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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
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
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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, 80260
THORNTON, COLORADO (Zip code)
(Address of principal executive
offices)
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
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. / /
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant as of April 27, 2001 was approximately
$196,395,865. The number of outstanding shares of Common Stock as of April 27,
2001 was 10,956,065.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Stockholders for the fiscal year ended
January 31, 2001 are incorporated by reference into Parts II and IV of this
report. Portions of the Registrant's definitive Proxy Statement for the 2001
Annual Meeting of Stockholders to be held June 21, 2001 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
consumer electronics and home entertainment products in Arizona, Colorado,
Idaho, Iowa, Minnesota, Nevada, New Mexico, Oklahoma, South Dakota and Utah. The
Company currently operates thirty-seven stores, including eighteen stores in
Arizona, Idaho, Iowa, Nevada, New Mexico, Oklahoma, South Dakota and Utah under
the trade name Ultimate Electronics, eleven stores in Colorado under the trade
name SoundTrack and eight stores in Minnesota 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 strives to appeal to a wide range of customers with an emphasis on
selling mid- to high-end products sold by a highly trained, knowledgeable,
full-time sales force in a full service retail environment. The Company believes
its stores enable it to differentiate itself from its national, regional and
local competitors by:
- focusing on audio, video, television, communication and mobile electronics
products;
- offering over 125 brands, including a majority of the most popular names
and a large selection of limited-distribution, upscale brands and lines;
- emphasizing products with the latest technology by dedicating significant
resources to their promotion, advertising, merchandising and related
product training;
- offering Simple Solution packages created by the Company for home theater,
mobile electronics and home computing to make purchasing sophisticated
consumer electronics systems simple;
- using an upscale, demonstration-oriented store format with an emphasis on
presentation of large screen televisions, home audio, communications and
mobile electronics;
- featuring highly trained, knowledgeable, full-time sales associates and
installation technicians; and
- providing a complete menu of value-added services including repair
service, home delivery and mobile and home installation by the Company's
own technicians.
The Company believes that its differentiating characteristics, together with its
policy of offering the same price as its competitors on identical merchandise,
makes the Company an attractive alternative to volume driven
appliance/electronics superstores, as well as to other national, regional and
local merchants. In addition, the Company's commitment to technologically
advanced products, combined with its highly-trained sales force, positions the
Company to take advantage of the evolution in consumer electronics products that
is being led by digital technology.
For the year ended January 31, 2001, sales were $484.4 million, a 26% increase
from sales of $385.0 million for the prior year. Comparable store sales
increased 13% for the year ended January 31, 2001 compared to a 16% increase in
comparable store sales for the year ended January 31, 2000. Gross margins for
the year were 31.4%, compared to 30.0% for the prior 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, video, television, communication
and mobile electronics products. Key elements of the Company's business strategy
include:
FOCUSING ON AUDIO, VIDEO, TELEVISION, COMMUNICATION AND MOBILE ELECTRONICS
PRODUCTS. The Company focuses primarily on audio, video, television,
communication and mobile electronics products, and provides its customers with a
comprehensive and informative experience when making the decision to purchase
consumer electronics products. The Company believes that this specialized focus
enhances the reputation of its stores as being a premier place to purchase
products in these core categories.
OFFERING AN EXTENSIVE SELECTION OF MID- TO HIGH-END AUDIO AND VIDEO
PRODUCTS. The Company offers over 4,100 items, representing over 125 brand
names across a broad selection of audio and video products. A significant
portion of these brands, such as Boston Acoustics, Denon, Krell, Martin Logan,
Mitsubishi and Sony ES, are only available through select retailers. The Company
believes its extensive selection helps customers make a better informed buying
decision.
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BEING A LEADER IN OFFERING NEW TECHNOLOGY. The Company strives to be
recognized by consumers and vendors as a leader in presenting the latest
technology. The Company devotes significant resources to marketing and
substantial floor space and inventory to displaying new technologies. For
example, as a result of this focus, the Company was able to sell and deliver the
first high definition television for residential use in the United States in
July 1998. The Company believes that showcasing the latest technology
differentiates it from less specialized competitors and stimulates the sales of
its other products and services.
OFFERING SIMPLE SOLUTION PRODUCT PACKAGES. The Company assists its
customers in making larger and more complex consumer electronics purchases with
its Simple Solution program. This program, which provides complete system
packages to the Company's customers, makes home theater, car audio and computer
purchase decisions simpler, and offers the consumer an excellent value when
compared to purchasing the same components separately.
USING AN UPSCALE, DEMONSTRATION-ORIENTED STORE FORMAT. The Company has
developed an upscale, demonstration-oriented store format that showcases its
merchandise and encourages its customers to fully experience its products. The
Company believes that this format assists its customers in understanding the
benefits of upscale products and new technology.
TRAINING AND DEVELOPING A PREMIER SALES AND INSTALLATION TEAM. The Company
believes that the quality and knowledge of its sales associates and installation
technicians is critical to the Company's success and represents a significant
competitive advantage. The Company also believes that its specialized training
leads to a superior customer experience that stimulates sales of its products.
The Company ensures that its sales associates receive comprehensive ongoing
technical product and sales training prior to the Company's introduction of
significant new products, which helps the Company maintain its new technology
product leadership. The Company's installation technicians also receive
comprehensive technical product and installation training.
PROVIDING "RED CARPET" CUSTOMER SERVICE. The Company has always been
committed to providing excellent customer service. The Company supports its
product sales by providing many important customer services, including home
delivery and setup, home theater and audio design and installation, extended
service contracts and regional service centers that offer in-home and carry-in
repair services. The Company believes that its in-home installation service,
provided by its own employees, is a competitive advantage.
PROMOTING MERCHANDISE THROUGH DIFFERENTIATED MARKETING AND ADVERTISING. The
Company recently redesigned its marketing program to create awareness of its
comprehensive selection of mid- to high-end brand name merchandise sold at
competitive prices. The Company's advertising strategy primarily uses newspaper,
radio and targeted direct mail media. The cornerstone of the Company's direct
mail campaign is an approximate 100 page full-color catalog published four times
a year that emphasizes the breadth of its selection and new technology.
OFFERING COMPETITIVE PRICING AND SATISFACTION GUARANTEE. The Company's goal
is to advertise and sell products at the same price as its competitors. The
Company reinforces this strategy in its advertising and with its "30-day
satisfaction guarantee" backed by its "60-day price guarantee." The Company's
price guarantee and satisfaction guarantee are designed to remove pricing and
suitability concerns from the purchase decision and allow the customer and the
sales staff to focus on product features, performance and quality.
EXPANSION STRATEGY
The Company intends to continue to expand into select metropolitan areas in the
Rocky Mountain, Midwest and Southwest regions with 30,000 to 34,000 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, Colorado facility, all current
stores are leased. On July 27, 2000 the Company entered the Phoenix, Arizona
metropolitan area with two new stores. The Company opened its third Phoenix area
store on November 21, 2000 and a fourth store on December 6, 2000. The Company's
fifth Phoenix area store opened on February 28, 2001. The Company expects to
open three additional stores in the Phoneix metropolitan area over the next
twelve months. The Company opened its second store in Colorado Springs, Colorado
on November 8, 2000. On September 11, 2000 the Company announced its entrance
into the Oklahoma City, Oklahoma market with plans to open two new stores in the
summer of fiscal 2002. On October 31, 2000 the Company announced plans for six
new stores in the St. Louis, Missouri area with two to four stores expected to
open in fiscal 2002 and the balance in the following year.
The Company continues to analyze new store opportunities in existing markets to
replace or expand some of its smaller locations. In May 2000 the Company
relocated a 9,300 square foot store located in the Minneapolis/St. Paul area to
a 35,600 square foot store. The Company expects to expand its Fort Collins,
Colorado store from 16,600 to 22,000 square feet in fiscal 2002. The Company
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 $3.3 million per
store. Leasehold improvements, fixtures and equipment are expected to average
$2.2 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 required 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 that
take into account numerous factors including local demographics, traffic
patterns, highway visibility and overall retail activity.
MERCHANDISING
PRODUCTS. The Company offers its customers a comprehensive selection of
high quality, brand name audio, video, television, communication and mobile
electronics products as well as a limited selection of home office products.
This selection consists of over 4,100 SKU's, representing approximately 125
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.
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
PRODUCT CATEGORY 2001 2000 1999
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Television/DBS 33% 31% 31%
Audio 22% 24% 24%
Video/DVD 18% 17% 15%
Mobile 10% 12% 13%
Home Office 5% 6% 7%
Other 12% 10% 10%
Audio includes home audio products as well as portable audio. Mobile includes
car audio, car security and wireless communications. Video/DVD includes VCRs and
Camcorders. Other includes installation services, repair services, net
commissions on extended service contracts and furniture.
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.
The Company's commitment to offering 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
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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, 2001, the Company's ten largest
suppliers accounted for approximately 70% of the merchandise purchased by the
Company. Three of the Company's suppliers, Sony, Panasonic and Mitsubishi,
accounted for approximately 46% 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.
STORE OPERATIONS
STORES. The Company currently operates thirty-seven stores, comprised of
eighteen Ultimate Electronics stores in Arizona, Idaho, Iowa, Nevada, New
Mexico, Oklahoma, South Dakota and Utah, eleven SoundTrack stores in Colorado
and eight Audio King stores in Minnesota. Of these thirty-seven stores,
twenty-four are larger format stores and the balance are smaller format stores.
While the Company's twenty-four larger stores vary in size from approximately
22,200 to 50,500 square feet, the Company's current prototype store generally
ranges from 30,000 to 34,000 square feet, with approximately 55% to 65% of the
square footage devoted to selling space. The remaining space is dedicated to a
car audio installation facility, a store warehouse, general office space and, in
selected stores, a service facility. This store format emphasizes mid- to
high-end products, and features multiple home audio and car demonstration rooms,
multiple home theater settings, extensive portable electronics displays and an
area displaying 35 to 45 projection televisions. Each of these stores has
displays designed to provide the customer with a full spectrum of the Company's
products, installation of mobile electronics, a home theater planning center and
two automobiles equipped with the latest in car audio and video, car security
and navigational products.
Twelve of the Company's stores range in size from approximately 10,000 to 20,700
square feet, with approximately 60% to 65% of the square footage devoted to
selling space. These stores generally contain the same products and services
available at the Company's large format stores except that they typically
contain fewer large screen televisions and fewer demonstration rooms for home
and mobile electronics. The Company may relocate and/or expand a number of these
stores as opportunities become available. The Company also operates a 3,900
square foot mall-based store that it acquired as part of the 1997 merger with
Audio King.
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 75 miles of this warehouse. For stores over 100 miles away from
Denver, the Company uses contract carriers for distribution from its warehouse.
During fiscal 2001, the Company began a warehouse expansion and warehouse
management system implementation project. Phase I of the project, scheduled for
completion in May 2001, includes the installation of warehouse management system
software and the reconfiguration of the existing warehouse space. Phase II of
the project, scheduled for completion in October 2001, will increase the size of
the existing warehouse by 51,000 square feet. Expenditures on this project as of
January 31, 2001 equaled approximately $3.0 million. The Company anticipates
total expenditures to equal approximately $8.0 to $8.5 million.
MANAGEMENT INFORMATION SYSTEMS. The Company's management information
system, using proven third party software, was installed in August 1990 and has
been upgraded with enhancements nearly every subsequent year. In addition, the
system runs on Unix-based Hewlett-Packard computer hardware which will be
upgraded to accommodate future growth. This system's software was successfully
upgraded during calendar year 1999 to be Year 2000 compliant, and is expected to
support the Company's current 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. New signage can be generated on a daily basis.
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
5
techniques. Sales consultants regularly attend in-house training sessions
conducted by dedicated in-house trainers and manufacturers' representatives.
They 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.
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, Davenport, Las Vegas, Minneapolis,
Phoenix, 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
approximately 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 200 customer
service vehicles to provide in-home repair and delivery, installation and setup
of home satellites, home theater components and televisions.
The Company sells third-party ("Obligor") 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 also administered by an
unaffiliated third party (the "Administrator"). The Administrator is required by
its agreement with the Company to maintain insurance to protect the Company in
the event that the Obligor fails to fulfill its obligations under the extended
service contracts.
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 2001, approximately 27% 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
principal competitive factors in the consumer electronics industry are breadth
of product selection, price, store location and customer service. The Company
faces competition from large national chains, numerous smaller specialty stores
and consumer electronics departments of many department, discount, and home
improvement stores. 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, Wal-Mart and Target. The Company competes with Circuit
City in every market except Iowa, Sioux Falls, South Dakota and Rochester,
Minnesota. The Company competes with Best Buy in every market except Utah and
Idaho. The Company expects to compete with both Best Buy and Circuit City in
each of its other markets at some point in the future. 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 2002 and beyond by such 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. Further, 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.
EMPLOYEES
As of January 31, 2001, the Company employed approximately 2,400 persons,
approximately 2,100 of whom were store, customer delivery or service employees
and approximately 300 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
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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-Registered Trademark-,
Audio King-Registered Trademark-, Fast Trak-Registered Trademark-, Big Names.
Little Prices. Guaranteed-Registered Trademark-, Simple Solution(SM),
Dashboard-Registered Trademark-, Ultimate Electronics Express(SM) and Affordable
Portable-Registered Trademark- are service marks of the Company.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-K includes statements that are not purely historical facts and 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, 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 and those listed below. Forward-looking statements may
concern, among other things:
- our growth strategy and plans regarding opening new stores and entering
new markets;
- our intention to relocate and/or expand existing stores;
- expected capital and other expenditures to open new and relocated and/or
expanded existing stores;
- our current and future plans with respect to our web site, including
investigation of Internet sales;
- growth trends and projected sales in the consumer electronics business;
- technological and market developments in the consumer electronics
business, including trends with respect to digital products like DVD, HDTV
and other new products;
- our relationships with key suppliers; and
- our expectations regarding competition, including competition on the
Internet.
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 financial condition, results of operations or prospects 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. References to the "Company," "we" and "our" refer to Ultimate
Electronics, Inc.
OUR SUCCESS DEPENDS IN LARGE PART ON OUR ABILITY TO OPEN AND PROFITABLY OPERATE
NEW OR RELOCATED AND/OR EXPANDED STORES IN EXISTING AND NEW GEOGRAPHIC MARKETS
We may not be able to open, relocate and/or expand all of the stores discussed
in our growth strategy and any new stores that we open, relocate and/or expand
may not be profitable, either of which would have a material adverse impact on
our financial results. Opening a new store typically requires six to nine months
of construction and preopening activity. The opening of additional stores in new
geographic markets could present competitive and merchandising challenges
significantly different from those we currently face or previously have faced
within our existing geographic markets. In addition, we will incur higher costs
related to advertising, administration and distribution as we enter new markets,
and our large store format may not be as successful in new markets. Also,
opening new stores in markets where we already have existing stores could result
in decreased sales at our other stores in that market. If we do not open a
significant number of new stores in new markets as anticipated, our sales and
earnings will be significantly negatively impacted and we will not be able to
achieve our current business plan.
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There are a number of other factors that could affect our ability to open and
operate new stores consistent with our business plan. These factors also affect
the ability of any newly opened or acquired stores to achieve sales and
profitability levels comparable with our existing stores, or to become
profitable at all. These factors include:
- competition in our targeted markets;
- the lack of consumer demand for our products at levels that can support
acceptable profit margins;
- the inability to identify and acquire suitable sites and to negotiate
acceptable leases for such sites due to the large size of our stores or
other factors;
- difficulties associated with the hiring, training and retention of skilled
personnel, including store managers;
- problems in adaptation of our distribution and other operational and
management systems to an expanded network of stores;
- higher costs for print, television and radio advertising;
- the availability of adequate financial resources;
- the inability and unwillingness of vendors to supply product on a timely
basis at competitive prices;
- difficulty in obtaining governmental and other third-party consents,
permits and licenses needed to operate such additional sites;
- challenges associated with the financing, consummation and integration of
any acquisitions; and
- the ability to secure our existing brands in new markets.
Our growth plans will require us to expend significant management time and
effort and additional resources to ensure the continuing adequacy of our
financial controls, operating procedures, information systems, product
purchasing and distribution systems and employee training programs. We also need
to attract and retain additional qualified personnel, including new store
managers, for new stores. We currently seek to transfer existing managers and
other personnel to our new stores who are familiar with our procedures but who
may not be familiar with the new market. If we are unable to take these steps,
our business will be adversely affected.
We estimate that the average cash investment, including preopening costs, costs
of tenant improvements and inventory (net of payables), required to open a store
to be approximately $3.3 million. However, the actual cost of opening any
particular store may be significantly greater than this current estimate. We may
need to seek additional debt and/or equity financing in order to fund our
continued expansion beyond fiscal 2002, depending on the number of stores we
actually open and the actual preopening costs. Any such debt or equity financing
may not be available on terms acceptable to us, if at all.
WE FACE SIGNIFICANT COMPETITION FROM NATIONAL, REGIONAL AND LOCAL CONSUMER
ELECTRONICS RETAILERS AND MAY EXPERIENCE HEIGHTENED COMPETITION FROM INTERNET
RETAILERS
The retail consumer electronics industry is highly competitive. We currently
compete against a diverse group of retailers, including several national,
regional and local merchants and appliance/electronics superstores, such as Best
Buy and Circuit City, which sell, among other products, audio and video consumer
electronics products similar and often identical to those we sell. Each of our
stores competes directly with either a Best Buy or a Circuit City, and the
majority of our stores compete with both. We also compete in particular markets
with a substantial number of retailers that specialize in one or more types of
consumer electronics products that we sell. Some of our competitors have
financial resources that are substantially greater than ours and may be able to
purchase inventory at lower costs, initiate and sustain predatory price
competition and better sustain economic downturns. In addition, other
appliance/electronic superstores, warehouse clubs, home improvement retailers
and mass merchants selling consumer electronics, such as Sears, Wal-mart and
Target, are continuing to expand their geographic markets, and such expansion
may increase price competition and reduce gross margins within those markets.
A number of different competitive factors could have a material adverse effect
on our results of operations and financial condition, including:
- expansion by existing competitors;
- entry by new competitors into markets in which Ultimate Electronics is
currently operating;
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- competitive pricing strategies by competitors;
- increased sales by our competitors of upscale products;
- larger size and greater operational efficiencies of competitors; and
- adoption by existing competitors of promotional pricing, innovative store
formats or improved retail sales methods.
We also compete with retailers of consumer electronics on the Internet. We
expect that competition from the Internet will increase in the future as a
result of, among other things, the following factors:
- customers can more easily conduct price comparisons on the Internet, which
could result in decreased margins to us;
- Internet sales by our competitors could enhance price competition;
- the inapplicability of sales tax to Internet sales provides Internet sales
with a competitive advantage and that makes them attractive to consumers;
- lower-end products are currently more susceptible to Internet sales; and
- high-end manufacturers who do not allow their products to be sold over the
Internet may change their strategies, an action that could significantly
impact our margins on those high margin products and which would be beyond
our control.
Although we currently operate an information-based web site on the Internet, we
have not yet invested in the capability to engage in sales directly from the
site. Most of the high-end manufacturers of products we sell currently do not
allow their products to be sold over the Internet. In conjunction with our
manufacturers and their strategies, we continue to actively investigate adding a
sales function to our site. If we make an investment to sell over the Internet,
such investment could be very costly and our sales site may not attract
sufficient profitable sales to justify our investment.
BECAUSE WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR SALES, OUR QUARTERLY RESULTS
WILL FLUCTUATE AND OUR ANNUAL RESULTS COULD BE BELOW EXPECTATIONS
Seasonal consumer shopping patterns affect our business. Our fourth fiscal
quarter includes the holiday shopping season and has historically contributed,
and is expected to continue to represent, a substantial portion of our sales,
income from operations and net income for our entire fiscal year. Any factors
negatively affecting Ultimate Electronics during the fourth quarter of any year,
including adverse weather or unfavorable economic conditions, would have a
material adverse effect on our results of operations for the entire year. More
generally, our quarterly results of operations and financial condition may
fluctuate based upon such factors as:
- the timing of new store openings and store relocations and/or expansions;
- the amount of store preopening expenses;
- the amount of grand opening expenses incurred in new markets;
- the mix of consumer electronics products sold in our stores;
- timing of availability of new products;
- profitability of sales of particular products; and
- actions by our competitors, including grand opening and store closing
sales by competitors.
OUR COMPARABLE STORE SALES RESULTS WILL FLUCTUATE AND THIS MAY CAUSE OUR STOCK
PRICE TO FLUCTUATE
A number of factors have historically affected, and will continue to affect, our
comparable store sales results including among other factors:
- changes in competition;
- general regional and national economic conditions;
- new product introductions;
9
- consumer trends;
- changes in our product mix;
- weather conditions in our regions;
- timing of promotional events; and
- our ability to execute our business strategy effectively.
We do not expect comparable store sales to increase at recent historical rates,
and comparable store sales may be negative in the future. Our historical results
have fluctuated significantly from quarter to quarter. Changes in our quarterly
and annual comparable store sales results could cause the price of our common
stock to fluctuate substantially.
OUR LIMITED GEOGRAPHICAL DISPERSION MAY REDUCE OUR ABILITY TO WEATHER ADVERSE
MARKET EVENTS
Ultimate Electronics currently operates 37 stores in ten states in the Rocky
Mountain, Midwest and Southwest regions of the United States. We are vulnerable
to adverse market events in these locations including weather-related
conditions, regional competition and unfavorable economic conditions.
A DISRUPTION IN OUR RELATIONSHIP WITH, OR IN THE OPERATIONS OF, ANY OF OUR KEY
SUPPLIERS COULD CAUSE OUR SALES TO DECLINE
The success of our business and growth strategy depends to a significant degree
upon our suppliers, particularly our brand name suppliers of audio and video
equipment such as Sony, Mitsubishi, Panasonic, JVC, Yamaha and RCA. We rely on a
number of suppliers for limited distribution upscale items. We also rely on our
suppliers for cooperative advertising support. Ultimate Electronics does not
have any long-term supply agreements or exclusive arrangements with any vendors.
We typically order our inventory through the issuance of individual purchase
orders to vendors. In addition, we rely heavily on a relatively small number of
suppliers. The loss of any of these key vendors or the failure by us to
establish and maintain relationships with these or other vendors could have a
material adverse effect on our results of operations and financial condition.
Our ability to establish additional stores in existing markets and to penetrate
new markets depends to a significant extent on the willingness and ability of
our vendors to supply those additional stores, and vendors may not be willing or
able to do so. As we continue to open or acquire new stores, the inability or
unwillingness of suppliers to supply some or all of their products to us at
acceptable prices in one or more markets could have a material adverse effect on
our results of operations and financial condition.
IF WE ARE UNABLE TO TIMELY RESPOND TO CHANGES IN CONSUMER DEMAND AND
PREFERENCES, WE MAY LOSE CUSTOMERS AND OUR SALES MAY DECLINE
Our success depends on our ability to anticipate and respond in a timely manner
to consumer demand and preferences regarding audio and video consumer
electronics products and changes in such demand and preferences. Any sustained
failure by us to identify and respond to changes in consumer demand and
preferences would have a material adverse effect on our results of operations
and financial condition.
IF NEW PRODUCTS ARE NOT INTRODUCED OR CONSUMERS DO NOT ACCEPT NEW PRODUCTS, OUR
SALES MAY DECLINE
We depend to a large extent on the periodic introduction and availability of new
products and technologies. Many products that incorporate the newest
technologies, such as DVD and HDTV, are subject to significant technological
changes and pricing limitations. They are also subject to the actions and
cooperation of third parties such as television broadcasters and movie
distributors. It is possible that these products or other new products,
including new digital formats, will never achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may depress sales of existing products and
technologies, without a comparable increase in sales of new products in the same
period due to uncertainty regarding consumer acceptance of the new products.
Significant deviation from the projected demand for products we sell may have a
material adverse effect on our results of operations and financial condition,
either from lost sales or lower margins due to the need to mark down excess
inventory.
10
Our historical growth rate has been directly related to our ability to be a
leader in sales of new technology products. In the future, other retailers may
increase their focus on newer technologies. In addition, there may not be
significant technologically advanced products.
A DECLINE IN GENERAL ECONOMIC CONDITIONS COULD LEAD TO REDUCED CONSUMER DEMAND
FOR THE PRODUCTS WE SELL
Consumer spending patterns, particularly discretionary spending for products
such as consumer electronics, are affected by, among other things, prevailing
economic conditions, wage rates, inflation, new housing starts, consumer
confidence and consumer perception of economic conditions. A general slowdown in
the U.S. economy or an uncertain economic outlook would adversely affect
consumer spending habits.
CHANGES IN TRADE REGULATIONS, CURRENCY FLUCTUATIONS AND OTHER FACTORS BEYOND OUR
CONTROL WOULD IMPACT INVENTORY PURCHASED FROM FOREIGN VENDORS
We purchase a significant portion of our inventory from overseas vendors,
particularly vendors headquartered in Japan. Changes in trade regulations,
currency fluctuations or other factors may increase the cost of items we
purchase from foreign vendors or create shortages of such items, which could in
turn have a material adverse effect on our results of operations and financial
condition. Conversely, significant reductions in the cost of such items in U.S.
dollars may cause a significant reduction in retail price levels of those
products, thereby resulting in a material adverse effect on our sales, margins
or competitive position.
OUR BUYING POWER IS SOMEWHAT DEPENDENT UPON MEMBERSHIP IN A BUYING GROUP
We are the largest member of the Progressive Retailers Organization, a volume
buying group comprised of consumer electronics retailers located throughout the
country. This organization provides its members with market information and
negotiates purchase terms with vendors on behalf of its members. Any future
termination of our membership in this group could have an adverse effect on our
results of operations and financial condition. In addition, rebates paid to us
by product manufacturers through this group depend not only on our sales volumes
but on the sales volumes achieved by the group's other members, and therefore
decreased sales performance by us or these other members could reduce the
amounts of such rebates payable to us. Any such reduction could in turn have an
adverse effect on our results of operations and financial condition.
THE LOSS OF THE SERVICES OF OUR CHAIRMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT OR
OTHER KEY EMPLOYEES COULD JEOPARDIZE OUR ABILITY TO MAINTAIN OUR COMPETITIVE
POSITION
We believe that our success depends on the continued service of our key
executive management personnel. Loss of the services of William J. Pearse, our
Chairman, J. Edward McEntire, our Chief Executive Officer, and David J. Workman,
our President and Chief Operating Officer, or other key employees could
jeopardize our ability to maintain our competitive position in the industry. We
do not currently have employment agreements with any of our executives or key
person life insurance for any of our officers or directors.
Our success also depends to a large extent on our ability to recruit, train and
retain qualified personnel throughout our organization and in our stores and
distribution facilities. As is typical in our industry, from time to time we
have had difficulty recruiting sufficient qualified personnel.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD IMPAIR
OUR NAME AND REPUTATION
Ultimate Electronics-Registered Trademark-, Audio King-Registered Trademark-,
Fast Trak-Registered Trademark-, SoundTrack-Registered Trademark- and Big Names.
Little Prices. Guaranteed.-Registered Trademark- are federally registered
trademarks and service marks owned by Ultimate Electronics, Inc., Simple
Solution-SM- and Ultimate Electronics Express-SM- are also service marks owned
by Ultimate Electronics, Inc. for which there are pending applications for
federal registration. The Ultimate SoundTrack is a registered trademark in the
State of Colorado and Audio King and Fast Trak are registered trademarks in the
State of Minnesota that are owned by Ultimate Electronics, Inc. We actively
protect our rights associated with our portfolio of marks to ensure that the
quality associated with them and the value of our proprietary rights are
maintained. Our marks, however, may not be effective to protect our intellectual
property rights, and infringement or invalidity claims may be asserted by
11
third parties in the future. Any such assertions, if proven to be true, could
have a material adverse effect on our operational results and financial
condition.
OUR CHARTER, BYLAWS AND ANTI-TAKEOVER PROTECTIONS COULD DELAY OR PREVENT AN
ACQUISITION OR SALE OF ULTIMATE ELECTRONICS
Our corporate charter and bylaws, as well as certain provisions of the Delaware
General Corporation Law, contain provisions which may deter, discourage or make
more difficult a change in control, even if such a change in control would be in
the interest of a significant number of our stockholders or if such change in
control would provide such stockholders with a substantial premium for their
shares over then current market prices. In particular:
- our charter authorizes the board of directors to issue one or more classes
of preferred stock having such designations, rights and preferences as
they determine, which issuances may have a material adverse effect on the
rights of holders of common stock;
- our stockholders have no right to take action by written consent;
- our stockholders may not call special meetings of stockholders;
- our charter and bylaws provide for the staggered election of directors to
serve for three-year terms, subject to removal only for cause;
- our bylaws contain advance notice provisions for presentation of new
business and nominations of directors at meetings of stockholders; and
- our bylaws may be amended only by the board of directors or by a majority
vote of the shares represented and entitled to vote at an annual or a
special meeting of stockholders.
In addition, Section 203 of the Delaware General Corporation Law prohibits us
from engaging in a business combination with an interested stockholder for a
period of three years after such person becomes an interested stockholder,
unless various conditions are satisfied. See "Description of Capital Stock."
In addition, under the terms of Ultimate Electronics' Stockholder Rights Plan,
in general, if a person or group acquires more than 15% of the outstanding
shares of common stock (an "Acquiring Person"), all of or our other stockholders
would have the right to purchase securities from Ultimate Electronics at a
discount to such securities' fair market value, thus causing substantial
dilution to the holdings of the Acquiring Person. The Stockholder Rights Plan
may inhibit a change in control and, therefore, could materially adversely
affect the stockholders' ability to realize a premium over the then-prevailing
market price for the common stock in connection with such a transaction.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
TO STOCKHOLDERS
Our common stock trading price has been and is likely to continue to be highly
volatile and subject to wide fluctuations in response to a variety of internal
and external factors, some of which are beyond our control, including:
- actual or anticipated variations in our quarterly operating results;
- incurrence of unanticipated trade or contractual obligations, including
claims under indemnification obligations or contracts;
- announcement of new technologies or of new products or services;
- changes in financial estimates or changes in recommendations by securities
analysts;
- additions or departures of key personnel; and
- changes in economic performance and/or market valuations of other consumer
electronics retailers.
The stock market has experienced significant price and volume fluctuations over
the past several years that have often been unrelated or disproportionate to the
operating performance of particular companies. The trading prices of many
companies' stocks, including ours, have traded from time to time at or near
historical highs. These trading prices may not be sustained. Broad market
factors may have a material adverse effect on our stock price, regardless of our
actual operating performance.
12
ITEM 2. PROPERTIES
As of January 31, 2001, the Company operated eleven stores in Colorado, eight
stores in Minnesota, four stores in Arizona, four stores in Utah, three stores
in Iowa, two stores in Las Vegas, Nevada and one store each in Albuquerque, New
Mexico, Boise, Idaho, Tulsa, Oklahoma and Sioux Falls, South Dakota. A fifth
Arizona store location was opened in February 2001. Each store, other than the
store located in Thornton, Colorado, is leased. The following table sets forth
data regarding the Company's store locations.
CALENDAR YEAR LATEST YEAR APPROXIMATE APPROXIMATE LEASE
ORIGINALLY REMODELED OR TOTAL RETAIL SELLING EXPIRATION
CURRENT STORE LOCATIONS OPENED RELOCATED SQUARE FEET SQUARE FEET DATE (1)
- ----------------------- ------------- ------------ ----------- -------------- ----------
ARIZONA:
845 N. 54th Street, Bldg. C
Chandler, AZ 2000 N/A 33,500 20,500 2030
2820 W. Chandler Blvd.
Chandler, AZ (2) N/A 33,000 23,400 2031
17510 N. 75th Ave.
Glendale, AZ 2000 N/A 34,800 22,200 2030
4529 E. Thomas Road
Phoenix, AZ 2000 N/A 33,800 21,200 2016
2750 W. Peoria Ave.
Phoenix, AZ 2000 N/A 28,000 19,500 2030
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 2002
7207 N. Academy Blvd.
Colorado Springs, CO 2000 N/A 34,800 23,300 2026
1370 S. Colorado Blvd.
Denver, CO 1976 1994 31,600 16,700 2009
9657 E. County Line Rd.
Englewood, CO 1983 1997 41,300 23,000 2027
4606 S. Mason St.
Fort Collins, CO 1990 (3) 16,600 8,400 2005
14391 W. Colfax Ave.
Lakewood, CO 1997 N/A 40,400 23,000 2028
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 37,800(4) 19,500 2025
IOWA:
4701 1st Ave. Southeast
Cedar Rapids, IA 1995 1997 15,400 10,300 2035
3800 E. 53rd Ave.
Davenport, IA 1999 N/A 38,000(4) 21,400 2029
4100 Merle Hay Rd.
Des Moines, IA 1994 1997 20,700(4) 12,200 2019
MINNESOTA:
5939 John Martin Dr.
Brooklyn Center, MN 1980 1997 15,000 9,200 2023
CONTINUED ON PAGE 14
13
CALENDAR YEAR LATEST YEAR APPROXIMATE APPROXIMATE LEASE
ORIGINALLY REMODELED OR TOTAL RETAIL SELLING EXPIRATION
CURRENT STORE LOCATIONS OPENED RELOCATED SQUARE FEET SQUARE FEET DATE (1)
- ----------------------- ------------- ------------ ----------- -------------- ----------
MINNESOTA (CONTINUED):
14232 Burnhaven Dr.
Burnsville, MN 1979 1999 17,300 10,100 2017
8401 Tamarack Rd.
Woodbury, MN 1989 2000 35,600 23,100 2032
12350 Wayzata Blvd.
Minnetonka, MN 1977 1997 15,000 9,100 2023
103 Apache Mall
Rochester, MN 1986 N/A 3,900 2,700 2000
1723 W. County Rd. B-2
Roseville, MN 1977 1997 17,400 11,300 2035
7435 France Ave.
South Edina, MN 1974 1997 28,200 17,900 2025
2716 Division St.
St. Cloud, MN 1987 N/A 10,000 7,100 2011
NEVADA:
2555 E. Tropicana Ave.
Las Vegas, NV 1995 N/A 37,300(4) 17,900 2035
741 S. Rainbow Blvd.
Las Vegas, NV 1994 N/A 31,500 17,600 2024
NEW MEXICO:
3821 Menaul Blvd., N.E.
Albuquerque, NM 1994 N/A 37,100(4) 17,700 2014
OKLAHOMA:
10021 E. 71st St.
Tulsa, OK 1995 N/A 50,500(4) 30,400 2026
SOUTH DAKOTA:
3800 South Louise Ave.
Sioux Falls, SD 1999 N/A 22,200 14,400 2015
UTAH:
879 W. Hill Field Rd.
Layton, UT 1995 N/A 34,400 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
- ------------------------------
(1) Including renewal options.
(2) This store opened February 28, 2001.
(3) The Company expects to expand this store in fiscal 2002.
(4) Includes regional service center.
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. The bonds were fully redeemed on March 31, 2000 with a
portion of the proceeds of the October 1999 common stock offering. The Thornton
facility, in addition to the retail store noted in the table above, is comprised
of 175,000 square feet of warehouse space, 48,000 square feet for the Company's
business offices and 21,000 square feet devoted to a service department. The
Company recently purchased 8.6 acres of land just north of its existing
headquarters and distribution facility for potential future expansion of such
facilities or future sale. The Company leases a 45,000 square foot facility in
Minneapolis, Minnesota that it uses as a training center, office space and
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 both of its store
locations in Colorado Springs, Colorado and its store location in Fort Collins,
Colorado from an affiliated party. The Company is also in the process of
negotiating leases to relocate stores and is analyzing
14
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").
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 flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
PART II
Certain information required by Part II is incorporated by reference into
this Report from the Company's 2001 Annual Report to Stockholders (the "2001
Annual Report to Stockholders"), which report is attached hereto as Exhibit 13.
Only those sections of the 2001 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 sections labeled "Stock Listing," "Price Per Share Information" and
"Dividend Policy" appearing on the inside back cover of the 2001 Annual Report
to Stockholders is incorporated herein by reference. As of April 27, 2001, there
were approximately 500 holders of record of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The section labeled "Selected Financial Data" appearing in the 2001 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 in the 2001 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, 2001, the Company had
outstanding debt of approximately $7.3 million under its $40 million revolving
line of credit agreement. The Company borrows under its $40 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
revolving line of credit agreement bear interest based on a blend of LIBOR plus
2% and Wells Fargo Bank's prime rate minus 0.375%. A hypothetical 10% 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. The Company has not hedged against interest
rate changes.
The following discusses the Company's exposure to market risk related to changes
in interest rates and other general market risks. All of the Company's
investment 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-K. Also, see Note 1 to the consolidated financial statements set
forth herein for a further discussion of the Company's cash, cash equivalents,
and investments available for sale.
CASH AND CASH EQUIVALENTS. As of January 31, 2001, the Company had
$3.0 million in cash and cash equivalents, which was not restricted, 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 equivalent investments are readily
convertible to known amounts of cash, and so near their maturity that 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.
INVESTMENTS AVAILABLE FOR SALE. As of January 31, 2001, the Company had no
investments available for sale. At January 31, 2000, the Company had investments
available for sale that had an original cost and fair market value of
approximately $12.0 million. The investments available for sale consisted of
U.S. government treasury discount notes with an interest rate of 5.6%. The U.S.
government treasury discount notes matured on March 29, 2000.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and financial statements included in the
Company's 2001 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report. The
Company 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 in the Proxy Statement
is incorporated into Part III of this Report 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 from 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 from 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 from 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 from the
section labeled "Certain Relationships and Related Transactions" in the Proxy
Statement.
17
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 2001 Annual Report to Stockholders are
incorporated by reference into Item 8:
- Consolidated Statements of Income for the fiscal years ended
January 31, 2001, 2000 and 1999.
- Consolidated Balance Sheets at January 31, 2001 and 2000.
- Consolidated Statements of Stockholders' Equity for the fiscal years
ended January 31, 2001, 2000 and 1999.
- Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 2001, 2000 and 1999.
- Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES: The following financial statement
schedule for the fiscal years ended January 31, 2001, 2000 and 1999 is
filed as part of this Form 10-K:
SCHEDULE DESCRIPTION
-------- -----------
II Valuation and Qualifying Accounts
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.
3. EXHIBITS: The following exhibits are filed pursuant to Item 601 of
Regulation S-K.
EXHIBIT # DESCRIPTION OF EXHIBITS
--------- -----------------------
3.1 Amended and Restated Certificate of Incorporation of the
Company. (1)
3.2 Amendment to Amended and Restated Certificate of
Incorporation of the Company. (2)
3.3 Bylaws of the Company. (1)
4.1 Rights Agreement, dated as of January 31, 1995, by and
between the Company and Norwest Bank Minnesota, National
Association, as rights agent. (3)
4.2 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.
(4)
10.1 Lease Agreement, dated April 1, 1989, between the Registrant
and William J. and Barbara A. Pearse. (1)
10.2 Lease Agreement, dated October 13, 1989, between the
Registrant and William J. and Barbara A. Pearse. (1)
10.3 Lease Agreement, dated February 28, 2001 between the
Registrant and Pearse Investment Company, L.L.L.P., an
entity controlled by William J. and Barbara A. Pearse. **
10.4 Form of Authorized Dealer Agreement between the Registrant
and Panasonic Communications and Systems Company, a Division
of Matsushita Electric Corporation of America. (1)
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.
(1)
10.6 Dealer Agreement by and between Mitsubishi Electronics
America, Inc. and Ultimate Electronics, Inc. dated as of
February 27, 1996 and Letter dated June 30, 1999 renewing
said agreement. (2)
10.7 Employee Stock Option Plan. (1)
10.8 Non-employee Directors' Stock Option Plan. (5)
10.9 1997 Equity Incentive Plan. (6)
10.10 Amended and Restated 2000 Equity Incentive Plan (7)
10.11 Amended and Restated Employee Stock Purchase Plan. (7)
18
EXHIBIT # DESCRIPTION OF EXHIBITS
--------- -----------------------
10.12 Ultimate Electronics, Inc. Rule 401(k) Benefit Plan. (1)
10.13 Form of Confidentiality and Non-Competition Agreement. (5)
10.14 Purchase and Sale Agreement, dated May 2, 1995, between the
Company and Cirque Property L.C. (4)
10.15 Commercial Promissory Note and Security Agreement between
the Company and Colorado National Leasing, Inc., dated
February 28, 1996. (8)
10.16 Credit Agreement between Ultimate Electronics, Inc. and
Foothill Capital Corporation, dated September 30, 1998. (9)
10.17 First Amendment to Credit Agreement between Ultimate
Electronics, Inc. and Foothill Capital Corporation, dated
September 24, 1999. (2)
10.18 Second Amendment to Credit Agreement between Ultimate
Electronics, Inc. and Foothill Capital Corporation, dated
February 22, 2000. (10)
10.19 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. (11)
13 Company's 2001 Annual Report to Stockholders. **
23.1 Consent of Independent Auditors. **
(b) Reports on Form 8-K:
None.
- ----------------------------------
** Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-68314), filed with the Commission on September 2,
1993.
(2) Incorporated by reference to the Registration Statement on Form S-3/A (File
No. 333-87341), filed with the Commission on September 29, 1999.
(3) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 10, 1995.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended April 30, 1995.
(5) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (File No. 33-68314), filed with the Commission on
October 7, 1993.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-8 (File No. 333-43049), filed with the Commission on December 23,
1997.
(7) Incorporated by reference to the Company's Form 8-K filed with the
Commission on September 15, 2000.
(8) Exhibit filed with the Company's Form 10-K Annual Report for the fiscal
year ended January 31, 1996, and incorporated herewith by reference.
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended October 31, 1998.
(10) Exhibit filed with the Company's Form 10-K Annual Report for the fiscal
year ended January 31, 2000, and incorporated herewith by reference.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended July 31, 1997.
19
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 30th day of April, 2001.
ULTIMATE ELECTRONICS, INC.
By: /s/ J. EDWARD MCENTIRE
-----------------------------------------------------
J. Edward McEntire
CHIEF EXECUTIVE OFFICER
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: April 30, 2001
-----------------------------------------------------
William J. Pearse
CHAIRMAN OF THE BOARD AND A DIRECTOR
By: /s/ J. EDWARD MCENTIRE Date: April 30, 2001
-----------------------------------------------------
J. Edward McEntire
CHIEF EXECUTIVE OFFICER AND A DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ DAVID J. WORKMAN Date: April 30, 2001
-----------------------------------------------------
David J. Workman
PRESIDENT, CHIEF OPERATING OFFICER
AND A DIRECTOR
By: /s/ ALAN E. KESSOCK Date: April 30, 2001
-----------------------------------------------------
Alan E. Kessock
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
SECRETARY AND A DIRECTOR
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
By: /s/ ROBERT W. BEALE Date: April 30, 2001
-----------------------------------------------------
Robert W. Beale
DIRECTOR
By: /s/ RANDALL F. BELLOWS Date: April 30, 2001
-----------------------------------------------------
Randall F. Bellows
DIRECTOR
By: /s/ LARRY D. STRUTTON Date: April 30, 2001
-----------------------------------------------------
Larry D. Strutton
DIRECTOR
20
SELECTED FINANCIAL DATA (1)
(in thousands, except per share and operating data)
YEAR ENDED JANUARY 31,
----------------------
2001 2000 1999 1998 1997
CONSOLIDATED INCOME STATEMENT DATA (2): ----------- ----------- ----------- ----------- -----------
Sales $ 484,408 $ 384,983 $ 328,907 $ 298,231 $ 254,491
Cost of goods sold 332,074 269,496 233,413 217,726 187,028
----------- ----------- ----------- ----------- -----------
Gross profit 152,334 115,487 95,494 80,505 67,463
Selling, general and administrative expenses 128,414 99,922 88,104 77,599 63,953
----------- ----------- ----------- ----------- -----------
Income from operations 23,920 15,565 7,390 2,906 3,510
Interest expense, net 144 2,087 3,957 3,985 3,210
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes and extraordinary item 23,776 13,478 3,433 (1,079) 300
Income tax expense (benefit) 8,915 5,051 1,273 (405) 112
----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item 14,861 8,427 2,160 (674) 188
Extraordinary loss on early extinguishment of debt,
net of taxes 254 - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 14,607 $ 8,427 $ 2,160 $ (674) $ 188
=========== =========== =========== =========== ===========
Earnings (loss) per share before extraordinary item -
basic $ 1.38 $ .95 $ .27 $ (.09) $ .03
Earnings (loss) per share before extraordinary item -
diluted $ 1.30 $ .88 $ .26 $ (.09) $ .03
Earnings (loss) per share - basic $ 1.35 $ .95 $ .27 $ (.09) $ .03
Earnings (loss) per share - diluted $ 1.28 $ .88 $ .26 $ (.09) $ .03
Weighted average shares outstanding - basic 10,792 8,858 8,150 7,626 6,995
Weighted average shares outstanding - diluted 11,421 9,553 8,317 7,626 7,125
OPERATING DATA (1):
Number of stores open at end of period 36 31 30 30 18
Inventory turns (3) 4.9 5.2 4.9 4.7 4.6
Average sales per store open during
the entire period presented (4) $13,694,000 $12,200,000 $10,372,000 $12,914,000 $13,582,000
Retail sales per weighted average
square foot of selling space $ 924 $ 851 $ 711 $ 742 $ 884
Comparable store sales growth (5) 13% 16% 2% (6%) (16%)
CONSOLIDATED BALANCE SHEET DATA (1):
Working capital $ 42,326 $ 50,926 $ 25,205 $ 4,334 $ 26,959
Total assets 174,020 160,029 122,304 125,483 104,854
Long-term debt (6) - 11,718 26,518 13,642 31,165
Capital lease obligations (6) 1,659 1,760 1,841 2,049 1,007
Total stockholders' equity 105,970 88,872 43,528 41,325 39,130
This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements and Notes thereto.
(1) All selected financial data for fiscal years 1997 through 1999 have been
restated. Please refer to the Company's 8-K filing dated February 11,
2000.
(2) 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.
(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.
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.
PERCENTAGE OF SALES
FOR THE YEARS ENDED
JANUARY 31,
------------------------------
2001 2000 1999
-------- -------- --------
Sales 100.0% 100.0% 100.0%
Cost of goods sold 68.6 70.0 71.0
------- ------- --------
Gross profit 31.4 30.0 29.0
Selling, general and
administrative
expenses 26.5 26.0 26.7
------- ------- --------
Income from operations 4.9 4.0 2.3
Interest expense, net - 0.5 1.2
------- ------- --------
Income before taxes 4.9 3.5 1.1
Income tax expense 1.8 1.3 0.4
------- ------- --------
Net income 3.1% 2.2% 0.7%
======= ======= ========
FISCAL 2001 COMPARED TO FISCAL 2000
For the year ended January 31, 2001, sales were $484.4 million, a 26% increase
from sales of $385.0 million for the prior year. Comparable store sales
increased 13% for the year ended January 31, 2001 compared to a 16% increase in
comparable store sales for the year ended January 31, 2000.
Gross profit in fiscal 2001 increased 32% to $152.3 million (31.4% of sales)
from $115.5 million (30.0% of sales) in fiscal 2000. The improvement in gross
profit was due primarily to the following:
- - increased sales of new digital technology products;
- - margin improvements in almost every product category, partially offset by a
lower mix of higher margin categories such as audio and mobile electronics;
- - increased sales of installation services; and
- - amortization of warranty income in the amount of $5.7 million (1.1% of sales).
Selling, general and administrative expenses in fiscal 2001 increased 29% to
$128.4 million (26.5% of sales) from $99.9 million (26.0% of sales) in fiscal
2000. The increase in selling, general and administrative expenses as a
percentage of sales was directly related to selling costs associated with the
amortization of warranty income (0.5% of sales).
As a result of the foregoing, income from operations increased 54% to
$23.9 million (4.9% of sales) from $15.6 million (4.0% of sales) in fiscal 2000.
Net interest expense for fiscal 2001 decreased to $144,000 from $2.1 million in
fiscal 2000. This decrease was primarily due to the Company's redemption of its
outstanding bonds payable in March 2000 (see "Liquidity and Capital Resources")
along with lower average amounts outstanding under the Company's revolving line
of credit.
The Company's effective tax rate of 37.5% in fiscal 2001 was the same as the
prior year.
FISCAL 2000 COMPARED TO FISCAL 1999
For the year ended January 31, 2000, sales were $385.0 million, a 17% increase
from sales of $328.9 million for the prior year. Comparable store sales
increased 16% for the year ended January 31, 2000.
Gross profit in fiscal 2000 increased 21% to $115.5 million (30.0% of sales)
from $95.5 million (29.0% of sales) in fiscal 1999. The improvement in gross
profit was due primarily to the following:
- - increased sales of new digital technology products;
- - increased inventory turns to 5.2 compared to 4.9 in the prior year;
- - a 116% increase in DVD sales at slightly higher margins; and
- - increased sales of accessories and furniture.
Selling, general and administrative expenses in fiscal 2000 increased 13% to
$99.9 million (26.0% of sales) from $88.1 million (26.7% of sales) in fiscal
1999. The decrease in selling, general and administrative expenses as a
percentage of sales resulted primarily from leveraging fixed expenses against
the 16% comparable store sales growth.
As a result of the foregoing, income from operations more than doubled in fiscal
2000, increasing to $15.6 million (4.0% of sales) from $7.4 million (2.3% of
sales) in fiscal 1999.
Net interest expense for fiscal 2000 decreased to $2.1 million from
$4.0 million in fiscal 1999. This decrease was primarily 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, interest expense was
offset by $0.4 million of interest income on the Company's investment portfolio
acquired with proceeds from the 1999 Offering.
The Company's effective tax rate of 37.5% in fiscal 2000 increased slightly from
the 37.2% effective tax rate in fiscal 1999 primarily due to increased permanent
differences.
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. These expenditures include 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
37 stores in ten states.
Net cash provided by operating activities was $1.0 million for fiscal 2001
compared to net cash provided by operations of $14.9 million for fiscal 2000.
The decrease in cash provided by operations over the past year was primarily the
result of higher merchandise inventory levels and accounts receivable balances
in the current year. The increase in inventory and accounts receivable balances
relate directly to the new store expansion during fiscal 2001.
Net cash used in investing activities was $13.1 million for fiscal 2001 compared
to net cash used in investing activities of $23.9 million in fiscal 2000
primarily due to $12.0 million in investment portfolio purchases in fiscal 2000
that were redeemed in fiscal 2001 offset by increased expenditures for new store
expansion in fiscal 2001.
Net cash used in financing activities totaled $2.3 million in fiscal 2001
compared to net cash provided by financing activities of $21.9 million in fiscal
2000. This decrease was primarily due to the proceeds received from the 1999
Offering in fiscal 2000 combined with the Company's payoff of bonds payable in
the amount of $11.7 million in fiscal 2001.
Capital expenditures for fiscal 2001 were $25.1 million compared to
$11.9 million for fiscal 2000. The Company expects capital expenditures of
approximately $40 million in fiscal 2002, primarily for new store openings,
store remodels and/or relocations as well as technology upgrades.
The Company intends to expand into select metropolitan areas in the Rocky
Mountain, Midwest and Southwest regions with 30,000 to 34,000 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, Colorado facility, all current
stores are leased. On July 27, 2000 the Company entered the Phoenix, Arizona
metropolitan area with two new stores. The Company opened its third Phoenix area
store on November 21, 2000 and a fourth store on December 6, 2000. The Company's
fifth Phoenix area store opened on February 28, 2001. The Company expects to
open three additional stores in the Phoenix metropolitan area over the next
twelve months. The Company opened its second store in Colorado Springs, Colorado
on November 8, 2000. On September 11, 2000 the Company announced its entrance
into the Oklahoma City, Oklahoma market with plans to open two new stores in the
summer of fiscal 2002. On October 31, 2000 the Company announced plans for six
new stores in the St. Louis, Missouri area with two to four stores expected to
open in fiscal 2002 and the balance in the following year.
The Company continues to analyze new store opportunities in existing markets to
replace or expand some of its smaller locations. In May 2000, the Company
relocated a 9,300 square foot store located in the Minneapolis/St. Paul area to
a 35,600 square foot store. The Company expects to expand its Fort Collins,
Colorado store from 16,600 to 22,000 square feet in fiscal 2002. The Company
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.
The cost of these future stores is anticipated to average $3.3 million per
store. Leasehold improvements, fixtures and equipment are expected to average
$2.2 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 required 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 that
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 Wells Fargo 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 January 31, 2001, the entire $40 million
facility was available to the Company, of which $7.3 million was outstanding.
Borrowings bear interest, payable monthly, based on a blend of LIBOR plus 2% and
Wells Fargo 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 assets 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 January 31,
2001.
On March 23, 1995, the Company completed an offering for the sale of $13,000,000
aggregate principal amount of bonds payable (the "Bonds"). The Bonds were
redeemable by the Company at par any time at or after March 31, 2000. On
March 31, 2000, the Company paid $13,111,000 to redeem the Bonds in full. 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 2002. To fund the capital requirements
for its anticipated expansion plans beyond fiscal 2002, 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.
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 selling 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.
NEW ACCOUNTING PRONOUNCEMENTS
REVENUE RECOGNITION
The SEC staff recently issued Staff Accounting Bulletin (SAB) No. 101 which
addresses the rules on revenue recognition for specific transactions such as
bill-and-hold transactions, up-front fees when the seller has significant
continuing involvement, long-term service transactions, refundable membership
fees, retail layaway sales, and contingent rental income. The SAB also addresses
whether revenue should be presented on a gross or net (e.g., a commission) basis
for certain transactions, such as sales on the Internet. In addition, the SAB
provides guidance on the disclosures registrants should make about their revenue
recognition policies and the impact of events and trends on revenue. There was
no impact on the Company's financial statements as a result of adoption of this
standard.
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, the Financial Accounting Standards issued FASB Interpretation
No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, an
interpretation of APB Opinion No. 25. The Interpretation became effective on
July 1, 2000. The Interpretation requires, among several things, that stock
options that have been modified to reduce the exercise price be accounted for as
variable. There was no impact on the Company's financial statements as a result
of adoption of this standard.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS No. 133") "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at fair
value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in income unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allow a derivative's gains and
losses to offset related results on the hedged item in the statement of
operations, and requires a company to formally document, designate, and assess
effectiveness of transactions that receive hedge accounting treatment. SFAS
No. 133 became effective for the Company's fiscal quarters of fiscal years
beginning after June 15, 2000. The Company did not experience any changes or
other financial reporting impacts to its consolidated financial statements as a
result of the adoption of SFAS No. 133.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT
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 and competition, 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.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
JANUARY 31,
-----------
2001 2000
-------- --------
ASSETS:
Current assets:
Cash and cash equivalents $ 2,954 $ 17,311
Accounts receivable, net 28,499 20,420
Merchandise inventories 67,567 51,269
Investments available for sale - 12,003
Property held for sale 4,494 -
Deferred tax asset 120 658
Prepaid expenses and other 1,737 1,673
-------- --------
Total current assets 105,371 103,334
Property and equipment, at cost:
Furniture, fixtures & equipment 39,636 30,453
Leasehold improvements 33,585 25,728
Autos and trucks 281 432
Land and buildings 18,087 17,748
Construction-in-progress 5,697 2,870
-------- --------
97,286 77,231
Less accumulated depreciation 32,314 24,970
-------- --------
64,972 52,261
Property under capital leases, including related parties,
net 1,337 1,473
Goodwill, net 1,751 2,026
Other assets 589 935
-------- --------
Total assets $174,020 $160,029
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 29,677 $ 27,626
Accrued liabilities 23,696 21,322
Revolving line of credit 7,304 -
Current portion of term loans 19 312
Current portion of capital lease obligations, including
related parties 101 82
Deferred revenue 2,248 3,066
-------- --------
Total current liabilities 63,045 52,408
Term loans, less current portion - 18
Bonds payable - 11,700
Capital lease obligations, including related parties, less
current portion 1,659 1,760
Deferred revenue, less current portion 2,863 5,111
Deferred tax liability 483 160
-------- --------
Total long-term liabilities 5,005 18,749
-------- --------
Total liabilities 68,050 71,157
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, 10,938,331 and 10,705,318
at January 31, 2001 and 2000 109 107
Additional paid-in capital 73,290 70,801
Retained earnings 32,571 17,964
-------- --------
Total stockholders' equity 105,970 88,872
-------- --------
Total liabilities and stockholders' equity $174,020 $160,029
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
YEAR ENDED JANUARY 31,
----------------------
2001 2000 1999
-------- -------- --------
Sales $484,408 $384,983 $328,907
Cost of goods sold 332,074 269,496 233,413
-------- -------- --------
Gross profit 152,334 115,487 95,494
Selling, general and administrative expenses 128,414 99,922 88,104
-------- -------- --------
Income from operations 23,920 15,565 7,390
Interest expense, net 144 2,087 3,957
-------- -------- --------
Income before taxes and extraordinary item 23,776 13,478 3,433
Income tax expense 8,915 5,051 1,273
-------- -------- --------
Income before extraordinary item 14,861 8,427 2,160
Extraordinary loss on early extinguishment of debt, net of
taxes 254 - -
-------- -------- --------
Net income $ 14,607 $ 8,427 $ 2,160
======== ======== ========
Earnings per share before extraordinary item - basic $ 1.38 $ .95 $ .27
Earnings per share before extraordinary item - diluted $ 1.30 $ .88 $ .26
Earnings per share - basic $ 1.35 $ .95 $ .27
Earnings per share - diluted $ 1.28 $ .88 $ .26
Weighted average shares outstanding - basic 10,792 8,858 8,150
Weighted average shares outstanding - diluted 11,421 9,553 8,317
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except share data)
COMMON STOCK ADDITIONAL
------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- -------- ---------- -------- --------
BALANCES, JANUARY 31, 1998 8,139,548 $ 81 $33,868 $ 7,377 $ 41,326
Exercise of stock options 21,248 44 44
Net income 2,160 2,160
---------- ------ ------- ------- --------
BALANCES, JANUARY 31, 1999 8,160,796 81 33,912 9,537 43,530
Proceeds from issuance of common stock 2,337,500 24 35,964 35,988
Exercise of stock options 207,022 2 925 927
Net income 8,427 8,427
---------- ------ ------- ------- --------
BALANCES, JANUARY 31, 2000 10,705,318 107 70,801 17,964 88,872
Exercise of stock options 233,013 2 2,489 2,491
Net income 14,607 14,607
---------- ------ ------- ------- --------
BALANCES, JANUARY 31, 2001 10,938,331 $ 109 $73,290 $32,571 $105,970
========== ====== ======= ======= ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
YEAR ENDED JANUARY 31,
----------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,607 8,427 $ 2,160
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,260 6,835 6,390
Deferred taxes 1,294 (942) 999
Changes in operating assets and liabilities:
Accounts receivable (8,079) (2,606) 2,012
Merchandise inventories (16,298) (4,361) (3,000)
Prepaid expenses and other (64) (586) 245
Other assets 346 74 (156)
Accounts payable, accrued and other liabilities 926 8,073 9,264
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 992 14,914 17,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (25,054) (11,930) (1,564)
Redemptions (purchases) of investments available for
sale 12,003 (12,003) -
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (13,051) (23,933) (1,564)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term revolving credit agreement 263,273 239,365 303,744
Repayments under long-term revolving credit agreement (255,969) (252,553) (317,120)
Early extinguishment of bonds payable (11,700) - -
Proceeds from issuance of common stock - 35,988 -
Proceeds from exercise of stock options 2,491 927 44
Repurchase of long term bonds payable - (1,300) -
Principal payments on term loans and capital lease
obligations (393) (518) (603)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,298) 21,909 (13,935)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,357) 12,890 2,415
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,311 4,421 2,006
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,954 $ 17,311 $ 4,421
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 730 $ 2,508 $ 4,144
Income taxes 5,691 1,188 -
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ULTIMATE ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Ultimate Electronics, Inc. is a leading specialty retailer of consumer
electronics and home entertainment products. As of January 31, 2001, the Company
operated thirty-six stores, including seventeen stores in Arizona, Idaho, Iowa,
Nevada, New Mexico, Oklahoma, South Dakota and Utah under the trade name
Ultimate Electronics, eleven stores in Colorado under the trade name SoundTrack
and eight stores in Minnesota under the trade name Audio King. Subsequent to
January 31, 2001, the Company opened a fifth Arizona store.
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.
INVESTMENTS - AVAILABLE FOR SALE
The Company had no investments available for sale at January 31, 2001.
Investments available for sale at January 31, 2000 consisted of U.S. government
treasury discount notes reported at fair value. The historical cost of the U.S.
government treasury discount notes approximated fair value at January 31, 2000,
therefore, no unrealized gains/loss was reported as a separate component of
stockholders' equity. The U.S. government treasury discount notes matured on
March 29, 2000. There were no realized gains/losses on sales of investments
available for sale during the year ended January 31, 2000. Interest income from
investments available for sale for the years ended January 31, 2001 and
January 31, 2000 totaled $113,000 and $116,000, respectively, and were included
as a component of net interest expense in the income statements.
PROPERTY HELD FOR SALE
The Company purchased land and constructed a building for a new store located in
Colorado Springs, Colorado. The store opened in November 2000. In
February 2001, the Company entered into a sale-leaseback arrangement with Pearse
Investment Company, L.L.L.P., an entity controlled by William J. and Barbara A.
Pearse (see Note 8). There was no gain or loss recognized as a result of the
sale.
INVENTORIES
The Company states merchandise inventories at the lower of cost (weighted
average cost) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions, improvements and
major renewals are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred.
DEPRECIATION AND AMORTIZATION
Depreciation is provided principally using the straight-line method based upon
the following useful lives:
Furniture, fixtures and
equipment 5 - 7 years
7 - 20
Leasehold improvements years
Autos and trucks 5 years
Property under capital 5 - 15
leases years
Buildings 30 years
CAPITALIZED INTEREST
For the fiscal years ended January 31, 2001, 2000 and 1999, the Company
capitalized interest of $250,000, $0 and $0, respectively, associated with the
construction of new stores and remodeled stores.
ACCRUED LIABILITIES (in thousands)
Accrued liabilities are comprised of the following:
JANUARY 31,
-------------------
2001 2000
-------- --------
Compensation $ 6,327 $ 7,051
Sales taxes 2,247 1,870
Customer deposits 4,566 4,127
Income taxes 4,988 4,808
Other 5,568 3,466
------- -------
Total $23,696 $21,322
======= =======
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 net warranty revenue, consists of gross sales less 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 ranges between 0.5% and
10.0% of the amount financed by the customer.
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 upon 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 $6,352,000, $4,778,000 and $6,021,000 for the
years ended January 31, 2001, 2000 and 1999, respectively.
BARTER/EXCHANGE TRANSACTION
The Company entered into bartering/exchange agreements with an unrelated party
in November 1998 and April 1999, whereby the Company agreed to transfer
inventory with a net carrying value of $729,000 and $950,000, respectively, in
exchange for $500,000 and $550,000, respectively, of advertising credits. The
Company accounted for the transactions in accordance with EITF Issue No. 99-17,
"Accounting for Advertising Barter Transactions." The Company had $365,000,
$805,000 and $500,000 in prepaid advertising credits recorded as current assets
at January 31, 2001, January 31, 2000 and January 31, 1999, respectively.
EARNINGS PER SHARE OF COMMON STOCK
The Company reports its earnings per share amounts in accordance with Statement
No. 128, Earnings per Share (SFAS 128). Basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share includes the dilutive effects of such equity instruments. The
calculation of weighted average shares outstanding-diluted for the fiscal years
ending January 31, 2001, 2000, and 1999 include 629,233, 695,396 and 167,692
outstanding shares to give effect to the potential exercise of options under the
Company's stock option plans, respectively.
GOODWILL:
In 1997, the Company completed a merger with Audio King Corporation. The
transaction resulted in goodwill in the amount of $2.7 million, which is being
amortized over a 10 year life. Amortization expense for fiscal years 2001, 2000
and 1999 was $275,000, $276,000 and $268,000, respectively. As of January 31,
2001, total accumulated amortization was $961,000.
The Company's policy is to account for goodwill at the lower of amortized cost
or net realizable value. As part of an ongoing review of the valuation and
amortization of goodwill, management assesses the carrying value of the
Company's goodwill to determine if changes in facts and circumstances suggest
that they may be impaired. If this review indicates that the intangibles will
not be recoverable, as determined by a discounted cash flow analysis over the
remaining amortization period, the carrying value of the Company's intangibles
would be reduced to its estimated fair market value. No event has been
identified that would indicate an impairment of the value of goodwill recorded
in the accompanying consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash, investments, accounts
receivable, note payable and other long-term debt, have fair values which
approximate their recorded values as the financial instruments are either short
term in nature or carry interest rates that approximate market rates.
COMPREHENSIVE INCOME
During 1997, the Financial Accounting Standards Board (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. The Company does not have any components of comprehensive income as
of January 31, 2001.
SEGMENT 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 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.
NEW ACCOUNTING PRONOUNCEMENTS
REVENUE RECOGNITION
The SEC staff recently issued Staff Accounting Bulletin (SAB) No. 101 which
addresses the rules on revenue recognition for specific transactions such as
bill-and-hold transactions, up-front fees when the seller has significant
continuing involvement, long-term service transactions, refundable membership
fees, retail layaway sales, and contingent rental income. The SAB also addresses
whether revenue should be presented on a gross or net (e.g., a commission) basis
for certain transactions, such as sales on the Internet. In addition, the SAB
provides guidance on the disclosures registrants should make about their revenue
recognition policies and the impact of events
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and trends on revenue. There was no impact on the Company's financial statements
as a result of adoption of this standard.
ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, the Financial Accounting Standards issued FASB Interpretation
No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, an
interpretation of APB Opinion No. 25. The Interpretation became effective on
July 1, 2000. The Interpretation requires, among several things, that stock
options that have been modified to reduce the exercise price be accounted for as
variable. There was no impact on the Company's financial statements as a result
of adoption of this standard.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ("SFAS No. 133") "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards
requiring every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in income unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allow a
derivative's gains and losses to offset related results on the hedged item in
the statement of operations, and requires a company to formally document,
designate, and assess effectiveness of transactions that receive hedge
accounting treatment. SFAS No. 133 became effective for the Company's fiscal
quarters of fiscal years beginning after June 15, 2000. The Company did not
experience any changes or other financial reporting impacts in its consolidated
financial statements as a result of the adoption of SFAS No. 133.
2. CHANGE IN ACCOUNTING POLICY - EXTENDED WARRANTY CONTRACTS
The Company sells extended warranty contracts (obligor contracts) on behalf of a
fully-insured 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. The extended warranty
contracts are administered by a third party (the Administrator) and all
performance obligations and risk of loss with respect to such contracts are
economically transferred to Administrator and other parties at the time the
contracts are sold.
Effective as of the beginning of its fiscal quarter ending January 31, 2000, the
Company changed its accounting policy 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 related to the
interpretation of FASB Technical bulleting No. 90-1, "Accounting for Separately
Priced Extended Warranty and Product Maintenance Contracts." The Company now
recognizes revenues, net of direct selling expenses, over the term of the
obligor contract. Previously, the Company recognized all extended warranty
contract revenues on a gross basis at the time of sale. The Company has given
retroactive effect to this change by restatement of its previously published
financial statements beginning with fiscal 1996.
Effective February 1, 2000 the Company restructured its extended warranty master
contract with the Administrator such that the extended warranty contracts sold
after the effective date generally qualify as non-obligor contracts (the
non-obligor contracts). The Company now recognizes revenues from the sale of
non-obligor contracts, net of direct selling expenses, at the time of sale to
the customers.
3. RECENT PUBLIC STOCK OFFERINGS
On October 22, 1999, the Company completed a public offering for the sale of
2,000,000 shares of its common stock at the offering price of $16.50 per share.
The Company received proceeds of $30.7 million, net of all offering costs. On
November 9, 1999, the underwriters exercised their overallotment option related
to this offering. As a result, the Company issued an additional 337,500 shares
of its common stock at a price of $16.50 per share. The Company received
proceeds from the sale of these shares of $5.3 million, net of all offering
costs. The shares issued related to the overallotment option brought the total
shares issued in the offering to 2,337,500 and the total proceeds received by
the Company to $36.0 million, net of all of offering costs.
4. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS
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 Wells Fargo 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 January 31, 2001, the entire facility was
available to the Company, of which $7.3 million was outstanding. Borrowings bear
interest, payable monthly, based on a blend of LIBOR plus 2% and Wells Fargo
Bank's prime rate minus 0.375%. All outstanding borrowings and any unpaid
interest are due September 2001. 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 assets 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 for all periods of fiscal year 2001.
As of January 31, 2001, the Company has two Commercial Promissory Notes and
Security Agreements with Colorado National Leasing, Inc. Borrowings under the
loans totaled
4. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS (CONTINUED)
$18,000 at January 31, 2001, and $330,000 at January 31, 2000. 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, 2001, the remaining balance
of $18,000 in term loans is classified as current.
5. BONDS PAYABLE
On March 23, 1995, the Company completed an offering for the sale of $13,000,000
aggregate principal amount of bonds payable (the "Bonds"). The Bonds were
redeemable by the Company at par any time at or after March 31, 2000. On March
31, 2000, the Company paid $13,111,000 to redeem the Bonds in full. 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).
6. STOCK OPTION AND STOCKHOLDER RIGHTS PLANS
STOCK OPTION PLAN
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 authorized
the issuance of 900,000 shares of common stock. Under the terms of the
non-employee directors' stock option plan (the "Directors' Plan"), the Company
granted awards of stock options to non-employee directors. The Directors' Plan
authorized the issuance of 20,000 shares of common stock.
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 "1997
Plan"). The 1997 Plan 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 1997 Plan authorized the issuance of 750,000 shares to be
awarded to employees, non-employee directors and/or outside consultants. 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 employees who then have attributed
ownership of more than 10% of the total combined voting power of all classes of
stock must be issued at an exercise price of 110% of market value of the
underlying common stock at the date of grant. During fiscal 2001, 32,250 options
were granted under the 1997 Plan. The options were granted at prices from $15.50
to $18.75.
In July 2000, at the Company's annual meeting, the Company's shareholders
approved a new stock option plan known as the 2000 Equity Incentive Plan (the
"2000 Plan"), which replaced the 1997 Plan. Grants issued under the 1997 Plan
continue to be exercisable according to their original terms but no additional
grants can be issued under this plan. The 2000 Plan authorized the issuance of
up to 1,200,000 shares to be awarded to employees, non-employee directors and/or
outside consultants. Each non-employee director receives options to purchase
4,000 shares of common stock effective February 1 of each year, which options
are exercisable one year from the date of grant. The Board of Directors
continues to determine the person 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 employees who then have attributed ownership of more
than 10% of the total combined voting power of all classes of stock must be
issued at an exercise price of 110% of the market value of the underlying common
stock at the date of grant. During fiscal year 2001, 53,250 options were granted
under the 2000 Plan. The options were granted at prices from $18.50 to $34.938.
The options available for grant at January 31, 2001 include only the options
available under the 2000 Plan.
6. STOCK OPTION AND STOCKHOLDER RIGHTS PLANS (CONTINUED)
Changes in the options outstanding (and option exercise prices for such options)
are as follows:
YEAR ENDED JANUARY 31,
-------------------------------
2001 2000 1999
--------- -------- --------
Options outstanding at
beginning of year 837,797 948,517 833,984
Granted ($1.07 to $34.938) 85,500 104,000 139,700
Canceled ($1.07 to
$12.875) -- 7,700 3,919
Exercised ($1.07 to
$15.125) 233,012 207,020 21,248
--------- ------- -------
Options outstanding at
end of year 690,285 837,797 948,517
========= ======= =======
Options exercisable at
end of year 379,969 399,307 390,384
========= ======= =======
Options available for
grant
at end of year 1,146,750 32,250 127,850
========= ======= =======
The weighted average exercise price of options outstanding at January 31, 2001,
2000 and 1999 was $7.63, $5.09 and $3.48, respectively. The weighted average
contractual life of the options outstanding at January 31, 2001, 2000 and 1999
was 6.7, 7.0 and 7.2 years, respectively.
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 ranging from 5.96% to 6.67%; a dividend
yield of 0%; volatility factors of the market price of the Company's common
stock for fiscal years 2001, 2000 and 1999, respectively, of .747, .804 and
.842, and a weighted average expected life of the options of three years. The
weighted average fair value of stock options granted during January 31, 2001,
2000 and 1999 was $11.03, $8.48 and $3.47, 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.
The Company's pro forma information follows:
YEAR ENDED JANUARY 31,
-------------------------------------
2001 2000 1999
----------- ---------- ----------
Pro forma net income $13,983,000 $7,932,000 $1,438,000
Pro forma earnings
per share:
Basic $ 1.30 $ 0.90 $ 0.18
Diluted $ 1.22 $ 0.83 $ 0.17
STOCKHOLDER RIGHTS PLAN
On January 31, 1995, the Company declared to stockholders of record at the close
of business on February 10, 1995, a dividend of one right to purchase preferred
stock (a "Right") for each outstanding share of common stock. Each share of
subsequently issued common stock will also incorporate one Right. The Rights
will expire on February 10, 2005. Each Right entitles stockholders, in certain
circumstances, to buy one-hundredth of a newly issued share of Series A Junior
Participating Preferred Stock (the "Junior Preferred Stock") of the Company at
the initial purchase price of $75.00 per share.
The Rights are exercisable and transferable apart from the common stock only if
a person or group (other than certain exempt persons) acquires beneficial
ownership of 15% or more of the common stock, or commences a tender or exchange
offer upon consummation of which such person of group would beneficially own 15%
or more of the common stock.
The Company is generally entitled to redeem the Rights at $.001 per Right at any
time until a person or group (other than certain exempt persons) has become the
beneficial owner of 15% or more of the common stock. Under the Rights "flip-in"
feature, if any such person or group becomes the beneficial owner of 15% or more
of the common stock, then each Right not owned by such person or group of
certain related parties will entitle its holder to purchase, at the Right's then
current purchase price, shares of common stock (or in certain circumstances as
determined by the Company's Board, cash, other property or other securities)
having a value of twice the Right's purchase price.
Under the Rights "flip-over" provision, if, after any other person or group
(other than certain exempt persons) becomes the beneficial owner of 15% or more
of the common stock, the Company is involved in a merger or other business
combination transaction with another person, or sells 25% or more of
6. STOCK OPTION AND STOCKHOLDER RIGHTS PLANS (CONTINUED)
its assets or earning power in one or more transactions, each Right will entitle
its holder to purchase, at the Right's then current purchase price, shares of
common stock of such other person having a value of twice the Right's purchase
price.
The Junior Preferred Stock will not be redeemable and, unless otherwise provided
in connection with the creation of a subsequent series of preferred stock, will
be subordinate to all other series of the Company's preferred stock. Each share
of Junior Preferred Stock will represent the right to receive, when and if
declared, a quarterly dividend at an annual rate equal to the greater of $1.00
per share or 100 times the quarterly per share cash dividends declared on the
common stock during the immediately preceding fiscal year. In addition, each
share of Junior Preferred Stock will represent the right to receive 100 times
any non-cash dividends (other than dividends payable in common stock) declared
on the common stock, in like kind. In the event of the liquidation, dissolution,
or winding up of the Company, each share of Junior Preferred Stock will
represent the right to receive a liquidation payment in an amount equal to the
greater of $1.00 per share or 100 times the liquidation payment made per share
of common stock. Each share of Junior Preferred Stock will have 100 votes,
voting together with the common stock. In the event of any merger,
consolidation, or other transaction in which common shares are exchanged, each
share of Junior Preferred Stock represents the right to receive 100 times the
amount received per share of common stock. The rights of the Junior Preferred
Stock as to dividends, liquidation, voting rights and merger participation are
protected by anti-dilution provisions.
7. PROVISION 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 for income taxes as of
January 31, 2001, 2000 and 1999 are as follows:
CURRENT DEFERRED TOTAL
-------- --------- --------
JANUARY 31, 2001
Federal $6,588 $1,743 $8,331
State 1,033 (449) 584
------ ------ ------
Total $7,621 $1,294 $8,915
====== ====== ======
JANUARY 31, 2000
Federal $5,492 $ (855) $4,637
State 501 (87) 414
------ ------ ------
Total $5,993 $ (942) $5,051
====== ====== ======
JANUARY 31, 1999
Federal $ 236 $ 878 $1,114
State 38 121 159
------ ------ ------
Total $ 274 $ 999 $1,273
====== ====== ======
The following is a reconciliation of the provision for income taxes to the
federal statutory rate for the years ended January 31, 2001, 2000 and 1999:
YEAR ENDED JANUARY 31,
----------------------
2001 2000 1999
-------- -------- --------
Income taxes at the
federal statutory rate $8,325 $4,583 $1,167
State income taxes,
net of federal benefit 590 468 106
------ ------ ------
Provision for income taxes $8,915 $5,051 $1,273
====== ====== ======
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets and liabilities at January 31, 2001 and 2000 are as
follows:
JANUARY 31,
-----------
2001 2000
-------- --------
Deferred tax assets:
Deferred warranties $ 1,893 $ 3,027
Inventories 1,944 2,421
Accrued liabilities 623 582
Valuation reserves 534 506
Capital leases 137 137
------- -------
$ 5,131 $ 6,673
======= =======
Deferred tax liabilities:
Inventories (3,118) (3,986)
Depreciation and amortization (2,376) (2,189)
------- -------
(5,494) (6,175)
------- -------
Net deferred tax asset (liability) $ (363) $ 498
======= =======
8. LEASES
OPERATING LEASES
The Company leases retail stores under agreements that 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 $9,407,000, $7,521,000 and $7,226,000 for the years
ended January 31, 2001, 2000 and 1999, respectively.
CAPITAL LEASES, INCLUDING RELATED PARTY LEASES
(IN THOUSANDS)
The following property is held under capital leases:
JANUARY 31,
-----------
2001 2000
-------- --------
Buildings and improvements $2,877 $2,877
Computer equipment 711 711
------ ------
3,588 3,588
Less accumulated depreciation 2,251 2,115
------ ------
$1,337 $1,473
====== ======
8. LEASES (CONTINUED)
At January 31, 2001 the Company leases two retail stores under capital lease
agreements with an entity controlled by 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 $276,000, $265,000 and $261,000 for the
years ended January 31, 2001, 2000 and 1999, respectively. In February 2001, the
Company entered into a sale-leaseback arrangement with an entity controlled by
the two principal stockholders of the Company on a new store located in Colorado
Springs, Colorado.
The aggregate minimum annual rental commitments as of January 31, 2001 are as
follows (in thousands):
OPERATING CAPITAL
LEASES LEASES
FISCAL YEAR ENDED JANUARY 31, ---------- --------
2002 $ 11,409 $ 335
2003 11,191 341
2004 11,280 347
2005 11,022 353
2006 10,310 238
2007 - 2017 84,129 2,037
-------- ------
Total minimum lease payments $130,341 3,651
========
Less amount representing interest 1,891
------
Present value of net minimum
lease Payments 1,760
Less portion due within one year 101
------
Long term capital lease
obligations $1,659
======
9. CONSTRUCTION AND PURCHASE COMMITMENTS
The Company had purchase commitments and construction commitments of $1.0
million and $4.5 million, respectively, as of January 31, 2001 and $1.7 million
and $1.5 million, respectively, as of January 31, 2000 relating to new store
locations.
10. 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 $305,000, $274,000
and $268,000 for the years ended January 31, 2001, 2000 and 1999, respectively.
In July 2000, at the Company's annual meeting, the Company's shareholders
approved an Employee Stock Purchase Plan (the "Purchase Plan"). Under the
Purchase Plan, the Company has reserved 2,000,000 shares of common stock for
issuance. Eligible employees may purchase a limited number of shares of the
Company's common stock at 85% of the market value at certain plan-defined dates.
The Purchase Plan terminates on July 17, 2010. In fiscal 2001, no shares were
issued pursuant to the Purchase Plan. At January 31, 2001, 2,000,000 shares were
available for issuance under the Purchase Plan.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
-------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
---------- --------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 2001
Sales $95,006 $101,978 $117,207 $170,217
Gross profit 29,721 33,049 37,734 51,830
Income from operations 2,900 3,608 5,449 11,963
Net income 1,554 2,256 3,387 7,410
Earnings per share - basic .15 .21 .31 .68
Earnings per share - diluted .14 .20 .30 .65
FISCAL 2000
Sales $78,398 $ 83,965 $ 91,899 $130,721
Gross profit 23,186 25,960 27,895 38,446
Income from operations 1,199 2,499 3,451 8,416
Net income 320 1,134 1,802 5,171
Earnings per share - basic .04 .14 .21 .49
Earnings per share - diluted .04 .13 .20 .46
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 accounting principles
generally accepted in the United States, 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, 2001 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, 2001, its system of internal control over the preparation of its
published annual and interim financial statements met those criteria.
/s/ J. Edward McEntire
J. Edward McEntire
Chief Executive Officer
/s/ Alan E. Kessock
Alan E. Kessock
Senior Vice President - Finance and Administration, Chief Financial Officer and
Corporate Secretary
March 8, 2001
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of Ultimate Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Ultimate
Electronics, Inc. and subsidiary ("the Company") as of January 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended January 31, 2001.
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 auditing standards generally accepted
in the United States. 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. at January 31, 2001 and 2000, and the results of its
consolidated operations and its consolidated cash flows for each of the three
years in the period ended January 31, 2001 in conformity with accounting
principles generally accepted in the United States.
The consolidated financial statements for the year ended January 31, 1999 have
been restated as described in Note 2.
/s/ Ernst & Young LLP
Denver, Colorado
March 8, 2001
CORPORATE OFFICE
321 West 84th Avenue, Suite A
Thornton, CO 80260
STORE LOCATIONS
ARIZONA Highlands Ranch Roseville
Chandler 8262 S. University Ave. 1723 West County Rd. B-2
2820 W. Chandler Blvd. 303-779-5003 651-636-3686
480-899-5130 Lakewood St. Cloud
Chandler 14391 W. Colfax Ave. 2716 Division Street
845 N. 54th Street 303-277-9299 320-253-5099
480-496-8834 Littleton FAST TRAK SERVICE *
Glendale 8196 W. Bowles Ave. 3501 South Highway 100
17510 N. 75th Avenue 303-979-8900 St. Louis Park
623-776-0455 Thornton * 612-920-2900
Phoenix 321 W. 84th Ave. NEVADA
4529 East Thomas Road 303-657-5880 Las Vegas
602-957-2775 IDAHO 741 S. Rainbow Blvd.
Phoenix Boise * 702-258-8800
2750 W. Peoria Avenue 1085 N. Milwaukee Ave. Las Vegas *
602-548-9020 208-377-2780 2555 E. Tropicana Ave.
ARIZONA REPAIR CENTER * IOWA 702-456-8800
4535 East Elwood Street, Suite 106 Cedar Rapids * NEW MEXICO
480-377-6410 4701 First Ave. SE Albuquerque *
COLORADO 319-393-7900 3821 Menaul Blvd. NE
Arvada Davenport * 505-884-3005
6490 Wadsworth Blvd. 3800 E. 53rd Ave. OKLAHOMA
303-425-6700 319-359-4100 Tulsa *
Boulder Des Moines * 10021 East 71st Street S.
1955 28th Street 4100 Merle Hay Rd. 918-250-3664
303-442-3600 515-253-9200 SOUTH DAKOTA
Colorado Springs MINNESOTA Sioux Falls *
1230 North Academy Brooklyn Center 3800 S. Louise Ave.
719-591-1400 5939 John Martin Drive 605-361-0321
Colorado Springs * 612-566-2360 UTAH
7207 N. Academy Burnsville Layton
719-278-3898 14232 Burnhaven Drive 879 West Hillfield Rd.
Denver 612-435-8933 801-543-3313
1370 S. Colorado Blvd. Edina Murray
303-759-5401 7435 France Ave. South 6284 South State Street
Englewood 612-830-0010 801-281-4259
9657 E. County Line Rd. Woodbury Orem
303-754-0450 8401 Tamarack Rd. 1375 South State Street
Fort Collins 651-770-0108 801-225-2211
4606 S. Mason Street Minnetonka Salt Lake City
970-223-3666 12350 Wayzata Blvd. 1130 E. Brickyard Rd.
612-546-4040 801-466-7766
Rochester UTAH REPAIR CENTER *
103 Apache Mall 45 West Senior Way
507-288-1563 South Salt Lake City
801-463-1011
* Locations with repair services.
Ultimate Electronics-Registered Trademark-, SoundTrack-Registered Trademark-,
Audio King-Registered Trademark-, Fast Trak-Registered Trademark- and Simple
Solution-TM- are service marks of the Company.
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:
HIGH LOW
----------- -------------
Quarter ended April 30, 1999 14 8 3/16
Quarter ended July 31, 1999 20 1/8 12 15/16
Quarter ended October 31, 1999 21 3/4 14
Quarter ended January 31, 2000 26 1/4 16 1/2
Quarter ended April 30, 2000 29 5/8 13 7/8
Quarter ended July 31, 2000 29 1/8 19 5/16
Quarter ended October 31, 2000 41 1/8 25
Quarter ended January 31, 2001 41 1/4 20 5/16
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
Wells Fargo Bank
161 North Concord Exchange
South St. Paul, Minnesota 55075
800-468-9716
AUDITORS
Ernst & Young LLP
370 17th Street, Suite 3300
Denver, Colorado 80202
GENERAL COUNSEL
Davis, Graham & Stubbs LLP
1550 17th Street, Suite 500
Denver, Colorado 80202
ANNUAL MEETING
The annual meeting of Stockholders is scheduled for June 21, 2001 at 8:30 a.m.
at the Company's corporate headquarters, 321 West 84th Avenue, Suite A,
Thornton, Colorado 80260.
FORM 10-K
Copies of the Company's Annual Report on Form 10-K for the year ended
January 31, 2001 may be obtained free of charge by writing to Ultimate
Electronics, Inc., Stockholders Relations, 321 West 84th Avenue, Suite A,
Thornton, Colorado 80260, 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
SENIOR VICE PRESIDENT -
SALES AND STORE
OPERATIONS
Alan E. Kessock
SENIOR VICE PRESIDENT -
FINANCE AND
ADMINISTRATION
AND CHIEF FINANCIAL
OFFICER
DIRECTORS
William J. Pearse
CHAIRMAN OF THE BOARD
J. Edward McEntire
CHIEF EXECUTIVE OFFICER
David J. Workman
PRESIDENT AND
CHIEF OPERATING OFFICER
Alan E. Kessock
SENIOR VICE
PRESIDENT - FINANCE
AND ADMINISTRATION
AND CHIEF FINANCIAL
OFFICER
Robert W. Beale
CHIEF EXECUTIVE OFFICER
OF
BEALE INTERNATIONAL, A
MANAGEMENT CONSULTING
FIRM
Randall F. Bellows
CO-FOUNDER OF COBE
LABORATORIES,
NOW RETIRED
Larry D. Strutton
FORMER PUBLISHER AND CEO
OF THE
DENVER ROCKY MOUNTAIN
NEWS,
NOW RETIRED
VISIT OUR WEB-SITE AT WWW.ULTIMATEELECTRONICS.COM
ULTIMATE ELECTRONICS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES (DESCRIBE) PERIOD
- ----------- ------------ ---------- ---------- ----------
Year ended January 31, 2001
Deducted from asset accounts:
Allowance for doubtful accounts $ 446 $ 62 $ 31(1) $ 477
Reserve for cash and cooperative advertising discounts 36 478 430(1) 84
Allowance for obsolete inventory 920 552 521(2) 951
------ ------ ------ ------
Total $1,402 $1,092 $ 982 $1,512
====== ====== ====== ======
Year ended January 31, 2000
Deducted from asset accounts:
Allowance for doubtful accounts $ 310 $ 420 $ 284(1) $ 446
Reserve for cash and cooperative advertising discounts 49 116 129(1) 36
Allowance for obsolete inventory 1,509 548 1,137(2) 920
------ ------ ------ ------
Total $1,868 $1,084 $1,550 $1,402
====== ====== ====== ======
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
====== ====== ====== ======
(1) Uncollectible accounts written off, net of recoveries.
(2) Write-offs of obsolete inventory.
16