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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended April 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ________ to ________
Commission file number 0-22532
ULTIMATE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0585211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
321 WEST 84TH AVENUE, SUITE A, THORNTON, COLORADO 80260
(Address of principal executive offices, zip code)
(303) 412-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of outstanding shares of common stock as of June 12, 2000 was
10,734,632.
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ULTIMATE ELECTRONICS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: Page No.
<S> <C>
Condensed Consolidated Balance Sheets as of April 30, 2000
(unaudited) and January 31, 2000 .................................... 3
Consolidated Statements of Operations for the three months ended
April 30, 2000 (unaudited) and April 30, 1999 (unaudited)............ 4
Condensed Consolidated Statements of Cash Flows for the three
months ended April 30, 2000 (unaudited) and April 30, 1999
(unaudited).......................................................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)..... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk........... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 11
Item 2. Changes in Securities................................................ 11
Item 3. Defaults Upon Senior Securities...................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.................. 11
Item 5. Other Information.................................................... 11
Item 6. Exhibits and Reports on Form 8-K..................................... 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ULTIMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
April 30, January 31,
2000 2000
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<S> <C> <C>
(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 7,897 $ 17,311
Accounts receivable, net 16,527 20,420
Merchandise inventories 60,235 51,269
Investments available for sale -- 12,003
Other assets 2,254 2,331
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Total current assets 86,913 103,334
Property and equipment, net 57,418 52,261
Property under capital leases, including related
parties, net 1,439 1,473
Goodwill, net 1,957 2,026
Other assets 515 935
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Total assets $148,242 $160,029
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 33,873 $ 27,626
Accrued liabilities 14,291 21,322
Deferred revenue 2,846 3,066
Other current liabilities 338 394
-------- --------
Total current liabilities 51,348 52,408
Bonds payable -- 11,700
Deferred revenue, less current portion 4,490 5,111
Capital lease obligations, including related parties 1,736 1,760
Other long term liabilities 160 178
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Total long term liabilities 6,386 18,749
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 - 15,000,000
Issued and outstanding shares:
10,729,899 and 10,705,318 at April 30, 2000
and January 31, 2000 107 107
Additional paid-in capital 70,883 70,801
Retained earnings 19,518 17,964
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Total stockholders' equity 90,508 88,872
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Total liabilities and stockholders' equity $148,242 $160,029
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
3
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ULTIMATE ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-----------------------
2000 1999
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<S> <C> <C>
Sales $95,006 $78,398
Cost of goods sold 65,285 55,212
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Gross profit 29,721 23,186
Selling, general and administrative expenses 26,821 21,987
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Income from operations
Interest expense, net 2,900 1,199
8 681
------- -------
Income before taxes and extraordinary item 2,892 518
Income tax expense 1,084 198
------- -------
Income before extraordinary item 1,808 320
Extraordinary loss on early extinguishment of debt,
net of taxes 254 --
------- -------
Net income $ 1,554 $ 320
======= =======
Earnings per share before extraordinary item - Basic $ .17 $ .04
Earnings per share before extraordinary item - Diluted $ .16 $ .04
Earnings per share - Basic $ .15 $ .04
Earnings per share - Diluted $ .14 $ .04
Weighted average shares outstanding - Basic 10,714 8,163
Weighted average shares outstanding - Diluted 11,336 8,766
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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ULTIMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities $ (2,764) $(1,619)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments available for sale 12,003 --
Purchases of property and equipment (6,937) (709)
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Net cash provided by (used in) investing activities 5,066 (709)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term bonds payable (11,700) --
Net borrowings under revolving credit agreement -- 687
Principal payments on term loans and capital lease
obligations (98) (159)
Proceeds from exercise of stock options 82 6
-------- -------
Net cash (used in) provided by financing activities (11,716) 534
-------- -------
Net decrease in cash and cash equivalents (9,414) (1,794)
Cash and cash equivalents at beginning of period 17,311 4,421
-------- -------
Cash and cash equivalents at end of period $ 7,897 $ 2,627
======== =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
5
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ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Ultimate Electronics, Inc. is a leading specialty retailer of home
entertainment and consumer electronics products. The Company operates
thirty-one stores, including ten stores in Colorado under the trade name
SoundTrack, thirteen stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma,
South Dakota and Utah under the trade name Ultimate Electronics and eight
stores in Minnesota under the trade name Audio King.
The Company's unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted
accounting principles for interim financial reporting and the regulations
of the Securities and Exchange Commission for quarterly reporting.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of the Company, the statements include all adjustments,
consisting only of normal recurring adjustments, which are necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods. Operating results for the three month period
ended April 30, 2000 are not necessarily indicative of the results that may
be expected for the year ending January 31, 2001. Seasonal fluctuations in
sales of the Company's products result primarily from the purchasing
patterns of individual consumers during the holiday shopping season. These
patterns tend to moderately concentrate sales in the latter half of the
year, particularly in the fourth quarter. For further information, refer to
the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 31, 2000 and other
filings with the Securities and Exchange Commission.
PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the
accounts of all subsidiaries. All intercompany accounts and transactions
have been eliminated upon consolidation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations and the financial statements and accompanying
notes contain statements that are not historical facts but are
forward-looking statements that involve risks and uncertainties that
could cause future results to vary materially from projected results.
Such statements address activities, events or developments that the
Company expects, believes, projects, intends, estimates, plans or
anticipates will, should, could or may occur, including reference to
future profitability and steps being taken to achieve that result.
Factors that could cause actual results to differ materially from the
Company's projections, forecasts, estimates and expectations include,
but are not limited to: risks related to the Company's ability to open
and operate new stores; the Company's ability to profitably relocate
and/or expand existing stores and the willingness of vendors to permit
product sales over the internet; significant competition, including
new competition from internet retailers; seasonal fluctuations in the
Company's business; changes in trade regulations and currency
fluctuations; risks regarding increases in promotional activities of
competitors; the presence or absence of new products or product
features in the Company's merchandise categories; changes in the
distribution strategy of the Company's vendors; changes in vendor
support for advertising and promotional programs; changes in the
Company's merchandise sales mix; the results of financing efforts;
fluctuations in consumer demand and preferences and general economic
conditions. Please refer to a discussion of these and other factors in
the Company's Annual Report on Form 10-K for the year ended January
31, 2000 and other filings with the Securities and Exchange
Commission. The Company disclaims any intent or obligation to update
publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
RESULTS OF OPERATIONS
Sales for the three months ended April 30, 2000 increased 21% to $95.0
million from $78.4 million for the three months ended April 30, 1999.
Sales of comparable stores were up 18% for the three months ended
April 30, 2000. Sales of new digital technology products such as DVD,
HDTV and digital camcorders were the primary drivers of the comparable
store sales growth.
Gross profit for the three months ended April 30, 2000 increased 28%
to $29.7 million (31.3% of sales) from $23.2 million (29.6% of sales)
for the three months ended April 30, 1999. This increase in gross
profit was related to the strong sales in the digital categories
listed above as well as the change in the Company's extended
warranty program.
Selling, general and administrative expenses for the three months
ended April 30, 2000 increased 22% to $26.8 million (28.2% of sales)
from $22.0 million (28.1% of sales) for the three months ended April
30, 1999 primarily as a result of the increased sales.
As further discussed in the Company's 10-K for the year ended
January 31, 2000, the Company changed its accounting with respect
to the recognition of revenues from the sale of obligor contracts
as a result of a November 1999 clarification made by the Securities
and Exchange Commission. The Company gave retroactive effect to
this change by restatement of its previously published financial
statements beginning with fiscal year 1996 (refer to the Company's
report on Form 8-K filed on February 11, 2000 for the impact of the
restatement on prior periods).
Effective February 1, 2000 the Company restructured its extended
warranty master contract with the Administrator such that the
extended warranty contracts sold after February 1, 2000 will
generally qualify as non-obligor contracts. The Company now
recognizes revenues from the sale of non-obligor contracts at the
time of sale. This change impacted sales and gross margins
positively while selling, general and administrative expenses were
negatively impacted for the three months ended April 30, 2000.
As a result of the foregoing, the Company recorded income from
operations of $2.9 million (3.1% of sales) for the three months ended
April 30, 2000, compared to income from operations of $1.2 million
(1.5% of sales) for the three months ended April 30, 1999.
Net interest expense decreased to $8,000 for the three months ended
April 30, 2000 from $681,000 for the three months ended April 30,
1999. This decrease was partially due to lower average amounts
outstanding under the Company's revolving line of credit. The Company
used a portion of the proceeds from its secondary stock offering
completed in October 1999 (the "1999 Offering") to pay off $6.8
million then outstanding under its line of credit on October 22, 1999.
In addition, the Company redeemed, in full, its 10.25% bonds on March
31, 2000, which decreased interest expense compared to the prior year
first quarter. Lastly, interest expense for the three months ended
April 30, 2000 was offset
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by $0.3 million of interest income on the Company's investment
portfolio acquired with proceeds from the 1999 Offering. There was no
interest income recorded in the first quarter of the prior year.
Extraordinary loss on early extinguishment of debt of $254,000 (net of
taxes) relates to the repayment, in full, of the Company's 10.25%
bonds on March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity for funding
expansion and growth have been net cash from operations, revolving
credit lines, term debt and issuances of common stock. The Company's
primary cash requirements are related to expenditures for new store
openings and the relocation and/or remodeling of existing store
locations. This includes preopening expenses and additional inventory
for new or relocated stores, as well as working capital to support the
Company's inventory requirements and selling, general and
administrative expenses. The Company currently operates a total of 31
stores in nine states.
Net cash used in operating activities was $2.8 million for the three
months ended April 30, 2000 compared to net cash used in operating
activities of $1.6 million for the three months ended April 30, 1999.
Net cash provided by investing activities was $5.1 million for the
three months ended April 30, 2000 compared to net cash used in
investing activities of $0.7 million for the three months ended April
30, 1999. During the first quarter of the current year, the Company
received $12.0 in proceeds from the sale of an investment available
for sale, which matured on March 29, 2000. The Company had capital
expenditures of $6.9 million directly related to new store openings
and the relocation and expansion of an existing store location during
the three months ended April 30, 2000 compared to $0.7 million in the
comparable quarter of the previous year.
Net cash used in financing activities was $11.7 million for the three
months ended April 30, 2000 compared to net cash provided by financing
activities of $0.5 million for the three months ended April 30, 1999.
Cash used in financing activities for the three months ended April 30,
2000 related primarily to repayment, in full, of the Company's 10.25%
bonds on March 31, 2000.
The Company intends to expand into select metropolitan areas in the
Rocky Mountain, Midwest and Southwest regions with 30,000 to 36,000
square foot stores. In certain smaller markets, the store size may be
as small as 20,000 square feet. With the exception of the Thornton
facility, all current stores are leased. The Company opened its 31st
store, a new 38,000 square foot store in Davenport, Iowa on December
3, 1999. For fiscal 2001, the Company expects to open five new stores:
four in the Phoenix, Arizona metropolitan area and one in Colorado
Springs, Colorado. The Company currently anticipates opening two of
the Phoenix stores late in the second quarter of fiscal 2001 and two
additional Phoenix stores and the Colorado Springs store early in the
holiday selling season of fiscal 2001. The Company expects to open
eight to twelve additional stores in fiscal 2002. Leases and/or
contracts for all of the Phoenix stores and the Colorado Springs
store have been signed.
The Company continues to analyze new store opportunities in existing
markets to replace or expand some of its smaller locations. In
November 1999, the Company expanded a Minneapolis, Minnesota store
from 9,700 to 17,300 square feet. In December 1999, the Company
relocated and expanded its Sioux Falls, South Dakota store from 3,200
to 22,200 square feet. In May 2000, the Company relocated a 9,300
square foot store located in the Minneapolis/St. Paul area to a 35,000
square foot store. The Company's Fort Collins, Colorado store is also
expected to be expanded from 16,600 to 22,000 square feet in fiscal
2001. The Company also expects to relocate and expand its Arvada,
Colorado store within the next 12 months and will be analyzing
opportunities in the Minneapolis/St. Paul area over the next few years
to relocate and/or expand a number of those locations.
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The cost of these future stores is anticipated to average $3.0 million
per store. Leasehold improvements, fixtures and equipment are expected
to average $1.9 million, depending on tenant allowances. The inventory
requirement for the Company's new stores is expected to average
approximately $1.5 million, approximately $750,000 of which will be
financed through trade credit. Preopening expenses for new stores are
expected to average $350,000, 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 are expected to average $150,000 and will be
higher if the Company is forced to terminate existing store leases
prior to their maturity.
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.
On September 30, 1998, the Company executed a three year $40 million
credit agreement, as amended, with Foothill Capital Corporation , a
wholly owned subsidiary of Norwest Bank. Borrowings under this
revolving line of credit are limited to the lesser of $40 million or
80% of eligible inventory and a portion of accounts receivable. As of
April 30, 2000, the entire facility was available to the Company and
no amounts were outstanding. Borrowings bear interest, payable
monthly, based on a blend of LIBOR plus 2% and Norwest Bank's prime
rate minus 0.375%. Inventories, accounts receivable, equipment and
intangibles secure the borrowings. The facility includes negative
covenants that limit the Company's ability to, without the bank's
prior approval, and subject to various exceptions, incur indebtedness,
create liens, enter into mergers and consolidations, pay dividends,
repurchase the Company's capital stock, issue guarantees, sell or
engage in transactions with affiliates. The facility also contains
covenants regulating the Company's gross margins, inventory levels,
tangible net worth and capital expenditures. The Company was in
compliance with all borrowing covenants as of April 30, 2000.
On March 23, 1995, the Company completed an offering for the sale of
$13,000,000 aggregate principal amount of bonds payable (the "Bonds").
On March 31, 2000, the Company paid $13,111,000 to redeem the Bonds in
full. The Bonds were redeemable by the Company at par any time at or
after March 31, 2000. The Bonds were redeemed at a redemption price of
100% of the principal amount and all accrued and unpaid interest as of
such date, which totaled $111,000. As a result of the redemption of
the Bonds, the Company recognized an extraordinary loss of $254,000
(net of taxes).
The Company believes that its cash flows from operations and
borrowings under its credit facility will be sufficient to fund the
Company's operations, debt repayment and expansion through fiscal
2001. To fund the capital requirements for its anticipated expansion
plans beyond fiscal 2001, 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. The Company may also re-mortgage its Thornton facility.
There can be no assurance that the Company will be able to obtain such
funds on favorable terms, if at all.
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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). Due to the importance of the
holiday shopping season, any factors negatively impacting the holiday
selling season could have a material adverse impact on the Company's
financial condition and results of operations. Operating results are
dependent upon a number of factors, including discretionary consumer
spending, which is affected by local, regional and 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;
- expenses related to relocation and expansion;
- unexpected changes in volume related rebates from manufacturers;
- the success of new stores; and
- the impact of new stores on existing stores.
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 and product
availability.
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
during the last few years.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses the Company's exposure to market risks related
to changes in interest rates and other general market risks. All of
the Company's investment and financing decisions are supervised or
managed by its executive committee. This discussion contains
forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a
number of factors, including, but not limited to, changes in interest
rates and other general market risks, and those set forth in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" appearing elsewhere in this Form 10-Q.
CASH AND CASH EQUIVALENTS. As of April 30, 2000, the Company had $7.9
million in cash and cash equivalents, which was not restricted, and
consisted of: (i) approximately $3.2 million invested in overnight
treasury repurchase agreements with an average interest rate of
approximately 5.0%; and (ii) approximately $4.7 million in various
non-interest bearing accounts. Management considers all highly liquid
investments purchased with an original maturity of three months or
less to be cash equivalents. All cash and cash equivalents investments
are readily convertible to known amounts of cash, and so near their
maturity they present insignificant risk of changes in value because
of changes in interest rates. The Company does not expect any material
loss with respect to its cash and cash equivalents as a result of
interest rate changes, and the estimated fair value of its cash and
cash equivalents approximates original cost.
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OUTSTANDING DEBT OF THE COMPANY. The Company had a $40 million
revolving line of credit on April 30, 2000. Borrowings under the line
of credit bear interest, payable monthly, based on a blend of LIBOR
plus 2% and Norwest Bank's prime rate minus 0.375%. The Company had no
outstanding borrowings under this credit facility as of April 30,
2000. Increases in interest rates could, however, increase interest
expense associated with future borrowings by the Company, if any. The
Company has not hedged against interest rate changes.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is a party to certain legal proceedings
arising in the ordinary course of its business. Management believes
that any resulting liability, individually or in the aggregate, will
either be covered by insurance or will not have a material adverse
effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
On March 31, 2000 the Company redeemed in full its outstanding 10.25%
mortgage bonds. There are no remaining bonds outstanding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Documents filed with this report:
27 Financial Data Schedule
(b) Reports on Form 8-K:
Report on Form 8-K filed with the Commission on February 11, 2000
announcing the Registrant's intention to redeem its outstanding
10.25% mortgage bonds on March 31, 2000.
Report on Form 8-K filed with the Commission on February 11, 2000
announcing the Registrant's change in accounting policy for
insured extended service contracts and the resulting restatement
of previously published financial statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ultimate Electronics, Inc.
Date: June 14, 2000 By: /s/ Alan E. Kessock
--------------- -------------------------
Alan E. Kessock
Senior Vice President, Chief Financial
Officer, Secretary and a Director
(Principal Financial and Accounting Officer)
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