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1996a
and selected operating data) 1995 1994 1993 1992
..................................................................................................................................................
Income Statement Data:
Net sales $3,829,786 $2,935,901 $2,219,457 $1,369,749 $822,815
Cost of sales and occupancy costs 3,311,682 2,573,945 1,955,183 1,189,675 716,531
Gross pro¬t $ 518,104 $ 361,956 $ 264,274 $ 180,074 $106,284
Store operating expenses 328,344 263,654 208,356 123,516 71,026
Pre-opening expenses 5,466 2,454 7,266 6,111 2,010
General and administrative expenses 75,488 54,940 47,963 31,466 22,897
Transaction costs related to Mergerb 3,453 ” ” ” ”
Restructuring costsc ” ” 9,918 ” ”
Operating income (loss) $ 105,353 $ 40,908 $ (9,229) $ 18,981 $ 10,351
Interest expense 12,487 12,015 12,156 2,256 2,669
Other income, netd (6,983) (2,409) (2,063) (468) (358)
Income (loss) before income taxes $ 99,849 $ 31,302 $ (19,322) $ 17,193 8,040
Income tax expense (bene¬t) 40,184 6,963 (2,298) 7,510 415
Net income (loss) $ 59,665 $ 24,339 $ (17,024) $ 9,683 $ 7,625

Income (loss) applicable to Common Stocke $ 59,665 $ 24,339 $ (17,024) $ 9,683 $ 5,999

Income (loss) per common and common equivalent sharef $ 1.31 $ 0.60 $ (0.44) $ 0.25 $ 0.23
Weighted average number of shares outstandingf 45,610 40,868 38,535 38,291 25,881
Selected Operating Data:
Stores open at end of period 105 85 76 48 28
Average net sales per gross square footg $ 1,422 $ 1,336 $ 1,268 $ 1,458 $ 1,452
Total gross square footage at end of period 2,850,000 2,254,500 1,965,200 1,197,600 680,700
Percentage increase in comparable store salesh 12.6% 10.3% 9.0% 20.8% 13.3%
Balance Sheet Data:
Working capital $305,899 $190,128 $210,018 $216,205 $ 59,655
Total assets 909,337 641,329 522,501 449,399 211,550
Long-term debt, excluding current portion 115,066 115,153 153,292 115,716 3,383
Stockholders™ equity 325,905 186,704 160,372 163,869 86,072
..................................................................................................................................................
a. The Company™s fiscal year is a 52/53 week year ending on the last Saturday of each June. The Company™s fiscal year ended June 29, 1996
contained fifty-three weeks. The fiscal years ended June 24, 1995, June 25, 1994, June 26, 1993, and June 27, 1992 contained fifty-two weeks.
b. For a discussion of the Company™s acquisition of PCs Compleat, see Note 2 to Consolidated Financial Statements.
c. For a discussion of the Company™s restructuring charge, see Note 9 of Notes to Consolidated Financial Statements.
(Notes continued on next page)
881
Case: CompUSA




151
Part 4 Additional Cases




d. Fiscal 1992 includes an extraordinary loss of $233,000 from early extinguishment of debt.
e. Income (loss) applicable to Common Stock represents the portion of the Company™s income (loss) applicable to
common stockholders. Such amount for fiscal 1992 was calculated by adjusting net income (loss) for the accretion and
dividend requirements of certain redeemable securities. All such accretion and dividend requirements terminated with
the completion of the Company™s public offering in December 1991.
f. All references in this table to the number of shares and income per common and common equivalent share
amounts have been adjusted on a retroactive basis to reflect the two-for-one stock split declared by the Company™s
Board of Directors effective April 8, 1996 and the Company™s acquisition of PCs Compleat.
g. Calculated using net sales divided by gross square footage of stores open at the end of the period, weighted by
the number of months open during the period. Net sales for this calculation consist of combined retail and direct sales
generated from the Company™s retail stores. Net sales for this calculation exclude mail order sales generated by PCs
Compleat and, until the beginning of the fourth quarter of fiscal 1993, exclude the mail order sales of the Company™s
former wholly-owned subsidiary Compudyne Direct, Inc. Beginning with the fourth quarter of fiscal 1993, mail order sales
by the Company (excluding PCs Compleat) have been fulfilled by the Company™s retail stores and are included in the
stores™ net sales. See "Management™s Discussion and Analysis of Financial Condition and Results of Operations”Gen-
eral." Average net sales per gross square foot for the fiscal year ended June 29, 1996 has been calculated on the basis
of a fifty-two week fiscal year.
h. Comparable store sales are net sales for stores open the same months in both the indicated and the previous period,
including stores that were relocated or expanded during either period. Comparable store sales increase for the fiscal




CompUSA
year ended June 29, 1996 has been calculated based on sales for the 53 weeks then ended compared to the 53 weeks
ended July 1, 1995.


General

Fiscal 1995 was a transition year for CompUSA, characterized by a reduction in store
growth that allowed the Company to apply its resources to improving the Company™s
operations. The Company believes it has substantially completed the transition phase of
its ¬scal 1995 business plan and, in ¬scal 1996, the Company focused on the execution
and growth of its businesses.
The following table sets forth certain operating data for the Company:
Fiscal Year
.................................................................
1996 1995 1994
.........................................................................................................................
Stores open at end of year 105 85 76
Stores opened during the year 20 9 28
Stores relocated during the year 1 2 1
Average net sales per gross square foota $1,422 $1,336 $1,268
Comparable stores sales increaseb 12.6% 10.3% 9.0%
.........................................................................................................................

a. Calculated using net sales divided by gross square footage of stores open at the end of the period, weighted by
the number of months open during the period. Average net sales per gross square foot for fiscal 1996 has been calcu-
lated on the basis of a 52 week fiscal year.
b. Comparable store sales are net sales for stores open the same months in both the indicated and previous period,
including stores that were relocated or expanded during either period. The comparable store sales increase for fiscal
1996 has been calculated by comparing net sales for the fifty-three weeks ended June 29, 1996 with net sales for the
53 weeks ended July 1, 1995.

Average net sales per gross square foot increased during ¬scal 1996 compared with
¬scal 1995 primarily due to the maturation of the Company™s existing store base and
increased growth in the Company™s direct sales, mail order, and service businesses. Ser-
vice businesses include customer training and technical services. Mature stores typically
882 Case: CompUSA




152 Part 4 Additional Cases




have higher net sales per gross square foot than new stores. Average net sales per gross
square foot increased during ¬scal 1995, compared with ¬scal 1994, primarily due to
increased customer demand, the maturation of the Company™s store base, and changes
associated with the implementation of the ¬scal 1995 business plan.
In certain instances, the Company has opened additional Computer Superstores in
existing markets, which has resulted in the diversion of sales from existing stores and thus
some reductions in the rate of comparable store sales growth. CompUSA has opened
additional stores in existing markets largely to increase market penetration and to provide
customers with more convenience and better service. The Company plans to continue its
strategy of opening additional Computer Superstores in existing markets. The resulting
diversion of sales from existing stores may adversely affect the Company™s comparable
store sales. However, the Company believes that this strategy should increase its aware-
ness with local consumers, enhance its competitive position in such markets and create
ef¬ciencies in advertising and management, and therefore is in the Company™s long-term
best interest.
CompUSA




Results of Operations

As a result of the expansion of the Company™s store base, period-to-period compari-
sons of ¬nancial results may not be meaningful and the results of operations for historical
periods may not be indicative of the results to be expected in future periods. In addition,
the Company expects that its quarterly results of operations will ¬‚uctuate depending on
the timing of the opening of, and the amount of net sales contributed by, new stores and
the timing of costs associated with the selection, leasing, construction, and opening of
new stores, as well as seasonal factors, product introductions, and changes in product
mix. See "Quarterly Data and Seasonality."
The following table sets forth certain items expressed as a percentage of net sales for
the periods indicated:
Fiscal Year Ended
................................................................
1996 1995 1994
.........................................................................................................................
Net sales 100.0% 100.0% 100.0%
Cost of sales and occupancy costs 86.5 87.7 88.1
Gross pro¬t 13.5 12.3 11.9
Store operating expenses 8.6 9.0 9.4
Pre-opening expenses 0.1 ” 0.3
General and administrative expenses 2.0 1.9 2.2
Transaction costs related to Mergera 0.1 ” ”
Restructuring costs ” ” 0.4
Operating income (loss) 2.7 1.4 (0.4)
Interest expense and other income, net 0.1 0.3 0.5
Income (loss) before income taxes 2.6 1.1 (0.9)
Income tax expense (bene¬t) 1.0 0.3 (0.1)
Net income (loss) 1.6% 0.8% (0.8)%
.........................................................................................................................

a. For a discussion of the Company™s acquisition of PCs Compleat, see Note 2 of Notes to Consolidated Financial State-
ments.
883
Case: CompUSA




153
Part 4 Additional Cases




Fiscal 1996 Compared with Fiscal 1995
Net sales for ¬scal 1996 increased 30% to $3.83 billion from $2.94 billion for ¬scal
1995. The increase in net sales was due to the additional sales volume attributable to the
new stores opened during and subsequent to ¬scal 1995 and an increase in comparable
store sales of 12.6%. Comparable store sales are net sales for stores open the same
months in both the indicated and previous period, including stores that were relocated or
expanded during either period. The Company believes the increase in comparable store
sales was primarily due to the maturation of the Company™s store base, increased cus-
tomer demand that was attributable to several factors, one of which was the introduction
of Microsoft Windows® 95 operating system, and increased growth in the Company™s
direct sales, mail order, and service businesses.
Gross pro¬t was $518 million, or 13.5% of net sales, in ¬scal 1996, compared with
$362 million, or 12.3% of net sales, in ¬scal 1995. The increase in gross pro¬t as a per-
centage of net sales was primarily due to higher product margin, an improvement in con-
trollable costs such as inventory shrinkage and freight, leveraging of occupancy costs due
to higher average sales per store, and an increase in the ratio of service revenues to total




CompUSA
revenues. Service revenues typically have higher gross margins than merchandise sales.
Store operating expenses were $328 million, or 8.6% of net sales, in ¬scal 1996, com-
pared with $264 million, or 9.0% of net sales, in ¬scal 1995. The decrease in store oper-
ating expenses as a percentage of net sales was primarily due to the leveraging of ¬xed
store costs and lower net advertising expense resulting from increased vendor participa-
tion. These decreases were partially offset by higher personnel expenses related to the
increase in service revenues. Although service revenues generally have higher gross mar-
gins than merchandise sales, the related store expenses are higher than those related to
merchandise sales.
Pre-opening expenses consist primarily of personnel expenses incurred prior to a
store™s opening and promotional costs associated with the opening. The Company™s pol-
icy is to expense all pre-opening expenses in the month of the store™s grand opening. In
¬scal 1996, the Company incurred $5.5 million in pre-opening expenses in connection
with the opening of 20 new stores, the relocation of one store, and the opening of two
Training Supercenter Plus locations, compared with $2.5 million in pre-opening expenses
incurred in ¬scal 1995 in connection with the opening of nine new stores, two Training
Supercenter Plus locations, and the relocation of two stores. The Company incurred aver-
age pre-opening expenses of $260,000 per store for the 20 new stores opened during
¬scal 1996 and $240,000 per store for the nine new stores opened during ¬scal 1995.
General and administrative expenses of $75.5 million, or 2.0% of net sales, for ¬scal
1996 increased as a percentage of net sales, compared with $54.9 million, or 1.9% of
net sales, for ¬scal 1995. The increase in general and administrative expenses as a per-
centage of net sales was primarily due to charges of approximately $2.0 million for pro-
fessional fees and related costs in the third quarter of ¬scal 1996 regarding the
Company™s acquisition review of Tandy Corporation™s Computer City division. Discus-
sions relating to such possible acquisition were terminated in February 1996. Excluding
the $2.0 million of fees and costs related to such possible purchase, general and admin-
istrative expenses in ¬scal 1996 related to increased incentive compensation were offset
by the leveraging of personnel expenses over higher sales.
884 Case: CompUSA




154 Part 4 Additional Cases




Interest expense and other income, net, was $5.5 million in ¬scal 1996, compared with
$9.6 million in ¬scal 1995. The decrease is attributable to increased other income related
to higher investment levels during ¬scal 1996. See "Liquidity and Capital Resources."
The Company™s effective tax rate for ¬scal 1996 was 40%, compared with an effective
tax rate of 22% for ¬scal 1995. The effective tax rate differed in ¬scal 1996 from the fed-
eral statutory rate primarily due to state income taxes and nondeductible transaction costs
related to the Company™s acquisition of PCs Compleat, offset in part by the bene¬ts from
tax exempt interest income earned by the Company. The ¬scal 1995 effective tax rate dif-
fered from the federal statutory rate primarily due to the recognition of the previously
unrecognized tax bene¬t associated with the ¬scal 1994 loss.
As a result of the above, net income for ¬scal 1996 was $59.7 million, or $1.31 per
share, compared with net income of $24.3 million, or $0.60 per share, for ¬scal 1995.

Liquidity and Capital Resources

In September 1995, the Company completed a public offering, selling 4,025,000
CompUSA




newly-issued shares of Common Stock and receiving net proceeds of approximately
$76.8 million (net of offering costs of approximately $3.5 million).
In December 1995, the Company repurchased 236,200 shares of Common Stock, to
be held as treasury stock, at a weighted average of $14.89 per share, excluding transac-

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