<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-0585211
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(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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 412-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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Title of Class
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant as of April 30, 1999 was approximately
$114,294,068. The number of outstanding shares of Common Stock as of April
30, 1999 was 8,163,862.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Stockholders for the fiscal year ended
January 31, 1999 are incorporated by reference into Parts II, III and IV of
this report. Portions of the Registrant's definitive Proxy Statement for the
1999 Annual Meeting of Stockholders to be held June 15, 1999 are incorporated
by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
Ultimate Electronics, Inc. (the "Company") is a leading specialty retailer of
home entertainment and consumer electronics in Colorado, Idaho, Iowa,
Minnesota, Nevada, New Mexico, Oklahoma, South Dakota and Utah. The Company
operates thirty stores, including ten stores in Colorado under the trade name
SoundTrack, eleven stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma, and
Utah under the trade name Ultimate Electronics and nine stores in Minnesota
and South Dakota under the trade name Audio King. Founded in 1968, the
Company grew to nine stores by 1993 and became a public company on October
15, 1993. The Company has opened ten new 31,000 to 52,000 square foot stores
and relocated and expanded five of its existing Colorado stores to this
larger format in the past six years. On June 27, 1997, the Company completed
a merger in which the Company acquired all of the outstanding shares of Audio
King Corporation ("Audio King"). Audio King, a consumer specialty electronics
company, operated 11 retail stores; eight in Minnesota, two in Iowa and one
in South Dakota. The Audio King stores and four of the SoundTrack stores
range in size from 3,200 to 28,000 square feet. In November 1997, the Company
remodeled the two Audio King stores in Iowa, reopening the stores under the
name Ultimate Electronics. In addition, the Company also completed changes to
four of the Minneapolis Audio King stores. These changes allowed for
increased selection in those stores in the key area of larger format
television as well as other product categories.
The Company strives to appeal to a wide range of customers with an emphasis
on selling mid to upscale products. The Company believes its stores enable it
to differentiate itself from its competitors by providing a comprehensive
selection of name brand consumer electronics, with an emphasis on limited
distribution upscale brands, as well as by offering an extensive range of
customer services and by displaying multiple home theater and audio
demonstration rooms. The Company believes that these factors, together with
its open and uncrowded merchandise displays and its policy of matching the
lowest prices of its competitors, make it an attractive alternative to
appliance/electronics superstores and mass merchants selling consumer
electronics.
For the year ended January 31, 1999, sales were $337.5 million, a 10%
increase from sales of $306.3 million for the prior year. The increase in
sales during fiscal 1999 was due primarily to the effect of having the Audio
King stores for a full year along with an increase in sales for comparable
stores. Comparable store sales increased 2% for the year ended January 31,
1999 compared to a decrease of 6% in comparable store sales for the year
ended January 31, 1998. As announced on May 21, 1998, the Company
significantly reduced its computer assortment. Excluding the computer
category, comparable store sales were up 7% for the year.
BUSINESS STRATEGY
The Company's strategy is to position itself as the upscale, full service
consumer electronics alternative to its competitors and to satisfy consumer
demand for increasingly sophisticated consumer electronics products,
particularly in the core categories of audio and video. Key elements of its
business strategy include:
EXTENSIVE PRODUCT SELECTION. The Company is committed to offering an
extensive selection of high quality, brand name home entertainment and
consumer electronics products. The Company offers over 6,000 stock keeping
units ("SKU's") representing approximately 200 brand names, a significant
portion of which are limited distribution brands that are only available
through selected retailers. As a result, the Company carries a larger
selection of full-featured, high quality products than is generally available
at the Company's competitors. Each product category includes a wide range of
price points.
EXCELLENT CUSTOMER SERVICE. Since inception, the Company has been committed
to providing excellent customer service through well-trained sales
consultants and an extensive range of customer services. The Company provides
its new sales consultants with more than two weeks of intensive classroom
training and continues with on-the-job instruction in product and vendor
knowledge, sales techniques and customer service. The Company has regional
service centers in Albuquerque, Boise, Denver, Des Moines, Las Vegas,
Minneapolis, Salt Lake City and Tulsa
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enabling it to provide fast and efficient service. The Company also provides
a 30-day money-back satisfaction guarantee, an in-stock guarantee on
advertised items, home delivery and setup, home theater and audio
installation and design, home satellite installation, mobile electronics
installation and extended service contracts.
ADVERTISING AND MARKETING. The Company's advertising strategy stresses
nationally recognized brands at competitive prices primarily through
newspaper, radio and direct mail media. The Company is a significant
newspaper advertiser in the markets it serves, producing all of its print
advertising through its in-house advertising department. The Company also
employs an outside advertising agency that produces and places the Company's
radio commercials. The Company's marketing programs are designed to create an
awareness of the Company's comprehensive selection of high quality, brand
name merchandise, as well as its competitive pricing. The Company typically
advertises a broader selection of audio and video products than its
competitors and presents a blend of aggressive promotional starting price
points on competing products with higher price points on more fully featured
products. The Company has spent substantial funds on advertising and
marketing in various forms of media to establish name recognition for its new
stores.
UPSCALE STORE FORMAT. The Company has developed a store format to emphasize
and merchandise mid to upscale products. Each store has displays designed to
provide the customer with a full spectrum of the Company's products upon
entering a store. These displays allow customers to make extensive
side-by-side product comparisons. The Company's larger stores have
substantially more selling space, providing customers with an uncluttered
presentation of the latest technology and featuring multiple demonstration
rooms dedicated to home theater and mobile electronics products.
COMPETITIVE PRICING. The Company emphasizes competitive product pricing and
reinforces this strategy with extensive advertising and a "60-day price
guarantee." The Company monitors pricing at competing stores on a weekly
basis through pricing surveys and adjusts its prices by market as necessary.
The Company believes that competitive pricing enables it to attract new
customers as well as to maintain customer loyalty.
EXPANSION STRATEGY
The Company intends to expand into select metropolitan areas in the Rocky
Mountain, Midwest and Southwest regions with 24,000 to 32,000 square foot
stores. With the exception of the Thornton facility, all current stores are
leased. The Company has begun analyzing new store opportunities in existing
markets to replace some of the Company's smaller locations. The Company
converted one of its Colorado stores from an outlet store to a regular store
on September 4, 1998. The Company expects to relocate and expand two to five
of its locations within the next two years along with the possibility of
adding new stores. At the present time, no firm commitments for relocated or
new stores have been made. The Company currently anticipates these events to
occur late in fiscal year 2000 and beyond. The cost of these future stores is
anticipated to be between $1.0 million and $1.5 million, depending on tenant
allowances. Preopening expenses are expected to average $250,000, and include
such items as advertising prior to opening, recruitment and training of new
employees and the costs of opening stores. In the event of relocations of
existing stores, preopening costs may be significantly higher due to early
termination of the store leases. The inventory requirement of the Company's
new stores is expected to average approximately $1.5 million, approximately
$750,000 of which is financed through trade credit.
The Company's expansion strategy focuses on identification of attractive
metropolitan areas in the Rocky Mountain, Midwest and Southwest regions based
on an evaluation of local market opportunities, as well as the size, strength
and merchandising philosophy of potential competitors. The Company obtains
demographic analyses of major metropolitan areas to determine new store
locations and potential sales volumes, as well as the optimum number of
stores to open in a specific market. The Company's specific location strategy
focuses on power centers or freestanding locations near shopping malls. In
choosing sites within a market, the Company applies standard site selection
criteria which take into account numerous factors including local
demographics, traffic patterns, highway visibility and overall retail
activity.
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MERCHANDISING
PRODUCTS. The Company offers its customers a comprehensive selection of high
quality, brand name television, video, home audio, mobile electronics and
home office products. This selection consists of over 6,000 SKU's,
representing approximately 200 brand names. The Company offers customers a
wide range of price points within each product category, with the greatest
depth in middle to higher priced items. Within its product categories, the
Company carries and actively promotes new models as they become available.
The Company does not carry home appliances or software. During the second
quarter of fiscal 1999, the Company significantly reduced its computer
assortment, concentrating on a limited number of computer packages
emphasizing Sony personal computers and Canon printers.
The following table, which is derived from the Company's internal sales
records, indicates the percentage of sales in each major product group for
the Company's last three fiscal years. The percentages include installation
and other services in these categories. Historical percentages may not be
indicative of the Company's future product mix.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
PRODUCT CATEGORY 1999 1998 1997
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Television/Satellite 31% 28% 29%
Audio 24% 23% 22%
Mobile 15% 12% 16%
Video 15% 14% 13%
Home Office 7% 14% 12%
Other 8% 9% 8%
</TABLE>
PRICING. The Company emphasizes competitive pricing on high visibility items
and reinforces this strategy with extensive advertising. The Company monitors
pricing at competing stores on a weekly basis through pricing surveys and
adjusts its prices by market as necessary. The Company's commitment to offer
competitive prices is supported by its "60-day price guarantee", under which
the Company refunds 110% of the difference between the original purchase
price and any locally available lower price for the same item under the same
purchase conditions. Sales and other special events, which the Company
conducts from time to time, may have lower than normal prices on selected
products and product categories.
PURCHASING. Substantially all of the Company's products are purchased
directly from manufacturers. Each of the Company's buyers has responsibility
for specified product categories. Buyers are assisted by a management
information system that provides them with current inventory quantity, price
and sales information by SKU, thus allowing them to react quickly to market
changes. The Company works closely with its manufacturers and forecasts
purchases on a non-binding basis up to one year in advance.
The Company is a member of a volume buying group, Progressive Retailers'
Organization, consisting of other companies similar to the Company with
respect to the type of merchandise sold. Membership in this organization has
enabled the Company to obtain volume rebates, special buys and access to
close-out and final production items. As a result, the Company believes it is
able to obtain competitive pricing and terms.
During the fiscal year ended January 31, 1999, the Company's ten largest
suppliers accounted for approximately 76% of the merchandise purchased by the
Company. Two of the Company's suppliers, Sony and Mitsubishi, each accounted
for more than 10% of its merchandise mix. The master agreements under which
the Company operates with each of its suppliers are normally terminable upon
30 to 60 days notice by either party. The Company does not have commitments
of longer than one year with the majority of its product suppliers, as is
customary in the industry.
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STORE OPERATIONS
STORES. The Company's 15 larger format stores each occupy 31,000 to 52,000
square feet, with 16,700 to 30,400 square feet of selling space. The Company
has developed this store format to emphasize and merchandise mid to upscale
products. Each store has displays designed to provide the customer with a
full spectrum of the Company's products upon entering a store. These stores
have additional home audio and car stereo demonstration rooms, additional
home theater rooms, expanded portable electronics displays and expanded
computer and home office displays as compared to the smaller store format. In
addition, the new stores offer home installation, home satellite
installation, a home planning center, home theater furniture, and an expanded
area for large-screen televisions. The remaining space is dedicated to a
designated play area for children, a car installation facility, a service
facility, a store warehouse and general office space.
The Company's 13 smaller format stores range in size from 9,300 to 28,200
square feet (5,600 to 17,900 square feet of selling space). The selling space
in the stores typically contains two audio and two car stereo demonstration
rooms, one home entertainment theater and an automobile equipped with the
latest in car audio and car security products. The Company also operates two
mall based stores that are each 3,200 square feet (both stores have off-site
installation and storage).
DISTRIBUTION. The Company currently distributes products to all of its stores
from a 175,000 square foot warehouse located in Thornton, Colorado, a suburb
of Denver. All of the Company's stores in Colorado are located within
approximately 60 miles of this warehouse. For stores over 100 miles away from
Denver, the Company uses contract carriers for distribution from its
warehouse.
MANAGEMENT INFORMATION SYSTEMS. The Company's management information system,
using proven third party software, was installed in August 1990 and is
upgraded with enhancements nearly every year. In addition, the system runs on
Unix-based Hewlett Packard computer hardware which will be upgraded to
accommodate future growth. The Company believes this system will be Year 2000
compliant by October 31, 1999 and will support its anticipated growth. This
on-line system connects all of the Company's facilities through digital phone
lines which allows sales consultants to determine the location of all of the
Company's inventory at any time. Pricing can be changed immediately in each
geographical market by the Company's buyers and store management to react to
competitor pricing. New signage can be generated on a daily basis.
Immediately following the merger with Audio King, all of Audio Kings' store
systems and inventory were integrated into the Company's management
information system.
CUSTOMER SERVICE
Since its inception, the Company has been committed to providing excellent
customer service through well-trained sales consultants and a broad range of
customer services.
SALES CONSULTANTS. The Company provides its sales consultants with a minimum
of two weeks of intensive classroom training which begins with an orientation
from one or more of the Company's executive officers and continues with
instruction in areas such as technical knowledge by product category and
vendor, policies and procedures of the Company and various other sales
techniques. On an ongoing basis, sales consultants attend in-house training
sessions conducted by dedicated in-house trainers and manufacturers'
representatives and also receive sales, product and other information in
daily store meetings. Certain sales consultants specialize in particular
product categories to provide customers with greater technical assistance.
The Company's sales consultants are compensated pursuant to a flexible
incentive pay plan with commissions determined on the basis of sales and
gross margins. The Company also motivates its sales consultants by providing
opportunities for advancement within the Company. All of the Company's store
management have been promoted from within the Company.
4
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SERVICES. The Company supports its product sales by providing many important
customer services, including home delivery and setup, home theater and audio
installation and design, home satellite installation, mobile electronics
installation, extended service contracts and regional service centers that
offer in-home and carry-in repair services. The Company also provides
in-store product instruction and will provide follow-up instruction at a
customer's home upon request.
Virtually all merchandise purchased from the Company may be taken to any of
the Company's stores for repair, whether or not the product is under the
manufacturer's warranty or an extended service contract. In order to provide
maximum service to its customers, the Company has regional service centers in
Albuquerque, Boise, Denver, Des Moines, Las Vegas, Minneapolis, Salt Lake
City and Tulsa. Two of the Company's service facilities, located at its
distribution centers in Thornton and Minneapolis, provide backup for the
Company's other regional service centers. The Company employs over 150
employees in connection with its service business. Each service department is
staffed with product specialists capable of making complex repairs. In
addition, the Company operates a fleet of approximately 100 customer service
vehicles to provide in-home repair and delivery, installation and setup of
home satellites, home theater components and televisions.
The Company offers extended service contracts to its customers for most
categories of its products. The extended service contracts cover services or
time periods not covered by the manufacturer's warranty on such products and
are noncancelable. These contracts are administered for the Company by an
unaffiliated third party (the "Warrantor") that pays for the repair service.
The Company sells extended service contracts to the Warrantor on a
nonrecourse basis. The Warrantor is required by its agreement with the
Company to maintain insurance to protect the Company in the event that the
Warrantor fails to fulfill its obligations under the extended service
contracts and the Company is a named loss-payee under the agreement. Gross
margins from the sale of extended service contracts are higher than the
average gross margins of the Company's other products.
The Company has a private label credit card which is financed, operated and
serviced by a third party (the "Finance Company"). The Company entered into
an agreement with the Finance Company whereby the Finance Company retains all
credit risk associated with the private label credit card. In addition,
certain manufacturers sponsor their own private label credit cards. These
arrangements permit the Company to provide its customers with financing
promotions, including interest-free and deferred payments, without using the
Company's working capital. During fiscal 1999, approximately 26% of the
Company's sales were purchased through these private label and manufacturer
sponsored credit cards.
COMPETITION
The Company operates in a highly competitive and price sensitive industry.
The Company faces competition from mass merchants, department stores,
specialty stores, appliance/electronics stores and smaller independent
merchants. The Company considers its primary competitors to include consumer
electronics retailers such as Best Buy and Circuit City as well as mass
merchants such as Sears and Montgomery Ward. The Company competes with
Circuit City in every market except Iowa; Sioux Falls, South Dakota;
Rochester, Minnesota and Boulder, Colorado. The Company competes with Best
Buy in every market except Utah and Idaho. The Company expects to face
competition from Circuit City in Boulder, Colorado sometime during the summer
of 1999. The Company expects to compete with Best Buy and Circuit City in
each of its other markets at some point in the future, but knows of no other
openings in its other markets at this time. The Company's primary competitors
have greater financial and other resources than the Company. There can be no
assurance that the Company's operating results will not be adversely affected
in fiscal 2000 and beyond by such increased competition. In addition, if such
competitors seek to gain or retain market share by reducing prices, the
Company may be required to reduce its prices, thereby reducing gross margins
and profits. In addition, as the Company expands into markets where the
Company's name may not be recognized, its success will depend in part on its
ability to compete with established and future competitors in such markets.
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EMPLOYEES
As of January 31, 1999, the Company employed approximately 1,600 persons,
approximately 1,350 of whom were store, customer delivery or service
employees and approximately 250 of whom were main warehouse or corporate
personnel. The Company considers its employee relations to be good. Most
employees, other than corporate and store support personnel, are paid
pursuant to a flexible pay plan. The Company believes that it provides
working conditions and wages that compare favorably with those of other
companies within the industry. The Company's employees do not have a
collective bargaining agreement.
SERVICE MARKS
Ultimate Electronics-Registered Trademark-, SoundTrack-SM-, Audio
King-Registered Trademark-, Fast Trak-Registered Trademark-, Big Names,
Little Prices - Guaranteed-SM- and Simple Solution-SM- are service marks of
the Company.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Statements that are not historical facts contained in this report are forward
looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Factors that could cause
actual results to differ materially from the Company's projections,
forecasts, estimates and expectations include, but are not limited to,
statements about business strategy, expansion strategy, competition and those
listed on page 14 of the section labeled "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Safe Harbor
Statement Under the Private Securities Litigation Reform Act" in the
Company's 1999 Annual Report to Stockholders; risks regarding 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, general
economic conditions, fluctuations in consumer demand, the results of
financing efforts and other risk factors detailed in the Company's Securities
and Exchange Commission filings.
As provided for under the Private Securities Litigation Reform Act of 1995,
the Company wishes to caution investors that the following important factors,
among others, in some cases have affected and in the future could affect the
Company's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company:
a) Competition. The Company encounters intense competition in all
product categories and competes with national and other companies. Most of
the companies with which the Company competes have greater capital and other
resources.
b) Dependence on Key Suppliers. The Company is dependent on certain
suppliers for delivery of products that contribute significantly to the
Company's sales. While the Company believes that alternative suppliers are
available, the loss of a key supplier could have an adverse effect on the
Company's business.
c) Industry Factors. The presence or lack of new products or product
features as well as the expectation of new products in the product categories
that the Company sells has an impact on the Company's business, as well as
the product mix of actual merchandise sold.
d) Economic and Market Conditions. The Company's business is affected
by changes in general economic conditions such as consumer attitudes towards
the economy in general, consumer credit availability, interest rates and
inflation.
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ITEM 2. PROPERTIES
As of January 31, 1999, the Company operates ten stores in Colorado, eight
stores in Minnesota, four stores in Utah, two stores in Las Vegas, Nevada,
two stores in Iowa, and one store each in Albuquerque, New Mexico, Boise,
Idaho, Tulsa, Oklahoma and Sioux Falls, South Dakota. Each store, other than
the store located in Thornton, Colorado, is leased. The following table sets
forth data regarding the Company's store locations.
<TABLE>
<CAPTION>
YEAR LATEST YEAR APPROXIMATE APPROXIMATE LEASE
ORIGINALLY REMODELED OR TOTAL RETAIL SELLING EXPIRATION
CURRENT STORE LOCATIONS OPENED RELOCATED SQUARE FEET SQUARE FEET DATE (1)
---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
COLORADO:
6490 Wadsworth Blvd.
Arvada, CO 1968 1991 14,500 9,500 2006
1955 28th Street
Boulder, CO 1985 1996 34,700 20,300 2047
1230 N. Academy Blvd.
Colorado Springs, CO 1989 N/A 14,900 9,800 2001
1370 S. Colorado Blvd.
Denver, CO 1976 1994 31,600 16,700 2004
9657 E. County Line Rd.
Englewood, CO 1983 1997 41,300 23,000 2004
4606 S. Mason St.
Fort Collins, CO 1990 (2) 16,600 8,400 2005
14391 W. Colfax Ave.
Lakewood, CO 1997 N/A 40,400 23,000 2005
8262 S. University Blvd.
Littleton, CO 1986 1998 16,600 9,900 2007
8196 W. Bowles Ave.
Littleton, CO 1984 1996 39,100 22,600 2027
321 W. 84th Ave.
Thornton, CO 1985 1996 40,300 25,900 N/A
IDAHO:
1085 N. Milwaukee Ave.
Boise, ID 1995 N/A 37,100(3) 19,500 2025
IOWA:
4701 1st Ave. Southeast
Cedar Rapids, IA 1995 1997 15,400 10,300 2015
4100 Merle Hay Rd.
Des Moines, IA 1994 1997 20,700(3) 12,200 2009
MINNESOTA:
5939 John Martin Dr.
Brooklyn Center, MN 1980 1997 15,000 9,200 2008
14232 Burnhaven Dr.
Burnsville, MN 1979 (2) 9,700 6,600 2007
1868 Beam Ave.
Maplewood, MN 1989 (4) 9,300 5,600 1999
12350 Wayzata Blvd.
Minnetonka, MN 1977 1997 15,000 9,100 2008
103 Apache Mall
Rochester, MN 1986 N/A 3,200 2,700 2000
1723 W. County Rd. B-2
Roseville, MN 1977 1997 17,400 11,300 2015
7435 France Ave. South
Edina, MN 1974 1997 28,200 17,900 2015
2716 Division St.
St. Cloud, MN 1987 N/A 10,000 7,100 2001
</TABLE>
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<TABLE>
<CAPTION>
YEAR LATEST YEAR APPROXIMATE APPROXIMATE LEASE
ORIGINALLY REMODELED OR TOTAL RETAIL SELLING EXPIRATION
CURRENT STORE LOCATIONS OPENED RELOCATED SQUARE FEET SQUARE FEET DATE (1)
---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
NEVADA:
2555 E. Tropicana Ave.
Las Vegas, NV 1995 N/A 37,300 (3) 17,900 2025
741 S. Rainbow Blvd.
Las Vegas, NV 1994 N/A 31,500 17,600 2014
NEW MEXICO:
3821 Menaul Blvd., N.E.
Albuquerque, NM 1994 N/A 37,100 (3) 17,700 2014
OKLAHOMA:
10021 E. 71st St.
Tulsa, OK 1995 N/A 51,700 (3) 30,400 2025
SOUTH DAKOTA:
701 Empire Mall
Sioux Falls, SD 1986 (4) 3,200 2,400 2000
UTAH:
879 W. Hill Field Rd.
Layton, UT 1995 N/A 33,800 18,600 2025
6284 S. State St.
Murray, UT 1994 N/A 32,200 18,000 2024
1375 S. State St.
Orem, UT 1993 N/A 32,900 17,100 2010
1130 E. Brickyard Rd.
Salt Lake City, UT 1993 N/A 33,400 18,200 2013
</TABLE>
- -------------------
(1) Including renewal options.
(2) The Company is currently negotiating to expand and plans to remodel this
store.
(3) Includes regional service center.
(4) The Company is currently negotiating to relocate this store.
Construction of the Company's main warehouse, business office, service center
and store location in Thornton, Colorado, financed by the proceeds from the
sale of $13.0 million aggregate principal amount of 10.25% first mortgage
bonds, was completed in April 1996. This facility, in addition to the retail
store noted in the table above, is comprised of 175,000 square feet of
warehouse space, 30,000 square feet for the Company's business offices,
21,000 square feet devoted to a service department and 18,000 square feet for
a training and employee facility. The Company leases a 45,000 square foot
facility in Minneapolis, Minnesota that it uses as a training center, office
space, service center for the greater Minneapolis/St. Paul area and warehouse
space for its delivery department. The Company leases an 8,500 square foot
service center in Salt Lake City, Utah. Additionally, the Company leases its
store locations in Colorado Springs, Colorado and Fort Collins, Colorado from
an affiliated party (see "Certain Relationships and Related Transactions").
The Company is also in the process of negotiating leases to relocate stores
and is analyzing lease opportunities in new markets (see "Business -
Expansion Strategy" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Liquidity and Capital Resources").
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. The Company is,
however, involved in various routine claims and legal actions which arise in
the ordinary course of business. Management of the Company intends to
vigorously defend these claims and believes that the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Certain information required by Part II is incorporated by reference into
this Report from the Company's 1999 Annual Report to Stockholders (the "1999
Annual Report to Stockholders"), which report is attached hereto as Exhibit
13. Only those sections of the 1999 Annual Report to Stockholders that
specifically address the items set forth herein are incorporated by reference.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The section labeled "Stockholder Information" appearing on the inside back
cover of the 1999 Annual Report to Stockholders is incorporated herein by
reference. As of April 30, 1999, there were approximately 424 holders of
record of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The section labeled "Selected Financial Data" appearing on page 11 of the
1999 Annual Report to Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The section labeled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing on pages 12 through 14 of the
1999 Annual Report to Stockholders is incorporated herein by reference.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OUTSTANDING DEBT OF THE COMPANY. As of January 31, 1999, the Company had
outstanding debt of approximately $26.5 million, $13.0 million of which bears
interest at an annual fixed rate of 10.25%. A hypothetical 10.0% decrease in
interest rates would not have a material impact on the Company. Increases in
interest rates could, however, increase interest expense associated with
future borrowings by the Company, if any. For example, the Company frequently
effects borrowings under its $40.0 million revolving line of credit for
general corporate purposes, capital expenditures and other purposes related
to expansion of the Company's capacity. Borrowings under the $40.0 million
revolving line of credit bear interest based on a blend of LIBOR plus 2.0%
and Norwest Bank's prime rate minus 0.375%. Borrowings under this credit
facility in the amount of $13.2 million were outstanding as of January 31,
1999. The Company has not hedged against interest rate changes.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and financial statements included on pages
15 through 24 of the Company's 1999 Annual Report to Stockholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement pursuant to Regulation
14A (the "Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference. Only those sections of the Proxy
Statement that specifically address the items set forth herein are
incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
section labeled "Directors and Executive Officers" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section labeled "Compensation of Directors" and "Executive Compensation"
excluding the "Board Compensation Committee Report on Executive Compensation"
and the "Performance Graph" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section labeled "Principal Stockholders" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section labeled "Certain Relationships and Related Transactions" in the Proxy
Statement.
10
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS: The following financial statements of the
Company included in the Registrant's 1999 Annual Report to
Stockholders are incorporated by reference into Item 8:
- Consolidated Statements of Income for the fiscal years
ended January 31, 1999, 1998 and 1997.
- Consolidated Balance Sheets at January 31, 1999 and 1998.
- Consolidated Statements of Stockholders' Equity for the
fiscal years ended January 31, 1999, 1998 and 1997.
- Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 1999, 1998 and 1997.
- Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES: The following financial statement
schedule for the fiscal years ended January 31, 1999, 1998 and
1997 is filed as part of this Form 10-K:
<TABLE>
<CAPTION>
Schedule Description Page
-------- ----------- -----
<S> <C> <C>
II Valuation and Qualifying Accounts 15
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under
the related instructions or are inapplicable and therefore have
been omitted.
11
<PAGE>
3. EXHIBITS: The following exhibits are filed pursuant to Item 601 of
Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION OF EXHIBITS
--------- -----------------------
<S> <C>
3(i) Amended and Restated Certificate of Incorporation of the Company. (3)
3(ii) Bylaws of the Company. (3)
4.1 Form of Indenture, dated as of March 23, 1995, between the
Registrant and Colorado National Bank, as Trustee for the 10.25%
First Mortgage Bonds Due 2005. (2)
4.2 Rights Agreement, dated as of January 31, 1995, by and between the
Company and Norwest Bank Minnesota, National Association, as
rights agent. (5)
4.3 Amendment No. 1, dated as of January 31, 1995, to the Rights
Agreement, dated as of January 31, 1995, by and between the
Company and Norwest Bank Minnesota, N.A., as rights agent. (6)
10.1 Lease Agreement, dated April 1, 1989, between the Registrant and
William J. and Barbara A. Pearse. (3)
10.2 Lease Agreement, dated October 13, 1989, between the Registrant
and William J. and Barbara A. Pearse. (3)
10.4 Form of Authorized Dealer Agreement between the Registrant and
Panasonic Communications and Systems Company, a Division of
Matsushita Electric Corporation of America. (3)
10.5 Form of Sony Corporation of America Consumer Sales Company Dealer
Agreement between the Registrant and Sony Consumer Sales Company,
a division of Sony Corporation of America. (3)
10.6 Form of Dealer Agreement between the Registrant and Mitsubishi
Electric Sales America, Inc. (3)
10.7 Form of Employee Stock Option Plan. (3)
10.8 Form of Non-employee Directors' Stock Option Plan. (4)
10.9 Ultimate Electronics, Inc. Rule 401(k) Benefit Plan. (3)
10.10 Form of Confidentiality and Non-Competition Agreement. (4)
10.12 Form of Deed of Trust, Assignment of Rents and Security Agreement
between the Registrant, as Grantor, and Colorado National Bank, as
beneficiary. (2)
10.13 Purchase and Sale Agreement, dated May 2, 1995, between the
Company and Cirque Property L.C. (6)
10.14 Commercial Promissory Note and Security Agreement between the
Company and Colorado National Leasing, Inc., dated November 1,
1995. (7)
10.15 Commercial Promissory Note and Security Agreement between the
Company and Colorado National Leasing, Inc., dated December 19,
1995. (7)
10.16 Commercial Promissory Note and Security Agreement between the
Company and Colorado National Leasing, Inc., dated January 22,
1996. (7)
10.17 Commercial Promissory Note and Security Agreement between the
Company and Colorado National Leasing, Inc., dated February 28,
1996. (7)
10.18 Credit Agreement between Ultimate Electronics, Inc. and Norwest
Bank Colorado, National Association and Norwest Business Credit,
Inc., dated November 21, 1996. (8)
10.19 First Amendment to Credit Agreement between Ultimate Electronics,
Inc. and Norwest Bank Colorado, National Association and Norwest
Business Credit, Inc., dated February 28, 1997. (9)
10.20 Second Amendment to Credit Agreement between Ultimate Electronics,
Inc. and Norwest Bank Colorado, National Association and Norwest
Business Credit, Inc., dated March 11, 1997. (9)
10.21 Third Amendment to Credit Agreement between Ultimate Electronics,
Inc. and Norwest Bank Colorado, National Association and Norwest
Business Credit, Inc., dated June 27, 1997. (10)
10.22 Fourth Amendment to Credit Agreement between Ultimate Electronics,
Inc. and Norwest Bank Colorado, National Association and Norwest
Business Credit, Inc., dated June 12, 1998. (11)
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
10.23 Fifth Amendment to Credit Agreement between Ultimate Electronics,
Inc. and Norwest Bank Colorado, National Association and Norwest
Business Credit, Inc., dated June 30, 1998. (12)
10.24 Credit Agreement between Ultimate Electronics, Inc. and Foothill
Capital Corporation, dated September 30, 1998. (13)
10.30 Ultimate Electronics, Inc. Form of Change of Control Agreement
dated June 27, 1997 with each of William J. Pearse, J. Edward
McEntire, David J. Workman, Alan E. Kessock and Neal A. Bobrick.
(10)
13 Company's 1999 Annual Report to Stockholders. (1)
23.1 Consent of Independent Auditors. (1)
27 Financial Data Schedule (1)
</TABLE>
(b) Reports on Form 8-K:
None
(1) Filed herewith.
(2) Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement on Form S-1 (File No. 33-88740), filed with the
Commission on March 14, 1995.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-68314), filed with the Commission on September 2,
1993.
(4) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-68314), filed with the
Commission on October 7, 1993.
(5) Incorporated by reference to the Registrant's Form 8-K filed with the
Commission on February 10, 1995.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended April 30, 1995.
(7) Exhibits filed with the Company's Form 10-K Annual Report for the fiscal
year ended January 31, 1996, and are incorporated herewith by reference.
(8) Exhibits filed with the Company's Form 10-K Annual Report for the fiscal
year ended January 31, 1997, and are incorporated herewith by reference.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended April 30, 1997.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended July 31, 1997.
(11) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended April 30, 1998.
(12) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended July 31, 1998.
(13) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended October 31, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Thornton, State
of Colorado, on this 1st day of May, 1999.
ULTIMATE ELECTRONICS, INC.
By: /s/ William J. Pearse
--------------------------
William J. Pearse
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
By: /s/ William J. Pearse Date: May 1, 1999
--------------------------------------- -------------
William J. Pearse
Chairman of the Board and a Director
By: /s/ J. Edward McEntire Date: May 1, 1999
--------------------------------------- -------------
J. Edward McEntire
Chief Executive Officer and a Director
(Principal Executive Officer)
By: /s/ David J. Workman Date: May 1, 1999
--------------------------------------- -------------
David J. Workman
President, Chief Operating Officer
and a Director
By: /s/ Alan E. Kessock Date: May 1, 1999
--------------------------------------- -------------
Alan E. Kessock
Vice President, Chief Financial
Officer, Secretary and a Director
(Principal Financial and Accounting
Officer)
By: /s/ Robert W. Beale Date: May 1, 1999
--------------------------------------- -------------
Robert W. Beale
Director
By: /s/ Randall F. Bellows Date: May 1, 1999
--------------------------------------- -------------
Randall F. Bellows
Director
14
<PAGE>
ULTIMATE ELECTRONICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS BALANCE AT
BEGINNING AND DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) PERIOD
----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Year ended January 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $ 260 $ 364 $ 314(1) $ 310
Reserve for cash and cooperative
advertising discounts 55 58 64(1) 49
Allowance for obsolete inventory 436 1,975 902(2) 1,509
------ ------ ------ ------
Total $ 751 $2,397 $1,280 $1,868
------ ------ ------ ------
------ ------ ------ ------
Year ended January 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts $ 180 $ 786 $ 706(1) $ 260
Reserve for cash and cooperative
advertising discounts 72 154 171(1) 55
Allowance for obsolete inventory 266 597 427(2) 436
------ ------ ------ ------
Total $ 518 $1,537 $1,304 $ 751
------ ------ ------ ------
------ ------ ------ ------
Year ended January 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $ 251 $ 196 $ 267(1) $ 180
Reserve for cash and cooperative
advertising discounts 96 213 237(1) 72
Allowance for obsolete inventory 344 6 84(2) 266
------ ------ ------ ------
Total $ 691 $ 415 $ 588 $ 518
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- -------------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Write-offs of obsolete inventory.
15
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA (1)
Sales $ 337,454 $ 306,306 $ 261,154 $ 251,807 $ 165,069
Cost of goods sold 239,854 223,464 191,903 184,343 120,588
------------ ------------ ------------ ------------ ------------
Gross profit 97,600 82,842 69,251 67,464 44,481
Selling, general and administrative expenses 89,010 78,621 64,786 59,525 36,276
------------ ------------ ------------ ------------ ------------
Income from operations 8,590 4,221 4,465 7,939 8,205
Interest expense, net 3,957 3,985 3,210 1,866 407
------------ ------------ ------------ ------------ ------------
Income before taxes and cumulative effect of
change in accounting method 4,633 236 1,255 6,073 7,798
Income taxes 1,723 88 470 2,241 2,908
------------ ------------ ------------ ------------ ------------
Income before cumulative effect of change in
accounting method 2,910 148 785 3,832 4,890
Cumulative effect of change in accounting for
preopening expenses, net of taxes (2) - - - (988) -
------------ ------------ ------------ ------------ ------------
Net income $ 2,910 $ 148 $ 785 $ 2,844 $ 4,890
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma information:
Pro forma effect of change in accounting
method, net of taxes (2) (678)
------------
Pro forma net income $ 4,212
------------
------------
Earnings per share before cumulative effect of
change in accounting method (2) $ - $ - $ - $ .65 $ -
Earnings per share-Basic $ .36 $ .02 $ .11 $ .48 $ .88
Earnings per share-Diluted $ .35 $ .02 $ .11 $ .48 $ .88
Pro forma earnings per share (2) $ - $ - $ - $ .65 $ .76
Weighted average shares outstanding-Basic 8,150 7,626 6,995 5,861 5,500
Weighted average shares outstanding-Diluted 8,317 7,737 7,125 5,906 5,583
OPERATING DATA (1)
Number of stores open at end of period 30 30 18 18 14
Inventory turns (3) 5.1 4.9 4.7 5.1 5.5
Average sales per store open during the entire
period presented (4) $ 10,657,000 $ 13,360,000 $ 13,906,000 $ 14,750,000 $ 12,808,000
Retail sales per weighted average square foot
of selling space $ 730 $ 745 $ 905 $ 1,185 $ 1,136
Comparable store sales growth (5) 2% (6%) (16%) (2%) 29%
CONSOLIDATED BALANCE SHEET DATA (1)
Working capital $ 26,740 $ 5,578 $ 27,868 $ 30,995 $ 4,061
Total assets 121,904 123,446 103,310 100,466 69,194
Long-term debt (6) 26,518 13,642 31,165 31,996 -
Capital lease obligations (6) 1,841 2,049 1,007 1,295 3,120
Total stockholders' equity 47,675 44,721 41,703 40,918 25,611
</TABLE>
This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and Notes thereto.
(1) On June 27, 1997, the Company completed a merger in which the Company
acquired all of the outstanding shares of Audio King Corporation. The
transaction was accounted for as a purchase, and as such, the results of
operations since the acquisition date are included in the consolidated
financial statements.
(2) During fiscal 1996, the Company changed its accounting method for
preopening expenses, resulting in a cumulative effect adjustment of ($0.17)
per share, net of taxes. The income statement data includes certain pro
forma adjustments for the years prior to fiscal 1996 to reflect this change
in accounting method.
(3) Calculated based upon the average of end-of-month inventory levels.
(4) Excludes direct sales from the Company's insurance replacement/commercial
division.
(5) Comparable store sales are for stores open at least 13 months and exclude
recently relocated and expanded stores for 13 months after their completion
date.
(6) Less current portions.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements of
Income for the periods indicated and presents the results of operations as a
percentage of sales.
<TABLE>
<CAPTION>
PERCENTAGE OF SALES FOR THE
YEARS ENDED JANUARY 31,
-----------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of goods sold 71.1 73.0 73.5
------ ------ ------
Gross profit 28.9 27.0 26.5
Selling, general and administrative expenses 26.4 25.6 24.8
------ ------ ------
Income from operations 2.5 1.4 1.7
Interest expense, net 1.1 1.3 1.2
------ ------ ------
Income before taxes 1.4 0.1 0.5
Income taxes 0.5 - 0.2
------ ------ ------
Net income 0.9% 0.1% 0.3%
------ ------ ------
------ ------ ------
</TABLE>
MERGER WITH AUDIO KING CORPORATION
On June 27, 1997, the Company completed a merger in which the Company
acquired all of the outstanding shares of Audio King Corporation. Audio King,
a consumer specialty electronics company, operated 11 retail stores; eight in
Minnesota, two in Iowa and one in South Dakota. The purchase price consisted
of $2.5 million in cash, 986,432 shares of Ultimate Electronics' common stock
valued at $2.6 million, assumed debt of $7.2 million, and other expenses and
severance costs of $1.4 million. The transaction was accounted for as a
purchase, whereby the purchase price has been allocated to the acquired
assets and liabilities based on estimated fair value at the acquisition date.
The transaction resulted in the Company recording goodwill in the amount of
$2.7 million, which is being amortized over a 10 year life. The results of
operations since the acquisition date are included in the accompanying
consolidated financial statements (see also unaudited pro forma information
in Note 9 to the financial statements).
FISCAL 1999 COMPARED TO FISCAL 1998
For the year ended January 31, 1999, sales were $337.5 million, a 10%
increase from sales of $306.3 million for the prior year. The increase in
sales during fiscal 1999 was due primarily to the effect of having the Audio
King stores for a full year along with an increase in sales for comparable
stores. Comparable store sales increased 2% for the year ended January 31,
1999 compared to a decrease of 6% in comparable store sales for the year
ended January 31, 1998. As announced on May 21, 1998, the Company
significantly reduced its computer assortment. Excluding the computer
category, comparable store sales were up 7% for the year.
Gross profit in fiscal 1999 increased 18% to $97.6 million (28.9% of sales)
from $82.8 million (27.0% of sales) in fiscal 1998. The improvement in gross
profit was due primarily to the impact of the reduced computer assortment
along with an increase in sales of higher margin products in the Company's
core categories of audio, video, television and mobile electronics.
Selling general and administrative expenses in fiscal 1999 increased 13% to
$89.0 million (26.4% of sales) from $78.6 million (25.6% of sales) in fiscal
1998. The percentage increase in selling, general and administrative expenses
was due primarily to higher fixed store expenses as a percentage of sales as
well as slightly higher net advertising expenses.
2
<PAGE>
As a result of the foregoing, income from operations more than doubled in
fiscal 1999, increasing to $8.6 million (2.5% of sales) from $4.2 million
(1.4% of sales) in fiscal 1998.
Interest expense was $4.0 million for both fiscal 1999 and 1998. The
Company's effective tax rate of 37.2% in fiscal 1999 was also the same as the
prior year.
FISCAL 1998 COMPARED TO FISCAL 1997
For the year ended January 31, 1998, sales were $306.3 million, a 17%
increase from sales of $261.2 million for the prior year. The increase in
sales during fiscal 1998 was due primarily to the acquisition of Audio King.
Comparable store sales decreased 6% for the year ended January 31, 1998,
compared to a decrease of 16% in comparable store sales for the year ended
January 31, 1997. The Company believes the decrease in comparable store sales
for fiscal 1998 and 1997 was due primarily to a sluggish retail environment
for consumer electronics and increased competition in the Company's markets.
Gross profit in fiscal 1998 increased 20% to $82.8 million (27.0% of sales)
from $69.3 million (26.5% of sales) in fiscal 1997. The slight increase in
the gross profit percentage was due to a larger mix of higher margin product
categories.
Selling, general and administrative expenses in fiscal 1998 increased 21% to
$78.6 million (25.6% of sales) from $64.8 million (24.8% of sales) in fiscal
1997. The percentage increase in selling, general and administrative expenses
was due primarily to higher fixed store expenses as a percentage of sales
caused by lower comparable store sales, partially offset by the leverage
gained through the increase in sales generated from the Audio King merger.
As a result of the foregoing, income from operations in fiscal 1998 decreased
5% to $4.2 million (1.4% of sales) from $4.5 million (1.7% of sales) in
fiscal 1997.
Interest expense for fiscal 1998 increased to $4.0 million from $3.2 million
in fiscal 1997 due to higher average amounts outstanding under the Company's
revolving line of credit that was used for the Audio King acquisition, the
remodeling of six Audio King stores and an additional store opening in
Colorado in fiscal 1998. The Company's effective tax rate of 37.2% in fiscal
1998 decreased slightly from the 37.4% tax rate in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity for funding the
Company's expansion and growth have been net cash from operations, revolving
credit lines, term loans and issuance of common stock. The Company's initial
public offering in October 1993 resulted in proceeds of $17.8 million (net of
all offering costs). The Company completed a second offering of its common
stock in November 1995 and received proceeds of $12.5 million (net of all
offering costs). With the addition of Audio King, the Company now operates a
total of 30 stores in nine states.
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
previously purchased or redeemed by the Company) 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
redeemable at par on or after March 31, 2000 and are secured by the Thornton
Facility.
3
<PAGE>
Net cash provided by operations was $17.9 million for fiscal 1999 compared to
net cash provided by operations of $9.4 million for fiscal 1998. The increase
in cash provided by operations over the past year was primarily the result of
a combination of lower accounts receivable and higher accounts payable
balances, partially offset by higher merchandise inventory.
The Company's primary capital requirements are directly related to
expenditures for new store openings and the remodeling and upgrading of
existing store locations.
The Company intends to continue its expansion into select metropolitan areas
in the Rocky Mountain, Midwest and Southwest regions with 24,000 to 32,000
square foot stores. With the exception of the Thornton Facility, all stores
are leased. The Company has begun analyzing new store opportunities in
existing markets to replace some of the Company's smaller locations. The
Company converted its County Line store from an outlet store to a regular
store on September 4, 1998. The Company expects to relocate and expand two to
five of its locations within the next two years along with the possibility of
adding new stores. At the present time, no firm commitments for relocated or
new stores have been made. The Company currently anticipates these events to
occur late in fiscal year 2000 and beyond. The cost of these future stores is
anticipated to be between $1.0 million to $1.5 million, depending on tenant
allowances. Preopening expenses are expected to average $250,000, and include
such items as advertising prior to opening, recruitment and training of new
employees and other costs of opening stores. In the event of relocations of
existing stores, preopening costs may be significantly higher due to early
termination of the store leases. The inventory requirement for the Company's
new stores is expected to average approximately $1.5 million, approximately
$750,000 of which is financed through trade credit.
On September 30, 1998, the Company executed a new three-year $40 million
credit agreement with Foothill Capital Corporation (a wholly owned subsidiary
of Norwest Bank). This new facility replaced the Company's $35 million line
of credit with Norwest Bank Colorado, N.A. Borrowings under the Company's new
revolving line of credit are limited to the lesser of $40 million or 80% of
eligible inventory and a portion of accounts receivable. Borrowings bear
interest, payable monthly, based on a blend of LIBOR plus 2.0% and Norwest
Bank's prime rate minus 0.375%. Borrowings under this credit facility in the
amount of $13.2 million were outstanding as of January 31, 1999. Borrowings
are secured by inventories, accounts receivable, equipment and intangibles.
The Company was in compliance with all borrowing covenants for all periods of
fiscal year 1999.
The Company believes that its cash flow from operations and borrowings under
its new credit facility will be sufficient to fund the Company's operations
and debt repayment for fiscal 2000. To fund the capital requirements for its
anticipated expansion plans beyond fiscal 2000, the Company may 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.
SEASONALITY
The Company's business is affected by seasonal consumer buying patterns. As
is the case with many other retailers, the Company's sales and profits have
been greatest in the fourth quarter (which includes the holiday selling
season). Operating results are dependent upon a number of factors, including
discretionary consumer spending, which is 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.
4
<PAGE>
IMPACT OF INFLATION
The Company believes, because of competition among manufacturers and the
technological changes in the consumer electronics industry, inflation has not
had a significant effect on results of operations.
YEAR 2000 ISSUE
Until recently, most computer programs were written to store only two digits
of date-related information in order to more efficiently handle and sort
data. As a result, these programs were unable to properly distinguish between
dates occurring in the year 1900 and dates occurring in the year 2000. This
is referred to as the "Year 2000 Issue". During fiscal 1999, the Company
reviewed all applications and equipment to evaluate the Company's exposure to
the Year 2000 Issue. The required modifications to existing systems were
identified, and plans were developed for upgrades or remediation. The Company
anticipates that all upgrades and remediation will be completed by October
31, 1999.
The Company's primary information system software is provided by Tyler Retail
Systems, Inc. ("Tyler") of Clearwater, Florida. This software operates the
vast majority of the Company's systems and has been evaluated for Year 2000
compliance. Tyler has assured the Company that with the current software and
the pending upgrade, the Company's system will be Year 2000 compliant by
October 31, 1999. The Company began the upgrade process in the first quarter
of fiscal 2000. The Company believes that no other significant modifications
to the Tyler software will be necessary. The Company's system review also
identified that some older hardware and software were not Year 2000
compliant. These items were few in number and are being replaced on an
accelerated basis to ensure Year 2000 compliance by August 31, 1999. In the
opinion of the Company, costs of these upgrades will not be material to the
financial condition or operation of the Company. The Company is also in
communication with third parties with whom it does significant business in
order to assess their Year 2000 compliance and minimize the potential for
adverse consequences, if any, that could result from failure of such entities
to address this issue. Year 2000 issues do present risks that are outside of
the control of the Company, including, but not limited to, the failure of
utility companies to provide electricity, the failure of telecommunications
companies to provide voice and data transfer services, the failure of
financial services companies to process transactions or transfer funds, and
the failure of third-party vendors or suppliers to become Year 2000
compliant. In the event of the failure of the Company or Tyler to become
timely Year 2000 compliant, the Company has not identified a near-term
economically feasible alternative for operations support, and would be
required to resort to other processing methods. With regard to any Year 2000
failure by third-party product suppliers, the Company plans to pursue
alternative suppliers for Year 2000 compliant products, however it
anticipates its competitors will be similarly impacted in any such event. The
Company can make no assurances that Year 2000 issues will not have an adverse
effect on the Company's business, financial condition, or future operations.
The information provided in this disclosure constitutes a "Year 2000
Readiness Disclosure" under the Year 2000 Information and Readiness
Disclosure Act of 1998.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statements of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segment Reporting of an Enterprise and Related Information" in fiscal 1999
with no material impact to the financial statements.
5
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information about their companies. With the exception of historical
information, the matters discussed in the Annual Report, including those
discussed under the headers "CEO's Letter," "President's Letter" and
"Financial Statements," are forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include statements at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," "Impact of Inflation" and
"Year 2000 Issues," as well as statements regarding the Company's overall
business prospects, the Company's ability to obtain capital to fund
operations and expansions and statements regarding the expected increase in
consumer electronics spending and new product offerings; management's plans
to continue emphasis on value added customer services, pursue core product
categories and continue marketing and expansion of the offering of more fully
featured, higher margin products to enhance differentiation and margins; the
effectiveness of the Company's advertising and marketing activities; positive
market response expected in fiscal 2000 of digital technologies across all
product categories; the ability of certain products to stimulate additional
interest in the Company's products; the sales opportunities that digital
products are expected to provide; the Company's ability to expand its
installation capacity and product mix; expectations that the Company can
increase its market share, the Company's ability to attain and sustain any
particular market position, that demand will build for new non-commodity
product offerings and core categories; the future focus of marketing efforts
on mobile installation services; the positioning of the Company to become a
leader in digital camcorders and digital cameras; the Company's intention to
continue its expansion and relocation of existing stores; and the estimate of
the Company's exposure relating to the Year 2000 Issue. Reference is made to
the Company's Annual Report on Form 10-K wherein the Company has identified
important factors that could cause actual results to differ materially from
those contemplated by the statements made herein.
6
<PAGE>
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,421 $ 2,006
Accounts receivable, net 17,814 19,826
Merchandise inventories 46,908 43,908
Prepaid expenses and other 1,087 1,362
-------- --------
Total Current Assets 70,230 67,102
Property and equipment, at cost:
Furniture, fixtures and equipment 25,704 23,907
Leasehold improvements 21,920 22,219
Autos and trucks 454 356
Land and buildings 17,748 17,773
Construction-in-progress 18 5
-------- --------
65,844 64,260
Less accumulated depreciation 19,208 13,405
-------- --------
46,636 50,855
Property under capital leases, including related
parties, net 1,729 2,068
Goodwill, net 2,300 2,385
Other assets 1,009 1,036
-------- --------
Total Assets $121,904 $123,446
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ - $ 26,564
Accounts payable 29,888 25,550
Accrued liabilities 12,564 8,807
Current portion of term loans 312 286
Current portion of capital lease obligations,
including related parties 208 317
Deferred tax liability 518 -
-------- --------
Total Current Liabilities 43,490 61,524
Revolving line of credit 13,188 -
Term loans, less current portion 330 642
Bonds payable 13,000 13,000
Capital lease obligations, including related parties,
less current portion 1,841 2,049
Deferred tax liability 2,380 1,510
-------- --------
Total Liabilities 74,229 78,725
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, 8,160,796 and
8,139,548 at January 31, 1999 and 1998 81 81
Additional paid-in capital 33,912 33,868
Retained earnings 13,682 10,772
-------- --------
Total Stockholders' Equity 47,675 44,721
-------- --------
Total Liabilities and Stockholders' Equity $121,904 $123,446
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales $337,454 $306,306 $261,154
Cost of goods sold 239,854 223,464 191,903
-------- -------- --------
Gross profit 97,600 82,842 69,251
Selling, general and administrative expenses 89,010 78,621 64,786
-------- -------- --------
Income from operations 8,590 4,221 4,465
Interest expense, net 3,957 3,985 3,210
-------- -------- --------
Income before taxes 4,633 236 1,255
Income taxes 1,723 88 470
-------- -------- --------
Net income $ 2,910 $ 148 $ 785
-------- -------- --------
-------- -------- --------
Earnings per share-Basic $ .36 $ .02 $ .11
Earnings per share-Diluted $ .35 $ .02 $ .11
Weighted average shares
outstanding-Basic 8,150 7,626 6,995
Weighted average shares
outstanding-Diluted 8,317 7,737 7,125
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances, January 31, 1996 6,995,000 $70 $31,009 $ 9,839 $40,918
Net income 785 785
--------- ------ ---------- -------- -------
Balances, January 31, 1997 6,995,000 70 31,009 10,624 41,703
Acquisition of Audio King, net
of registration fees 986,432 10 2,562 2,572
Exercise of stock options 158,116 1 297 298
Net income 148 148
--------- ------ ---------- -------- -------
Balances, January 31, 1998 8,139,548 81 33,868 10,772 44,721
Exercise of stock options 21,248 44 44
Net income 2,910 2,910
--------- ------ ---------- -------- -------
Balances, January 31, 1999 8,160,796 $81 $33,912 $13,682 $47,675
--------- ------ ---------- -------- -------
--------- ------ ---------- -------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
10
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,910 $ 148 $ 785
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,390 5,550 4,449
Deferred tax expense 1,388 502 573
Changes in operating assets and liabilities:
Accounts receivable 2,012 (4,705) 2,618
Merchandise inventories (3,000) 6,178 (3,361)
Prepaid expenses and other 275 (328) 243
Other assets (156) 1,104 44
Accounts payable and accrued liabilities 8,095 903 2,773
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,914 9,352 8,124
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,564) (6,159) (7,314)
Acquisition of Audio King, net of cash acquired - (3,857) -
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (1,564) (10,016) (7,314)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term revolving credit
agreement 303,744 321,689 72,227
Repayments under long-term revolving credit
agreement (317,120) (319,532) (72,990)
Proceeds from term loans - - 225
Principal payments on term loans and capital
lease obligations (603) (549) (487)
Proceeds from exercise of stock options 44 298 -
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,935) 1,906 (1,025)
Net Increase (Decrease) In Cash And Cash Equivalents 2,415 1,242 (215)
Cash And Cash Equivalents At Beginning Of Period 2,006 764 979
--------- --------- ---------
Cash And Cash Equivalents At End of Period $ 4,421 $ 2,006 $ 764
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,144 $ 3,892 $ 3,210
Income taxes - - 353
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Ultimate Electronics, Inc. is a leading specialty retailer of home
entertainment and consumer electronics. As discussed further in Note 9, on
June 27, 1997, the Company, through its subsidiary Ultimate AKquisition
Corp., completed a merger, accounted for as a purchase, in which the Company
acquired all of the outstanding shares of Audio King Corporation. Audio King,
a consumer specialty electronics company, operated 11 retail stores; eight in
Minnesota, two in Iowa and one in South Dakota. The Company currently
operates thirty stores, including ten stores in Colorado under the trade name
SoundTrack, eleven stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma, and
Utah under the trade name Ultimate Electronics and nine stores in Minnesota
and South Dakota under the trade name Audio King.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. All intercompany accounts and transactions have been eliminated
upon consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
The Company states merchandise inventories at the lower of cost (weighted
average cost) or market.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation is provided principally using the straight-line method based
upon the following useful lives:
<TABLE>
<S> <C>
Furniture, fixtures and equipment 5 - 7 years
Leasehold improvements 7 - 20 years
Autos and trucks 5 years
Property under capital leases 5 - 15 years
Buildings 30 years
</TABLE>
CAPITALIZED INTEREST
For the fiscal years ended January 31, 1999, 1998 and 1997, the Company
capitalized interest of $0, $52,000 and $160,000, respectively, associated
with the construction of new stores, remodeled stores and the Thornton
Facility.
ACCRUED LIABILITIES (in thousands)
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
------- ------
<S> <C> <C>
Compensation $ 4,643 $3,007
Sales taxes 1,694 1,803
Customer deposits 2,564 2,363
Income taxes 1,559 -
Other 2,124 1,634
------- ------
Total $12,564 $8,807
------- ------
------- ------
</TABLE>
REVENUE RECOGNITION
Revenue is recognized at the time the customer takes possession of the
merchandise or such merchandise is delivered to the customer. Sales, which
includes warranty service and installation revenue, is presented net of
discounts, price guarantees, returns and allowances. The Company grants
credit to customers through independent, third-party finance companies, which
companies assume the credit risk for the collection of the related accounts
receivable. When free interest promotions are offered by the Company, a fee
is normally paid by the Company at the time of the transaction. This fee
typically ranges between 1% and 6% of the amount financed by the customer.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED REVENUE AND COMMISSIONS
The Company sells extended warranty contracts on behalf of an unrelated
party. The contracts extend beyond the normal manufacturer's warranty period,
usually with terms of coverage (including the manufacturer's warranty period)
between 12 and 60 months. Extended warranty contracts are accounted for in
accordance with FASB Technical Bulletin No. 90-1, "Accounting for Separately
Priced Extended Warranty and Product Maintenance Contracts."
ADVERTISING COSTS AND COOPERATIVE REVENUE
In accordance with AICPA Statement of Position 93-7, "Reporting on
Advertising Costs," all advertising costs are deferred until the first time
the advertising takes place. In addition, the Company accrues rebates based
on varying percentages of inventory purchases and records such amounts as a
reduction of advertising expense. The Company also deducts amounts for
cooperative advertising directly from payment to manufacturers for inventory
purchases based on individual agreements with the Company's manufacturers.
Net advertising expense charged to operations was $5,661,000, $5,476,000 and
$5,485,000 for the years ended January 31, 1999, 1998 and 1997, respectively.
LONG LIVED ASSETS
In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement No.121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121), which required impairment
losses to be recorded on long-lived assets used in operations when
indications of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. SFAS 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted the provisions of SFAS 121 in
the first quarter of fiscal 1997, with no material effect to its financial
statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE OF COMMON STOCK
In 1997, the FASB issued Statement No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any diluted effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. The
calculation of weighted average shares outstanding - diluted for the fiscal
years ending January 31, 1999, 1998, and 1997 include 167,692, 111,267 and
130,472 outstanding shares to give effect to the potential exercise of
options under the Company's stock option plans, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash, accounts receivable,
revolving line of credit and other long-term debt, have fair values that
approximate their recorded values, as the financial instruments are either
short term in nature or carry interest rates that approximate market rates
except bonds payable, which were trading at 97% of face value at January 31,
1999.
NEW ACCOUNTING STANDARDS
During 1997, the FASB issued Statement No.130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. This Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. In addition, this Statement requires that an enterprise classify
items of other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income separately
from the retained earnings and additional paid in capital in the equity
section of a statement of financial position. The Company does not have any
components of comprehensive income, and accordingly, adoption of this
Statement during fiscal 1999 had no effect on the Company's financial
reporting,
During 1997, the FASB issued Statement No.131, "Disclosures about Segment
Reporting of an Enterprise and Related Information", which establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for related disclosure about products and services, geographic areas and
major customers. The Company conducts business in one operating segment and
determined its operating segment based on the individual operations that the
chief operating decision maker reviews for purposes of assessing performance
and making operating decisions. These individual operations have been
aggregated into one segment because the Company believes doing so helps users
understand the Company's performance and assess its prospects. The combined
operations have similar economic characteristics and each operation has
similar products, services, customers and distribution methods.
2. PUBLIC STOCK OFFERINGS
On October 15, 1993, the Company completed an initial public offering (the
"Offering") for the sale of 2,300,000 shares of common stock (including
Underwriters overallotment of 300,000 shares) at the Offering price of $8.50
per share. The Company received proceeds from the Offering of $17,805,000,
net of all offering costs. On November 1, 1995, the Company completed a
second public offering (the "Second Offering") for the sale of 1,495,000
shares of common stock (including underwriters overallotment of 195,000
shares) at the Second Offering price of $9.00 per share. The Company received
proceeds from the Second Offering of $12,463,000, net of all offering costs.
3. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS
On September 30, 1998, the Company executed a new three year $40 million
credit agreement with Foothill Capital Corporation (a wholly owned subsidiary
of Norwest Bank). This new facility replaced the Company's $35 million line
of credit with Norwest Bank Colorado, N.A. Borrowings under the Company's new
revolving line of credit are limited to the lesser of $40 million or 80% of
eligible inventory and a portion of accounts receivable. Borrowings bear
interest, payable monthly, based on a blend of LIBOR plus 2.0% and Norwest
Bank's prime rate minus 0.375%. Borrowings under this credit facility in the
amount of $13.2 million were outstanding as of January 31, 1999. Borrowings
are secured by inventories, accounts receivable, equipment and intangibles.
The Company was in compliance with all borrowing covenants for all periods of
fiscal year 1999.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS (CONTINUED)
The Company has four Commercial Promissory Notes and Security Agreements with
Colorado National Leasing, Inc. Borrowings under the loans, totaled $642,000
at January 31, 1999, and $928,000 at January 31, 1998. Each loan is secured
by warehouse equipment and office furniture, and interest rates on the loans
range from 8.52% to 8.57%. As of January 31, 1999, the aggregate maturities
of the term loans are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended January 31,
- -----------------------------------------
<S> <C>
2000 $312,000
2001 311,000
2002 19,000
--------
$642,000
--------
--------
</TABLE>
4. BONDS PAYABLE
On March 23, 1995, the Company completed an offering for the sale of
$13,000,000 aggregate principal amount of Bonds. Interest on the Bonds
accrues at the rate of 10.25% per year until maturity or earlier redemption
and is payable on the last day of each month. The Company is required to
redeem $3.25 million aggregate principal amount of the Bonds annually
(reduced to the extent of the Bonds previously purchased or redeemed by the
Company) 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 redeemable by the Company at par at any
time after March 31, 2000. The Bonds are full recourse obligations of the
Company and are secured by, among other things, a first priority lien on the
Company's real property, including all facilities and fixtures thereon,
located at the Thornton Facility. The purchase, construction and development
of the property was financed in part by the net proceeds of the Bonds.
5. STOCK OPTION PLANS
Under the terms of the Company's original stock option plan (the "Plan"), the
Company granted to officers, employees and consultants awards of options to
purchase shares of common stock and other types of awards. The Plan provided
for an authorization of 900,000 shares of common stock. Under the terms of
the nonemployee directors' stock option plan (the "Directors' Plan"), the
Company granted awards of stock options to nonemployee directors. The
Directors' Plan provided for an initial authorization of 20,000 shares of
common stock. Each nonemployee director received options to purchase 2,000
shares of common stock effective February 1 of each year, which options were
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTION PLANS (CONTINUED)
exercisable one year from the date of grant. On January 31, 1999, options to
purchase 16,000 shares of common stock were outstanding, all of which are
exercisable.
In June, 1997, at the Company's annual meeting, the Company's shareholders
approved a new stock option plan known as the Equity Incentive Plan (the "New
Plan") which replaced both the original Plan and the Directors' Plan. Grants
issued under the Plan and the Directors' Plan continue to be exercisable
according to their original terms but no additional grants can be issued
under these plans. The New Plan made available 750,000 shares to be awarded
to employees, nonemployee directors and/or outside consultants. The Board of
Directors continues to determine the persons to whom employee awards are
granted, the types of awards granted, the number of shares granted, the
vesting schedule and the term of any option (which cannot exceed ten years).
The exercise price for incentive stock options for employees and
non-qualified options for outside directors is the market value of the
underlying common stock at the date of grant. Options issued to the Chairman
of the Board are at an exercise price of 110% of market value of the
underlying common stock at the date of grant. During fiscal 1999, 139,700
options were granted under the New Plan. The options were granted at prices
of $3.125 and $5.50. The options available for grant at January 31, 1999
include only the options available under the New Plan.
Changes in the options outstanding (and option exercise prices for such
options) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year 833,984 420,850 496,000
Granted ($1.07 to $12.875) 139,700 572,450 95,000
Canceled ($1.07 to $12.875) 3,919 1,200 170,150
Exercised ($1.07 to $3.00) 21,248 158,116 -
------- ------- -------
Options outstanding at end of year 948,517 833,984 420,850
------- ------- -------
------- ------- -------
Options exercisable at end of year 390,384 237,370 118,042
------- ------- -------
------- ------- -------
Options available for grant at end of year 127,850 267,550 495,150
------- ------- -------
------- ------- -------
</TABLE>
The weighted average exercise price of options outstanding at January 31,
1999, 1998 and 1997 was $3.48, $3.09, and $3.01, respectively. The weighted
average contractual life of the options outstanding at January 31, 1999, 1998
and 1997 was 7.2, 6.5 and 6.0 years, respectively.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTION PLANS (CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No.25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No.123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by Statement 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted
subsequent to January 31, 1995 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant or the
date of repricing using a Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rates of 5.50%; a
dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock for fiscal years 1999, 1998 and 1997, respectively, of
.842, .609 and .573, and a weighted average expected life of the options of
five years. The weighted average fair value of stock options granted during
January 31, 1999, 1998 and 1997 was $4.96, $1.85 and $3.36, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTION PLANS (CONTINUED)
The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Pro forma net income (loss) $2,188,000 $(245,000) $688,000
Pro forma earnings (loss) per share-basic $ 0.27 $ (0.03) $ 0.10
</TABLE>
Because the Statement No.123 method of accounting has not been applied to
options granted prior to February 1, 1995, the resulting pro forma net income
(loss) may not be representative of that to be expected in future years.
6. PROVISION (BENEFIT) FOR INCOME TAXES (IN THOUSANDS)
Under the liability method of accounting for income taxes as prescribed by
FASB Statement No.109, "Accounting for Income Taxes", deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and
amounts used for income tax purposes. The components of the provision
(benefit) for income taxes as of January 31, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
January 31, 1999
Federal $ 267 $1,242 $1,509
State 38 176 214
----- ------- ------
Total $ 305 $1,418 $1,723
----- ------- ------
----- ------- ------
January 31, 1998
Federal $(363) $ 439 $ 76
State (51) 63 12
----- ------- ------
Total $(414) $ 502 $ 88
----- ------- ------
----- ------- ------
January 31, 1997
Federal $ (90) $ 501 $ 411
State (13) 72 59
----- ------- ------
Total $(103) $ 573 $ 470
----- ------- ------
----- ------- ------
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PROVISION (BENEFIT) FOR INCOME TAXES (IN THOUSANDS) (CONTINUED)
The following is a reconciliation of the provision (benefit) for income taxes
to the federal statutory rate for the years ended January 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Income taxes at the federal
statutory rate $1,575 $ 80 $ 427
State income taxes, net of
federal benefit 148 8 41
Other - - 2
------ ------ ------
Provision for income taxes $1,723 $ 88 $ 470
------ ------ ------
------ ------ ------
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax assets and liabilities at January 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Volume/cash discounts $ 430 $ -
Accrued liabilities 440 380
Valuation reserves 672 240
Uniform capitalization 300 80
Capital leases 118 80
------- --------
$ 1,960 $ 780
------- --------
------- --------
Deferred tax liabilities:
Volume/cash discounts $ - $ (670)
Purchase incentives (2,360) (690)
Depreciation and amortization (2,498) (900)
------- --------
(4,858) (2,260)
------- --------
Net deferred tax liability $(2,898) $ (1,480)
------- --------
------- --------
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LEASES
OPERATING LEASES
The Company leases retail stores under agreements which expire at various
dates through 2017. Several leases contain escalation clauses and/or options
to renew at negotiated or specified minimum lease payments for periods
ranging from one to 30 years beyond the initial noncancelable lease terms.
Total rent expense charged to operations was $7,226,000, $6,132,000 and
$4,119,000 for the years ended January 31, 1999, 1998 and 1997, respectively.
CAPITAL LEASES, INCLUDING RELATED PARTY LEASES (in thousands)
The following property is held under capital leases:
<TABLE>
<CAPTION>
JANUARY 31,
1999 1998
------ ------
<S> <C> <C>
Buildings and improvements $2,877 $2,877
Computer equipment 711 711
------ ------
3,588 3,588
Less accumulated depreciation 1,859 1,520
------ ------
$1,729 $2,068
------ ------
------ ------
</TABLE>
The Company leases two retail stores under capital lease agreements with two
principal stockholders of the Company. The lease agreements for the two
retail stores provide for annual rent increases over the initial
noncancelable lease terms. Total rental payments to related parties under
these leases were $261,000, $257,000 and $250,000 for the years ended January
31, 1999, 1998 and 1997, respectively.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LEASES (CONTINUED)
The aggregate minimum annual rental commitments as of January 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR ENDED JANUARY 31, LEASES LEASES
--------- --------
<S> <C> <C>
2000 $ 7,404 $ 466
2001 7,428 333
2002 7,432 347
2003 7,136 352
2004 7,229 356
2005-2017 62,867 2,623
--------- -------
Total minimum lease payments $99,496 4,477
--------- -------
--------- -------
Less amount representing interest 2,428
-------
Present value of net minimum lease payments 2,049
Less portion due within one year 208
-------
Long term capital lease obligations $1,841
-------
-------
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan for the benefit of substantially all
employees. The Plan provides for both employee and employer contributions.
The Company matches 25% of the employee's contribution limited to 1.5% of the
employee's annual compensation subject to limitations set annually by the
Internal Revenue Service. The Company's contributions were $274,000, $268,000
and $235,000 for the years ended January 31, 1999, 1998 and 1997,
respectively.
9. MERGER
On June 27, 1997, the Company completed a merger in which the Company
acquired all of the outstanding shares of Audio King Corporation. Audio King,
a consumer specialty electronics company, operated 11 retail stores; eight in
Minnesota, two in Iowa and one in South Dakota. The purchase price consisted
of $2.5 million in cash, 986,432 shares of Ultimate Electronics' common stock
valued at $2.6 million, assumed debt of $7.2 million, and other expenses and
severance costs of $1.4 million. The transaction was accounted for as a
purchase, whereby the purchase price has been allocated to the
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. MERGER (CONTINUED)
acquired assets and liabilities based on estimated fair value at the
acquisition date. The transaction resulted in the Company recording goodwill
in the amount of $2.7 million, which is being amortized over a 10 year life.
Amortization expense for fiscal years 1999 and 1998 was $268,000 and
$142,000, respectively. Total accumulated amortization was $410,000 at
January 31, 1999.
10. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
--------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1999
Sales $ 70,882 $ 71,182 $ 79,441 $115,949
Gross profit 18,260 21,903 24,403 33,034
Income (loss) from operations (2,438) 1,228 2,952 6,848
Net income (loss) (2,211) 58 1,250 3,813
Earnings (loss) per share-basic (.27) .01 .15 .47
Earnings (loss) per share-diluted (.27) .01 .15 .45
FISCAL 1998
Sales $ 55,508 $ 61,944 $ 81,990 $106,864
Gross profit 14,450 16,914 22,850 28,628
Income from operations 290 299 927 2,705
Net income (loss) (311) (422) (115) 996
Earnings (loss) per share-basic (.04) (.06) (.01) .12
Earnings (loss) per share-diluted (.04) (.06) (.01) .12
</TABLE>
24
<PAGE>
Report of Management
FINANCIAL STATEMENTS
The management of the Company has prepared the accompanying consolidated
financial statements and is responsible for their integrity and objectivity.
The statements, which include amounts that are based on management's best
estimates and judgments, have been prepared in conformity with generally
accepted accounting principles, and are free of material misstatement.
Management also prepared the other information in the annual report and is
responsible for its accuracy and consistency with the financial statements.
INTERNAL CONTROL SYSTEM
The Company maintains a system of internal control over financial reporting
that is designed to provide reasonable assurance to the Company's management
and board of directors regarding the preparation of reliable published annual
and interim financial statements. The system contains self-monitoring
mechanisms, and actions are taken to correct deficiencies as they are
identified. Even an effective control system, no matter how well designed,
has inherent limitations (including the possibility of the circumvention of
overriding controls) and therefore can provide only reasonable assurance with
respect to financial statement preparation. Further, because of changes in
conditions, internal control system effectiveness may vary over time.
The Company assessed its internal control system as of January 31, 1999 in
relation to criteria for effective internal control over the preparation of
its published annual and interim financial statements described in "Internal
Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, the
Company believes that, as of January 31, 1999, its system of internal control
over the preparation of its published annual and interim financial statements
met those criteria.
J. Edward McEntire
Chief Executive Officer
Alan E. Kessock
Vice President - Finance and Administration, Chief Financial
Officer and Corporate Secretary
March 10, 1999
25
<PAGE>
Report of Independent Auditors
The Stockholders and Board of Directors
Ultimate Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Ultimate
Electronics, Inc. and subsidiary ("the Company") as of January 31, 1999 and
1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
January 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ultimate
Electronics, Inc. and subsidiary at January 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
March 10, 1999
26
<PAGE>
COLORADO
Arvada
6490 Wadsworth Blvd.
303-425-6700
Boulder
1955 28th Street
303-442-3600
Colorado Springs *
1230 North Academy
719-591-1400
Denver
1370 5. Colorado Blvd.
303-759-5401
Englewood
9657 E. County Line Rd.
303-754-0450
Fort Collins
4606 5. Mason Street
970-223-3666
Highlands Ranch
8262 5. University Ave.
303-779-5003
Lakewood
14391W. Colfax Ave.
303-277-9299
Littleton
8196 W. Bowles Ave.
303-979-8900
Thornton *
321 W. 84th Ave.
303-657-5880
IDAHO
Boise *
1085 N. Milwaukee Ave.
208-377-2780
IOWA
Cedar Rapids *
4701 First Ave. SE
319-393-7900
Des Moines *
4100 Merle Hay Rd.
515-253-9200
MINNESOTA
Brooklyn Center
5939 John Martin Drive
612-566-2360
Burnsville
14232 Burnhaven Drive
612-435-8933
Edina
7435 France Ave. South
612-830-0010
Maplewood
1868 Beam Ave.
651-770-0108
Minnetonka
12350 Wayzata Blvd
612-546-4040
Rochester
103 Apache Mall
507-288-1563
Roseville
1723 West County Rd. B-2
651-636-3686
St. Cloud
2716 Division Street
320-253-5099
FASTTRAK SERVICE*
3501 South Highway 100
St. Louis Park
612-920-2900
NEVADA
Las Vegas
741 S. Rainbow Blvd.
702-456-8800
Las Vegas
2555 E. Tropicana Ave.
702-456-8800
NEW MEXICO
Albuquerque *
3821 Menaul Blvd. NE
505-884-3005
OKLAHOMA
Tulsa *
10021 East 71st Street S.
918-250-3664
SOUTH DAKOTA
Sioux Falls
970 Empire Mall
605-361-0321
UTAH
Layton
879 West Hillfield Rd.
801-543-3313
Murray
6284 South State Street
801-281-4259
Orem
1375 South State Street
801-225-2211
Salt Lake City
1130 E. Brickyard Rd.
801-466-7766
UTAH REPAIR CENTER *
45 West Senior Way
South Salt Lake City
801-463-1011
*Locations with repair services.
Ultimate Electronics-Registered Trademark-, SoundTrak-SM-, Audio
King-Registered Trademark-, Fast Trak-Registered Trademark-,
and Simple Solution-TM- are service marks of the Company.
27
<PAGE>
STOCKHOLDER INFORMATION
STOCK LISTING
The common stock of Ultimate Electronics, Inc. is listed on The Nasdaq Stock
Market-SM- under the symbol ULTE.
PRICE PER SHARE INFORMATION
The high and low closing prices for the past two years were as follows:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Quarter ended April 30, 1997 4 2 5/8
Quarter ended July 31, 1997 3 5/8 2 11/16
Quarter ended October 31, 1997 5 3 1/16
Quarter ended January 31, 1998 4 1/4 2 3/4
Quarter ended April 30 1998 4 1/4 2 7/8
Quarter ended July 31, 1998 4 3/8 2 13/16
Quarter ended October 31, 1998 4 1/4 2 1/4
Quarter ended January 31, 1999 9 3/8 2 7/16
</TABLE>
DIVIDEND POLICY
The Company has paid no dividends on its common stock since its initial
public offering on October 15, 1993 and currently has no plans to pay
dividends.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
South St. Paul, Minnesota 55075
800-468-9716
AUDITORS
Ernst & Young LLP
370 17th Street, Suite 4300
Denver, Colorado 80202
GENERAL COUNSEL
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
ANNUAL MEETING
The annual meeting of Stockholders is scheduled for June 15, 1999 at 8:30
a.m. at the Company's corporate office, 321 West 84th Ave., Suite A,
Thornton, Colorado 80221.
FORM 10-K
Copies of the Company's Annual Report on Form 10-K for the year ended January
31, 1999 may be obtained free of charge by writing to Ultimate Electronics,
Inc., Stockholders Relations, 321 West 84th Avenue, Suite A, Thornton,
Colorado 80221, 303-412-2500.
OFFICERS
William J. Pearse
CHAIRMAN OF THE BOARD
J. Edward McEntire
CHIEF EXECUTIVE OFFICER
David J. Workman
PRESIDENT AND
CHIEF OPERATING OFFICER
Neal A. Bobrick
VICE PRESIDENT -
SALES AND STORE OPERATIONS
Alan E. Kessock
VICE PRESIDENT -
FINANCE AND ADMINISTRATION
AND CHIEF FINANCIAL OFFICER
DIRECTORS
William J. Pearse
DIRECTOR AND CHAIRMAN
OF THE BOARD OF THE COMPANY
J. Edward McEntire
DIRECTOR AND CHIEF EXECUTIVE
OFFICER OF THE COMPANY
David J. Workman
DIRECTOR; PRESIDENT AND
CHIEF OPERATING OFFICER
OF THE COMPANY
Alan E. Kessock
DIRECTOR, VICE PRESIDENT -
FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER
OF THE COMPANY
Robert W. Beale
DIRECTOR OF THE COMPANY
CHIEF EXECUTIVE OFFICER OF
BEALE INTERNATIONAL, A
MANAGEMENT CONSULTING FIRM
Randall F. Bellows
DIRECTOR OF THE COMPANY
CO-FOUNDER OF COBE LABORATORIES, NOW RETIRED
VISIT OUR WEB-SITE AT www.ultimateelectronics.com
28
<PAGE>
EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Ultimate Electronics, Inc. of our report dated March 10, 1999,
included in the 1999 Annual Report to Stockholders of Ultimate Electronics,
Inc.
Our audits also included the financial statement schedule of Ultimate
Electronics, Inc. listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-94636, No. 33-92256, No. 33-92258 and No.
333-43049) pertaining to the SoundTrack 401(k) Retirement Savings Plan, the
Non-employee Director Stock Option Plan, the Employee Stock Option Plan and
the Equity Incentive Plan, respectively, of Ultimate Electronics, Inc. of our
report dated March 10, 1999 with respect to the consolidated financial
statements and schedule of Ultimate Electronics, Inc. included or
incorporated by reference in this Annual Report (Form 10-K) for the year
ended January 31, 1999.
/s/ Ernst & Young LLP
Denver, Colorado
May 1, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 4,421
<SECURITIES> 0
<RECEIVABLES> 18,124
<ALLOWANCES> 310
<INVENTORY> 46,908
<CURRENT-ASSETS> 70,230
<PP&E> 65,844
<DEPRECIATION> 19,208
<TOTAL-ASSETS> 121,904
<CURRENT-LIABILITIES> 43,490
<BONDS> 15,171
0
0
<COMMON> 81
<OTHER-SE> 47,594
<TOTAL-LIABILITY-AND-EQUITY> 121,904
<SALES> 337,454
<TOTAL-REVENUES> 337,454
<CGS> 239,854
<TOTAL-COSTS> 239,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,957
<INCOME-PRETAX> 4,633
<INCOME-TAX> 1,723
<INCOME-CONTINUING> 2,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,910
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
