,
none issued ” ”
Common stock, $.01 per share par value, 100,000,000 shares
authorized, with 45,107,858 shares issued and outstanding at
June 29, 1996: no par value, $.01 per share stated value, with
40,465,920 shares issued and outstanding at June 24, 1995 451 405
Paid-in capital 255,667 173,348
Retained earnings 72,616 12,951
328,734 186,704
Less: Treasury stock, at cost, 189,730 shares at June 29, 1996 (2,829) ”
Total stockholders™ equity 325,905 186,704

$909,337 $641,329
..................................................................................................................................................
See accompanying notes.
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148 Part 4 Additional Cases




CONSOLIDATED STATEMENTS OF OPERATIONS

Fiscal Year Ended
...................................................................
June 29, June 24, June 25,
(in thousands, except per share data) 1996 1995 1994
...................................................................................................................................................
Net sales $3,829,786 $2,935,901 $2,219,457
Cost of sales and occupancy costs 3,311,682 2,573,945 1,955,183
Gross pro¬t $ 518,104 $ 361,956 $ 264,274
Store operating expenses 328,344 263,654 208,356
Pre-opening expenses 5,466 2,454 7,266
General and administrative expenses 75,488 54,940 47,963
Transaction costs related to Merger (Note 2) 3,453 ” ”
Restructuring costs (Note 9) ” ” 9,918
CompUSA




Operating income (loss) $ 105,353 $ 40,908 $ (9,229)
Other expense (income):
Interest expense 12,487 12,015 12,156
Other income, net (6,983) (2,409) (2,063)
$ 5,504 $ 9,606 $ 10,093
Income (loss) before income taxes 99,849 31,302 (19,322)
Income tax expense (bene¬t) (Note 5) 40,184 6,963 (2,298)
Net income (loss) $ 59,665 $ 24,339 $ (17,024)
Income (loss) per common and common
equivalent share $ 1.31 $ 0.60 $ (0.44)
Weighted average common and common
equivalent shares 45,610 40,868 38,535
...................................................................................................................................................
See accompanying notes.
879
Case: CompUSA




149
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CONSOLIDATED STATEMENTS OF CASH FLOWS

Fiscal Year Ended
..............................................................
June 29, June 24, June 25,
(in thousands) 1996 1995 1994
................................................................................................................................................
Cash ¬‚ows provided by (used in) operating activities:
Net income (loss) $59,665 $24,339 $(17,024)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 27,625 21,285 15,148
Restructuring costs (214) (2,504) 2,718
Deferred income tax 266 (4,645) (1,133)
Changes in assets and liabilities:
Decrease (increase) in:




CompUSA
Accounts receivable (44,175) (9,875) (24,968)
Income tax receivable (417) 2,479 (1,540)
Merchandise inventories (86,639) (29,603) (73,614)
Prepaid expenses and other 139 286 (1,703)
Other assets (63) (694) 258
Increase in:
Accounts payable and accrued liabilities 126,384 134,495 31,638
Income taxes payable 5,140 41 ”
Total adjustments $ 28,046 $111,265 $ (53,196)
Net cash provided by (used in)
operating activities $ 87,711 $135,604 $ (70,220)
Cash ¬‚ows used in investing activities:
Capital expenditures (47,418) (30,057) (46,488)
Other (565) 572 385
Net cash used in investing activities $ (47,983) $ (29,485) $ (46,103)
Cash ¬‚ows provided by (used in) ¬nancing activities:
Proceeds from issuance of Common Stock 79,344 1,994 13,527
Purchase of treasury stock (3,521) ” ”
Sale of treasury stock to bene¬t plan 812 ” ”
Borrowings under line of credit agreements 48,750 54,127 113,428
Repayment of borrowings under line of credit
agreements (48,750) (92,627) (75,428)
Payments under capital lease obligations (5,243) (5,149) (3,770)
Net cash provided by (used in) ¬nancing
activities $ 71,392 $ (41,655) $ 47,757
Net increase (decrease) in cash and cash equivalents 111,120 64,464 (68,566)
Cash and cash equivalents at beginning of year 96,494 32,030 100,596
Cash and cash equivalents at end of year $207,614 $ 96,494 $32,030
................................................................................................................................................
See accompanying notes.
880 Case: CompUSA




150 Part 4 Additional Cases




SELECTED FINANCIAL DATA

The following table sets forth selected consolidated ¬nancial and operating data for the periods from June
27, 1992 through June 29, 1996. As more fully described in Note 2 of Notes to Consolidated Financial
Statements, the Company acquired PCs Compleat on May 30, 1996 in a merger transaction accounted for
under the pooling of interest method of accounting. Under the pooling of interest method of accounting, the
historical book values of the assets, liabilities, and stockholders™ equity of PCs Compleat, as reported on its
balance sheet, have been carried over onto the consolidated balance sheet of the Company and no good-
will or other intangible assets were created. In addition, the Company has restated its consolidated state-
ments of operations to include the results of operations of PCs Compleat for each of the ¬scal years
presented. This information should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto of the Company and with "Management™s Discussion and Analysis of Financial Condi-
tion and Results of Operations," which are included elsewhere in this Annual Report on Form 10-K.
Fiscal Year Ended
.................................................................................
(In thousands, except per share data June 29, June 24, June 25, June 26, June 27,
CompUSA




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