CompUSA 2014 Annual Report Download - page 39

The Company maintains a $125.0 million (which may be increased to $200.0 million, subject to certain conditions) secured revolving credit
agreement with a group of financial institutions which provides for borrowings in the United States. The credit facility has a five year term and
expires in October 26, 2015. The Company expects that it will renew this facility on or before that date in 2015. Borrowings are secured by
substantially all of the Company’
s assets, including accounts receivable, inventory and certain other assets, subject to limited exceptions. The
credit agreement contains certain operating, financial and other covenants, including limits on annual levels of capital expenditures, availability
tests related to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The revolving credit
agreement requires that a minimum level of availability be maintained. If such availability is not maintained, the Company will be required to
maintain a fixed charge coverage ratio (as defined). The borrowings under the agreement are subject to borrowing base limitations of up to 85%
of eligible accounts receivable and up to 40% of qualified inventories. The interest rate under this facility is computed at applicable market rates
based on LIBOR or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of
December 31, 2014, eligible collateral under this agreement was $121.9 million, total availability was $116.4 million, total outstanding letters of
credit were $5.5 million and there were no outstanding advances. The Company was in compliance with all of the covenants under this facility as
of December 31, 2014.
The Company (through a subsidiary) has an outstanding Bond financing with the Development Authority of Jefferson, Georgia (the
“Authority”).
The Bonds were issued by the Authority and initially purchased by GE Government Finance Inc., and mature on October 1, 2018.
The proceeds from the Bonds were used to finance capital equipment purchased for the Company’
s distribution facility located in Jefferson,
Georgia. The purchase and installation of the equipment for the facility was completed by December 31, 2011. Pursuant to the transaction, the
Company transferred to the Authority, for consideration consisting of the Bonds proceeds, ownership of the equipment and the Authority leased
the equipment to the Company’
s subsidiary pursuant to a capital equipment lease expiring October 1, 2018. Under the capital equipment lease
the Company has the right to acquire ownership of the equipment at any time for a purchase price sufficient to pay off all principal and interest
on the Bonds, plus $1.00. As a result of the capital lease treatment for this transaction, the leased equipment is included in property, plant and
equipment in the Company’
s consolidated balance sheet. As of December 31, 2014, the Company had $2.2 million outstanding against this
financing facility.
Our earnings and cash flows are seasonal in nature, with the fourth quarter of the fiscal year historically generating higher earnings and cash
flows than the other quarters. Levels of earnings and cash flows are dependent on factors such as consolidated gross margin and selling, general
and administrative costs as a percentage of sales, product mix and relative levels of domestic and foreign sales. Unusual gains or expense items,
such as special (gains) charges and settlements, may impact earnings and are separately disclosed. We expect that past performance may not be
indicative of future performance due to the competitive nature of our Technology Products segment where the need to adjust prices to gain or
hold market share is prevalent.
Macroeconomic conditions, such as business and consumer sentiment, may affect our revenues, cash flows or financial condition. However, we
do not believe that there is a direct correlation between any specific macroeconomic indicator and our revenues, cash flows or financial
condition. We are not currently interest rate sensitive, as we have significant cash balances and minimal debt.
On March 10, 2015 the Company announced that its Technology Products business segment would be exiting the retail store business in order to
accelerate its focus on its business to business (“B2B”) operations. This exit plan includes the closing of substantially all of its retail stores
,
closing a distribution center ,
and implementing a general workforce reduction to align available resources with a B2B focus as well as
transitioning retail customers to online consumer sales. The Company anticipates that one time exit charges will aggregate between $50 and $55
million (including approximately $4 million of severance expenses, and $39 million in lease exit costs) substantially all of which will require
cash expenditures. The Company expects these costs to be paid out beginning in the first quarter of 2015 through the end of 2017.
After
completion of these actions the Company will see a significant decline in retail revenues, however the Company expects to realize improved
profitability of between $18 and $22 million.
The expenses, capital expenditures and exit activities described above will require significant levels of liquidity, which we believe can be
adequately funded from our currently available cash resources. In 2015 we anticipate capital expenditures of approximately $15.2 million,
though at this time we are not contractually committed to incur these expenditures. Over the past several years we have engaged in opportunistic
acquisitions, choosing to pay the purchase price in cash, and may do so in the future as favorable situations arise. However, a deep and
prolonged period of reduced consumer and/ or business to business spending could adversely impact our cash resources and force us to either
forego future acquisition opportunities or to pay the purchase price in shares of our common stock, which could have a dilutive effect on our
earnings per share. In addition we anticipate cash needs for implementation of the financial systems. We believe that our cash balances, future
cash flows from operations and our availability under credit facilities will be sufficient to fund our working capital and other cash requirements
for at least the next twelve months.
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