<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended April 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From _______________ to ________________
Commission file number 0-22532
ULTIMATE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0585211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
321A WEST 84TH AVENUE, THORNTON, COLORADO 80221
(Address of principal executive offices, zip code)
(303) 412-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of outstanding shares of Common Stock as of June 7, 1996 was
6,995,000.
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ULTIMATE ELECTRONICS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): PAGE NO.
--------
Condensed Balance Sheets as of April 30, 1996 and
January 31, 1996 .......................................... 3
Statements of Operations for the three months ended
April 30, 1996 and April 30, 1995 ......................... 4
Condensed Statements of Cash Flows for the three months
ended April 30, 1996 and April 30, 1995 ................... 5
Notes to Condensed Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................... 9
Item 2. Changes in Securities ..................................... 9
Item 3. Defaults Upon Senior Securities ........................... 9
Item 4. Submission of Matters to a Vote of Security Holders ....... 9
Item 5. Other Information ......................................... 9
Item 6. Exhibits and Reports on Form 8-K .......................... 9
2
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ITEM 1.
ULTIMATE ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(Unaudited)
April 30, January 31,
1996 1996
----------- -----------
ASSETS:
Current assets:
Cash and cash equivalents $ 354 $ 979
Accounts receivable 14,664 16,406
Merchandise inventories 41,478 38,053
Other assets 1,150 1,147
-------- --------
Total current assets 57,646 56,585
Property and equipment, net 43,112 41,503
Property under capital
leases, including related
parties, net 1,217 1,283
Other assets 1,073 1,095
-------- --------
Total assets $103,048 $100,466
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 22,635 $ 16,972
Other current liabilities 4,106 8,618
-------- --------
Total current liabilities 26,741 25,590
Notes payable 20,000 18,000
Bonds payable 13,000 13,000
Term loans 1,126 996
Capital lease obligations,
including related parties 1,226 1,295
Deferred tax liability 690 667
Commitments
Stockholders' equity:
Preferred Stock, par value
$.01 per share
Authorized shares -10,000,000
No shares issued and outstanding -- --
Common Stock, par value $.01 per
share
Authorized shares - 10,000,000
Issued and outstanding shares,
6,995,000 at April 30, 1996 and
January 31, 1996 70 70
Additional paid-in capital 31,009 31,009
Retained earnings 9,186 9,839
-------- --------
Total stockholders' equity 40,265 40,918
-------- --------
Total liabilities and stockholders'
equity $103,048 $100,466
-------- --------
-------- --------
See accompanying notes.
3
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ULTIMATE ELECTRONICS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
April 30,
--------------------------
1996 1995
(Restated)
-------- ----------
Net sales $ 59,615 $ 48,395
Cost of goods sold 44,714 35,358
--------- -------
Gross profit 14,901 13,037
Selling, general and
administrative expenses 15,194 11,866
--------- -------
Income (loss) from operations (293) 1,171
Interest expense on debt and capital leases 743 309
--------- -------
Income (loss) before income taxes (1,036) 862
Provision (benefit) for income taxes (383) 318
--------- -------
Net income (loss) $ (653) $ 544
--------- -------
--------- -------
Earnings (loss) per share of common stock $ (.09) .10
Weighted average shares outstanding 6,995 5,543
As previously reported (Note 3):
Income from operations $ 1,245
Net income 590
Earnings per share .11
See accompanying notes.
4
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ULTIMATE ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three Months Ended
April 30,
---------------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities $ (78) $(3,480)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,663) (5,268)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from note payable 2,000 3,500
Net proceeds from bonds payable -- 13,000
Proceeds from term loans 225 --
Principal payments on term loans and
capital lease obligations (109) (100)
------- -------
Net cash provided by financing
activities 2,116 16,400
------- -------
Net increase (decrease) in
cash and cash equivalents (625) 7,652
Cash and cash equivalents at
beginning of period 979 2,238
------- -------
Cash and cash equivalents at end
of period $ 354 9,890
------- -------
------- -------
See accompanying notes.
5
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ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1996
1. ACCOUNTING POLICIES
The Company's unaudited interim financial statements have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial reporting and the regulations of the Securities and Exchange
Commission for quarterly reporting. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, the
statements include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods.
Operating results for the three month period ended April 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 1997. Seasonal fluctuations in sales of the Company's products
result primarily from the purchasing patterns of individual consumers during the
Christmas holiday season. These patterns tend to moderately concentrate sales
in the latter half of the year, particularly in the fourth quarter. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report to Stockholders for the year ended January 31, 1996.
2. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock for the three months ended April 30, 1996
and 1995 are based on (i) 6,995,000 and 5,500,000 outstanding shares of common
stock and (ii) 0 and 42,841 outstanding shares of common stock, respectively, to
give effect to the potential exercise of options under the Company's stock
option plans.
3. PREOPENING EXPENSES
In the fourth quarter of fiscal 1996, the Company changed its method of
accounting for preopening expenses. The Company now expenses preopening costs
as incurred rather than capitalizing such costs and amortizing them over twelve
months for a new store and over six months for a remodeled store. The Company
believes this new method is preferable because it results in a more conservative
presentation of the Company's financial position and results of operations and
is the most commonly used method of accounting for preopening expenses among
other companies in the consumer electronics industry. The quarterly results for
the three months ended April 30, 1995 have been restated to reflect this change
in accounting method.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended April 30, 1996 increased 23% to $59.6
million from $48.4 million for the three months ended April 30, 1995. The
increase in sales during this period was due primarily to the opening of new
stores in Nevada, Utah, Idaho and Oklahoma since April 1995. Comparable store
sales decreased 9% for the three months ended April 30, 1996 compared to a 2%
increase in comparable store sales for the three months ended April 30, 1995.
The decrease in comparable store sales was due in part to a continuing sluggish
retail environment, increased competition in the Company's markets and the
opening of new stores within markets the Company already serves, which openings
adversely affected sales at existing stores in these markets.
Gross profit for the three months ended April 30, 1996 increased 14% to $14.9
million (25.0% of net sales) from $13.0 million (26.9% of net sales) for the
three months ended April 30, 1995. The decrease in gross profit as a percentage
of sales was primarily attributable to markdowns of discontinued and promotional
computer products.
Selling, general and administrative expenses for the three months ended April
30, 1996 increased to $15.2 million (25.5% of net sales) from $11.9 million
(24.5% of net sales) for the three months ended April 30, 1995. Selling,
general and administrative expenses increased as a percentage of net sales due
primarily to higher advertising and promotion costs associated with discontinued
and promotional computer products.
As a result of the foregoing, the Company reported a loss from operations of
$293,000 or 0.5% of net sales for the three months ended April 30, 1996,
compared to income from operations of $1.2 million or 2.4% of net sales for the
three months ended April 30, 1995.
Interest expense increased from $309,000 for the three months ended April 30,
1995 to $743,000 for the three months ended April 30, 1996 due to higher average
amounts outstanding under the Company's revolving line of credit and the bonds
from the Bond Offering (as defined below) during the three months ended April
30, 1996, and a higher amount of interest capitalization during the three months
ended April 30, 1995 for the construction of new stores and the Company's
Thornton Facility (as defined below).
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity have been net cash from
operations and from revolving credit lines and term loans. Over the last two
and one-half years, the Company has expanded its operations outside Colorado and
now operates stores in six states. The Company has funded this expansion in
part through two public offerings of its common stock. The Company's initial
public offering in October 1993 resulted in proceeds of $18.2 million (net of
underwriting discounts). The Company completed a second offering of its common
stock in November 1995 and received proceeds of $12.7 million (net of
underwriting discounts).
In March 1995, the Company received proceeds of $12.3 million (net of the
underwriting discount and other associated costs) from the sale of $13.0 million
aggregate principal amount of 10.25% First Mortgage Bonds (the "Bond Offering").
The proceeds of the Bond Offering were used to fund a substantial portion of the
construction of the Company's new warehouse, office, service and store facility
in Thornton, Colorado (the "Thornton Facility"). Interest on the bonds accrues
at the rate of 10.25% per year until maturity or earlier redemption. The
Company is required to redeem $3.25 million aggregate principal amount of the
bonds annually (reduced to the extent of the bonds purchased or redeemed by the
Company earlier) on January 31, 2002 and on January 31 of each of the three
years thereafter, at a redemption price equal to par plus accrued interest to
the date of redemption. The bonds are not redeemable prior to March 31, 2000
and are secured by the Thornton Facility.
7
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Net cash used in operations was $78,000 for the three months ended April 30,
1996 compared to net cash used in operations of $3.5 million for the three
months ended April 30, 1995. The decrease in net cash used in operations was
due in part to a significant curtailing of the Company's purchases prior to the
end of the fourth quarter of fiscal 1996 due to excess inventory levels in the
mid portion of the fourth quarter, resulting in a lower balance of accounts
payable at January 31, 1996.
The Company intends to continue its expansion into select metropolitan areas in
the Rocky Mountain, Midwest and Southwest regions with the larger Ultimate
Electronics store format. In fiscal 1997, the Company intends to relocate and
expand three of its Colorado stores to the larger Ultimate Electronics store
format. In fiscal 1998, the Company expects to relocate and expand two to three
Colorado stores into the larger store format and will continue its expansion
into new markets as business conditions allow.
The Company's primary capital requirements are directly related to expenditures
for new store openings and the remodeling and upgrading of existing store
locations. All stores opened in the last two fiscal years have been leased.
Capital expenditures to open these new stores have averaged $1.5 to $2.0
million, excluding preopening costs ranging from $300,000 to $600,000. Capital
expenditures to relocate and expand existing stores in fiscal 1997 are expected
to average $1.8 to 2.0 million per store, excluding preopening expenses ranging
from $100,000 to $300,000. Preopening costs include such items as advertising
prior to opening, recruitment and training of new employees and any costs of
early termination of store leases. Effective February 1, 1995, the Company
changed its method of accounting for preopening expenses and began expensing
preopening costs as incurred prior to the opening of a new store or relocation
of an existing store. The initial inventory requirement for the Company's new
larger format stores averages approximately $2.0 million per store,
approximately $1.0 million of which is expected to be financed through trade
credit.
The Company executed a revolving line of credit agreement with Norwest Bank
Colorado, N.A. and First Security Bank of Utah, N.A. on July 24, 1995, pursuant
to which the banks will lend the Company up to the lesser of $25.0 million or
65% of the value of the Company's trade inventory through June 30, 1997.
Borrowings under this credit facility in the amount of $20.0 million were
outstanding as of April 30, 1996.
The Company believes that its cash flow from operations and borrowings under
available credit facilities will be sufficient to fund the Company's operations
and its store relocation plans for fiscal 1997. There can be no assurance that
the Company will not experience significant delays, cost overruns or completion
problems in connection with the relocation of existing stores. Moreover, there
can be no assurance that the capital requirements for the Company's stores will
not exceed the Company's current estimates. In order to fund the capital
requirements for its anticipated expansion plans beyond fiscal 1997, the Company
will be required to seek additional financing, which may take the form of
expansion of its existing credit facility or possibly additional debt or equity
financings. There can be no assurance that the Company will be able to obtain
such funds on favorable terms, if at all.
The Company's business is affected by seasonal consumer buying patterns. As is
the case with other retailers, the Company's sales and profits have been
greatest in the fourth quarter (which includes the Christmas selling season).
If, for any reason, the Company's sales were to be substantially below
expectations during these months, the Company's annual results would be affected
in an adverse and disproportionate manner. Operating results are dependent upon
a number of factors, including discretionary consumer spending, which is in turn
affected by local, regional or national economic conditions affecting disposable
consumer income, such as employment, business conditions, interest rates and
taxation. The Company's quarterly results of operations may fluctuate
significantly as a result of a number of factors, including the timing of new or
relocated and expanded store openings and related expenses, the success of new
stores and the impact of new stores on existing stores, among others. As the
Company has opened additional stores or relocated and expanded stores within
markets it already serves, sales at existing stores have been adversely
affected. Such adverse effects may occur in the future. The Company's
quarterly operating results also may be affected by increases in merchandise
costs, price changes in response to competitive factors, new and increased
competition, product availability and the costs associated with the opening of
new stores.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is a party to certain legal proceedings
arising in the ordinary course of its business. Management believes that any
resulting liability, individually or in the aggregate, will either be covered by
insurance or will not have a material adverse effect on the Company's financial
condition.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Documents filed with this report:
None.
(b) Reports on Form 8-K:
None.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ultimate Electronics, Inc.
Date: JUNE 13, 1996 BY: /s/ ALAN E. KESSOCK
------------------- ------------------------------------
Alan E. Kessock
Vice President - Finance and
Administration, Secretary, Treasurer
and a Director (Principal Financial
Officer)
10
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<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 354
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