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Ultimate’s Lenders Could Pull Plug

12/13/2004 02:56:00 PM Eastern

Thornton, Colo. — Ultimate Electronics reported today that weakening fourth-quarter sales, pending loan covenant violations and a demand by its lenders for “significant” additional reserves may force the company to close.

In a request to the Federal Trade Commission for an extension on its third-quarter 10-Q filing, Ultimate said it has concluded that the situation raises “substantial doubt about its ability to continue as a going concern,” and that it is “examining all of its strategic alternatives including a potential reorganization of its business.”

Ultimate’s lenders informed the regional A/V chain that they now require additional reserves against availability of funds under the credit facility beginning Dec. 10, and would require those reserves to be further increased through Jan. 31, 2005.

The company noted that despite an uptick in Thanksgiving weekend sales, fourth-quarter revenue has been weak to date, which it anticipates will trigger a violation of one or more of its credit facility covenants. Ultimate said it hopes to seek a waiver from the loan covenant violations, and will file its 10-Q form on or before Wednesday.

Ironically, the company reported improving third-quarter financials earlier this month, and analysts generally lauded the retailer’s turnaround efforts. Ultimate cut its loss from operations by nearly half, gross profit gained over 1.5 percentage points, and expenses as a percentage of sales fell to 38.3 percent from 39.4 percent a year ago.

During a conference call that followed last week’s release of its Q3 results, chief financial officer David Carter said the company continues to maintain a “very good relationship” with its vendors. “They remain cautious but still supportive,” he said.

Chairman/CEO Dave Workman added that Ultimate has “all the pieces in place for a successful holiday season.”

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