<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 July 31, 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 August 31, 1996 was
6,995,000.
<PAGE>
ULTIMATE ELECTRONICS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
Page No.
<S> <C> <C>
Item 1. Financial Statements (Unaudited):
Condensed Balance Sheets as of July 31, 1996 and January 31, 1996 . . . . 3
Statements of Operations for the three and six months ended July 31,
1996 and July 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows for the six months ended July 31,
1996 and July 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE>
ITEM 1.
ULTIMATE ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(amounts in thousands)
<TABLE>
(Unaudited)
July 31, January 31,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 174 $ 979
Accounts receivable 12,641 16,406
Merchandise inventories 39,935 38,053
Other assets 1,066 1,147
---------- ---------
Total current assets 53,816 56,585
Property and equipment, net 42,513 41,503
Property under capital leases, including related parties, net 1,151 1,283
Other assets 1,052 1,095
---------- ---------
Total assets $ 98,532 $ 100,466
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 16,897 $ 16,972
Other current liabilities 5,273 8,618
---------- ---------
Total current liabilities 22,170 25,590
Notes payable 20,000 18,000
Bonds payable 13,000 13,000
Term loans 1,062 996
Capital lease obligations, including related parties 1,155 1,295
Deferred tax liability 700 667
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 July 31, 1996 and January 31, 1996 70 70
Additional paid-in capital 31,009 31,009
Retained earnings 9,366 9,839
---------- ---------
Total stockholders' equity 40,445 40,918
---------- ---------
Total liabilities and stockholders' equity $ 98,532 $ 100,466
---------- ---------
---------- ---------
</TABLE>
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 Six Months Ended
July 31, July 31,
------------------ --------------------
1996 1995 1996 1995
------- ------- -------- --------
Net sales $57,144 $52,398 $116,759 $100,793
Cost of goods sold 41,410 37,746 86,123 73,104
------- ------- -------- --------
Gross profit 15,734 14,652 30,636 27,689
Selling, general and
administrative expenses 14,594 13,302 29,789 25,094
------- ------- -------- --------
Income (loss) from operations 1,140 1,350 847 2,595
Interest expense on debt and
capital leases 854 466 1,597 775
------- ------- -------- --------
Income (loss) before income taxes 286 884 (750) 1,820
Provision (benefit) for income taxes 106 327 (277) 673
------- ------- -------- --------
Net income (loss) $ 180 $ 557 $ (473) $ 1,147
------- ------- -------- --------
------- ------- -------- --------
Pro forma information:
Historical income before effect
of change in accounting method $ 557 $ 1,147
Pro forma effect of change in
accounting method, net of taxes 110 65
------- --------
Pro forma net income $ 667 $ 1,212
------- --------
------- --------
Earnings (loss) per share of
common stock $ .03 $ .10 $ (.07) $ .21
Pro forma earnings per share of
common stock - .12 - .22
Weighted average shares
outstanding 6,995 5,559 6,995 5,551
See accompanying notes.
4
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ULTIMATE ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Six Months Ended
July 31,
-------------------
1996 1995
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in)
operating activities $ 362 $ (6,928)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,161) (11,305)
Proceeds from sales of property
and equipment - 5,454
------- --------
Net cash used in investing activities (3,161) (5,851)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from note payable 2,000 3,245
Net proceeds from bonds payable - 13,000
Proceeds from term loans 225 -
Principal payments on term loans and capital
lease obligations (231) (202)
------- --------
Net cash provided by financing activities 1,994 16,043
------- --------
Net increase (decrease) in cash and cash equivalents (805) 3,264
Cash and cash equivalents at beginning of period 979 2,238
------- --------
Cash and cash equivalents at end of period $ 174 $ 5,502
------- --------
------- --------
See accompanying notes.
5
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ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 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 six month
period ended July 31, 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 are based on (A) 6,995,000 and $5,500,000
outstanding shares for the three and six months ended July 31, 1996,
and 1995, respectively, and (B) in order to give effect to the potential
exercise of options under the Company's stock option plans, (i) no
outstanding shares for the three and six months ended July 31, 1996,
respectively, and (ii) 58,919 and 50,891 outstanding shares for the three
and six months ended July 31, 1995, respectively.
3. CHANGE IN ACCOUNTING METHOD FOR 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 month
and six months ended July 31, 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
Management's discussion and analysis of financial condition and results of
operations and the financial statements and accompanying notes contain
forward-looking information which is subject to risks and uncertainties,
including, but not limited to, increases in promotional activities of
competitors, changes in consumer buying attitudes, the presence or absence of
new products or product features in the Company's merchandise categories,
changes in vendor support for advertising and promotional programs, changes
in the Company's merchandise sales mix and economic conditions.
RESULTS OF OPERATIONS
Net sales for the three months ended July 31, 1996 increased 9% to $57.1
million from $52.4 million for the three months ended July 31, 1995. Net
sales for the six months ending July 31, 1996 increased 16% to $116.8 million
from $100.8 million for the six months ended July 31, 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 16% and 12% for the three and six months ended July 31, 1996,
respectively, compared to a 12% and 7% increase in comparable store sales for
the three and six months ended July 31, 1995, respectively. The decrease in
comparable store sales for the three and six month period ending July 1996
was due in part to a continuing sluggish retail environment and the grand
openings of competitors' 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 July 31, 1996 increased 7% to $15.7
million (27.6% of net sales) from $14.7 million (28.0% of net sales) for the
three months ended July 31, 1995. Gross profit for the six months ended July
31, 1996 increased 10% to $30.6 million (26.2% of net sales) from $27.7
million (27.5% of net sales) for the six months ended July 31, 1995. The
decrease in gross profit as a percentage of net sales was primarily
attributable to a higher mix of sales of discontinued and promotional
computer products.
Selling, general and administrative expenses for the three months ended July
31, 1996 increased to $14.6 million (25.5% of net sales) from $13.3 million
(25.4% of net sales) for the three months ended July 31, 1995. Selling,
general and administrative expenses for the six months ending July 31, 1996
increased to $29.8 million (25.5% of net sales) from $25.1 million (24.9% of
net sales) for the six months ended July 31, 1995. Selling, general and
administrative expenses increased as a percentage of net sales due primarily
to higher advertising and promotional costs associated with discontinued and
promotional computer products. The Company has addressed this trend during
fiscal year 1997 by reducing support staff where appropriate, changing the
sales commission structure and reducing variable expenses throughout the
Company.
As a result of the foregoing, income from operations decreased 16% to $1.1
million or 2.0% of net sales for the three months ended July 31, 1996,
compared to income from operations of $1.3 million or 2.6% of net sales for
the three months ended July 31, 1995. Income from operations decreased 67% to
$847,000 (.7% of net sales) for the six months ended July 31, 1996 from $2.6
million (2.6% of net sales) for the six months ended July 31, 1995.
Interest expense increased to $854,000 and $1.6 million for the three and six
months ended July 31, 1996, respectively, from $466,000 and $775,000 for the
three and six months ended July 31, 1995, respectively, due to higher average
amounts outstanding under the Company's revolving line of credit used for new
store expansion over the past year and additional interest expense from the
Bond Offering (as defined below) used for the construction the Company's
Thornton Facility (as defined below).
7
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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
three 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 and expenses). The Company completed a second offering
of its common stock in November 1995 and received proceeds of $12.7 million
(net of underwriting discounts and expenses).
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 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.
Net cash provided by operations was $362,000 for the six months ended July 31,
1996 compared to net cash used in operations of $6.9 million for the six months
ended July 31, 1995. The cash used in operations for the six months ending
July 31, 1996 was due to increased inventory levels resulting from both the
Company's expansion and increased sales.
As business conditions allow, 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. During the
remainder of fiscal 1997, the Company intends to relocate and expand two 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 may continue its expansion into new
markets.
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, with the exception of the Thornton
Facility, 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 July 31, 1996.
8
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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 financing. 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.
9
<PAGE>
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.
The Annual Meeting of Stockholders of Ultimate Electronics, Inc. was
held on June 11, 1996. At the meeting, David J. Workman and Randall
F. Bellows were elected as Class II directors for a three-year term
expiring at the 1999 Annual Meeting. William J. Pearse, Alan E.
Kessock and Robert W. Beale continue their respective terms as
directors of the Company
The matters voted upon and passed at the Meeting were (i) the
election of the above noted directors (ii) a proposal to increase
the number of shares of common stock authorized for issuance under
the Company's Employee Stock Option Plan ("the Employees' Plan")
from 700,000 shares to 900,000 shares and (iii) the ratification of
the appointment of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending January 31, 1997. The
results of the voting on these matters is outlined in the following
table.
VOTES VOTES VOTES
PROPOSAL FOR AGAINST ABSTAINED
----------------------------------------------------------------------
Election of Directors:
David J. Workman 6,216,490 - 291,147
Randall F. Bellows 6,217,067 - 290,570
Increase in shares authorized for
issuance under the Employees' Plan 5,934,364 627,488 20,785
Ratification of Ernst & Young LLP 6,483,206 11,370 13,061
ITEM 5. OTHER INFORMATION.
None
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Documents filed with this report:
None.
(b) Reports on Form 8-K:
None.
11
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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: September 13, 1996 By: /s/ ALAN E. KESSOCK
--------------------------- -----------------------------
Alan E. Kessock
Vice President - Finance and
Administration, Secretary,
Treasurer and a Director
(Principal Financial Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 174
<SECURITIES> 0
<RECEIVABLES> 12,641
<ALLOWANCES> 0
<INVENTORY> 39,935
<CURRENT-ASSETS> 53,816
<PP&E> 49,908
<DEPRECIATION> 7,395
<TOTAL-ASSETS> 98,532
<CURRENT-LIABILITIES> 22,170
<BONDS> 33,000
0
0
<COMMON> 70
<OTHER-SE> 40,375
<TOTAL-LIABILITY-AND-EQUITY> 98,532
<SALES> 116,759
<TOTAL-REVENUES> 116,759
<CGS> 86,123
<TOTAL-COSTS> 29,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1597
<INCOME-PRETAX> (750)
<INCOME-TAX> (277)
<INCOME-CONTINUING> (473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (473)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
