##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 or
 o
    
    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 000-51664
 DEI
HOLDINGS, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Florida
    
    65-0964171(State of Incorporation)
    
    (I.R.S. Employer Identification No.)1 Viper WayVista, California
    
    92081(Address of Principal Executive Offices)
    
    (Zip Code)
 (760) 598-6200  (Registrants Telephone Number, Including Area Code)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements (unaudited)
    
    
    1Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II  OTHER INFORMATION
    
    
    18Item 1. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20EX-10.35EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 DEI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands, except per share amounts)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,790
    
    
    $
    4,760Accounts receivable, net of allowance for doubtful accounts of
$1,678 and $1,521
at June 30, 2008 and December 31, 2007, respectively
    
    
    46,812
    
    
    
    77,366Inventories
    
    
    66,371
    
    
    
    64,219Income taxes receivable
    
    
    6,473
    
    
    
    9,783Prepaid expenses and other current assets
    
    
    4,147
    
    
    
    7,115Deferred tax assets
    
    
    6,038
    
    
    
    6,038Total current assets
    
    
    142,631
    
    
    
    169,281Property and equipment, net
    
    
    7,815
    
    
    
    7,353Intangible assets, net
    
    
    153,653
    
    
    
    157,265Other assets
    
    
    7,456
    
    
    
    6,535Total assets
    
    $
    311,555
    
    
    $
    340,434LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    32,468
    
    
    $
    44,814Accrued liabilities
    
    
    21,970
    
    
    
    28,527Current portion of senior notes payable
    
    
    
    
    
    
    2,669Total current liabilities
    
    
    54,438
    
    
    
    76,010Revolving loan
    
    
    
    
    
    
    4,000Senior notes, less current portion
    
    
    258,591
    
    
    
    260,257Deferred tax liabilities
    
    
    9,690
    
    
    
    8,864Other liabilities
    
    
    3,796
    
    
    
    5,201Total liabilities
    
    
    326,515
    
    
    
    354,332Commitments
and contingencies (Note 10)Shareholders deficit:Common stock, $0.01 par value:Authorized shares  100,000; issued and outstanding shares  25,489 and
25,420
at June 30, 2008 and December 31, 2007, respectively
    
    
    254
    
    
    
    254Paid-in capital
    
    
    115,215
    
    
    
    114,674Accumulated other comprehensive income
    
    
    237
    
    
    
    1,257Accumulated deficit
    
    
    (130,666
    )
    
    
    (130,083
    )Total shareholders deficit
    
    
    (14,960
    )
    
    
    (13,898
    )Total liabilities and shareholdersdeficit
    
    $
    311,555
    
    
    $
    340,434
  1




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##### Table of Contents



DEI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share amounts)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales:Security and entertainment product sales, net
    
    $
    50,974
    
    
    $
    57,912
    
    
    $
    108,006
    
    
    $
    119,294Satellite radio product sales, net of $16,168 and
$31,033 of cost
for the three and six months ended June 30, 2008,
respectively (Note 2)
    
    
    4,543
    
    
    
    27,722
    
    
    
    7,258
    
    
    
    43,174Royalty and other revenue
    
    
    3,356
    
    
    
    1,096
    
    
    
    4,157
    
    
    
    2,195Net sales
    
    
    58,873
    
    
    
    86,730
    
    
    
    119,421
    
    
    
    164,663Cost of sales:Cost of security and entertainment sales
    
    
    27,331
    
    
    
    34,052
    
    
    
    58,475
    
    
    
    67,347Cost of
satellite radio sales (Note 2)
    
    
    
    
    
    
    24,299
    
    
    
    
    
    
    
    37,303Total cost of sales
    
    
    27,331
    
    
    
    58,351
    
    
    
    58,475
    
    
    
    104,650Gross profit
    
    
    31,542
    
    
    
    28,379
    
    
    
    60,946
    
    
    
    60,013Operating expenses:Selling, general and administrative
    
    
    21,855
    
    
    
    20,365
    
    
    
    45,639
    
    
    
    42,592Amortization of intangibles
    
    
    1,369
    
    
    
    1,203
    
    
    
    2,739
    
    
    
    2,407Provision for litigation
    
    
    
    
    
    
    (420
    )
    
    
    
    
    
    
    5,074Total operating expenses
    
    
    23,224
    
    
    
    21,148
    
    
    
    48,378
    
    
    
    50,073Income from operations
    
    
    8,318
    
    
    
    7,231
    
    
    
    12,568
    
    
    
    9,940Other income (expense):Interest expense
    
    
    (6,033
    )
    
    
    (6,860
    )
    
    
    (12,354
    )
    
    
    (13,897
    )Interest income
    
    
    26
    
    
    
    126
    
    
    
    115
    
    
    
    204Income (loss) before provision for (benefit from) income taxes
    
    
    2,311
    
    
    
    497
    
    
    
    329
    
    
    
    (3,753
    )Provision for (benefit from) income taxes
    
    
    1,291
    
    
    
    486
    
    
    
    912
    
    
    
    (996
    )Net income (loss)
    
    $
    1,020
    
    
    $
    11
    
    
    $
    (583
    )
    
    $
    (2,757
    )Net income (loss) per common share:Basic
    
    $
    0.04
    
    
    $
    0.00
    
    
    $
    (0.02
    )
    
    $
    (0.11
    )Diluted
    
    $
    0.04
    
    
    $
    0.00
    
    
    $
    (0.02
    )
    
    $
    (0.11
    )Weighted average number of common shares:Basic
    
    
    25,829
    
    
    
    25,928
    
    
    
    25,844
    
    
    
    25,942Diluted
    
    
    25,871
    
    
    
    25,931
    
    
    
    25,844
    
    
    
    25,942
  2




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DEI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
 Six Months Ended June 30,2008
    
    
    2007Operating activitiesNet loss
    
    $
    (583
    )
    
    $
    (2,757
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,725
    
    
    
    4,666Non-cash interest expense
    
    
    908
    
    
    
    591Non-cash stock-based compensation
    
    
    629
    
    
    
    415Deferred taxes
    
    
    682
    
    
    
    547Changes in operating assets and liabilities, net of effects of acquisitions:Accounts receivable, net
    
    
    30,436
    
    
    
    87,750Inventories
    
    
    (2,373
    )
    
    
    64,017Prepaid expenses and other current assets
    
    
    2,957
    
    
    
    (12,926
    )Accounts payable
    
    
    (12,238
    )
    
    
    (92,830
    )Accrued liabilities
    
    
    (6,594
    )
    
    
    (12,873
    )Income taxes receivable
    
    
    3,290
    
    
    
    (7,186
    )Other
    
    
    (1,319
    )
    
    
    1,681Net cash provided by operating activities
    
    
    20,520
    
    
    
    31,095Investing activitiesPurchases of property and equipment
    
    
    (1,888
    )
    
    
    (1,184
    )Acquisitions of businesses, net of cash acquired
    
    
    
    
    
    
    (11,057
    )Net cash used in investing activities
    
    
    (1,888
    )
    
    
    (12,241
    )Financing activitiesProceeds from revolving loan
    
    
    27,500
    
    
    
    72,500Payments on senior notes and revolving loan
    
    
    (35,835
    )
    
    
    (87,034
    )Debt amendment fees
    
    
    (1,822
    )
    
    
    (1,011
    )Payments received on shareholder loan
    
    
    
    
    
    
    8Net cash used in financing activities
    
    
    (10,157
    )
    
    
    (15,537
    )Net effect of exchange rates on cash
    
    
    (445
    )
    
    
    (109
    )Increase in cash and cash equivalents
    
    
    8,030
    
    
    
    3,208Cash and cash equivalents at beginning of period
    
    
    4,760
    
    
    
    9,861Cash and cash equivalents at end of period
    
    $
    12,790
    
    
    $
    13,069
  3




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited and in thousands, except per share amounts)
 1. Basis of Presentation
  2. Summary of Significant Accounting Policies
  Revenue Recognition
  Fair Value Measurement
 4




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited and in thousands, except per share amounts)
      Fair Value Measurements at June 30, 2008 UsingQuoted Prices inActive Markets for
    
    Significant Other
    
    SignificantIdentical Assets
    
    Observable Inputs
    
    Unobservable Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAssetsMoney market fund
    
    $
    8,100
    
    
    $
    
    
    
    $
    
    
    
    $
    8,100LiabilitiesDerivative
    
    $
    
    
    
    $
    4,302
    
    
    $
    
    
    
    $
    4,302
 Recent Accounting Pronouncements
  5




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited and in thousands, except per share amounts)
    3. Warranty Liability
   Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning balance
    
    $
    4,711
    
    
    $
    4,854
    
    
    $
    4,248
    
    
    $
    8,631Increases in reserve
    
    
    901
    
    
    
    1,970
    
    
    
    2,590
    
    
    
    3,872Decrease charged against reserve
    
    
    (1,058
    )
    
    
    (2,471
    )
    
    
    (2,284
    )
    
    
    (8,150
    )Ending balance
    
    $
    4,554
    
    
    $
    4,353
    
    
    $
    4,554
    
    
    $
    4,353
 4. Other Comprehensive Income (Loss)
 6




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited and in thousands, except per share amounts)
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,020
    
    
    $
    11
    
    
    $
    (583
    )
    
    $
    (2,757
    )Other comprehensive income (loss):Foreign currency translation effects
    
    
    201
    
    
    
    1,164
    
    
    
    (951
    )
    
    
    1,128Unrealized gain (loss) on interest rate swap, net of tax
    
    
    1,900
    
    
    
    947
    
    
    
    (69
    )
    
    
    447Comprehensive income (loss)
    
    $
    3,121
    
    
    $
    2,122
    
    
    $
    (1,603
    )
    
    $
    (1,182
    )
  June 30,
    
    
    December 31,2008
    
    
    2007Foreign currency translation effects
    
    $
    2,837
    
    
    $
    3,788Unrealized loss on interest rate swap, net of tax
    
    
    (2,600
    )
    
    
    (2,531
    )Accumulated other comprehensive income
    
    $
    237
    
    
    $
    1,257
 5. Derivative Instruments and Hedging Activities
    June 30,
    
    
    December 31,2008
    
    
    2007Beginning balance
    
    $
    (2,531
    )
    
    $
    Changes in fair value of derivatives
    
    
    (114
    )
    
    
    (4,189
    )Deferred income tax provision
    
    
    45
    
    
    
    1,658Ending balance
    
    $
    (2,600
    )
    
    $
    (2,531
    )
 6. Stock-Based Compensation
 7




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##### Table of Contents



DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited and in thousands, except per share amounts)
    7. Net Income (Loss) Per Common Share
   8. Income Taxes
   8




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited and in thousands, except per share amounts)
    9. Related Parties
  10. Commitments and Contingencies
  9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 You should read the following discussion and analysis in conjunction with our financial
statements and related notes contained elsewhere in this report. This discussion contains
forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of a
variety of factors, including those set forth under Item 1A, Risk Factors in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2007.
 Overview
 ® ® ® ® ® ®
  Critical Accounting Policies and Estimates
   Revenue Recognition
  10




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Restructuring Activities and Other Business Developments
   Results of Operations
  11




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Three
Months Ended June 30, 2008 Compared with the Three Months Ended June 30, 2007
 As Reported
    
    
    Reclassification
    
    
    Non-GAAP
    
    
    As ReportedThree Months Ended
    
    
    Three Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2008
    
    
    2008
    
    
    2007Sales:Security and entertainment product sales, net
    
    $
    50,974
    
    
    $
    
    
    
    $
    50,974
    
    
    $
    57,912Satellite radio product sales, net
    
    
    4,543
    
    
    
    16,168
    
    
    
    20,711
    
    
    
    27,722Net product sales
    
    
    55,517
    
    
    
    16,168
    
    
    
    71,685
    
    
    
    85,634Royalty and other revenues related to
security and entertainment products
    
    
    3,335
    
    
    
    
    
    
    
    3,335
    
    
    
    984Other revenues related to satellite radio products
    
    
    21
    
    
    
    
    
    
    
    21
    
    
    
    112Royalty and other revenues
    
    
    3,356
    
    
    
    
    
    
    
    3,356
    
    
    
    1,096Net sales
    
    $
    58,873
    
    
    $
    16,168
    
    
    $
    75,041
    
    
    $
    86,730Cost of sales:Cost of security and entertainment sales
    
    
    27,331
    
    
    
    
    
    
    
    27,331
    
    
    
    34,052Cost of satellite radio sales
    
    
    
    
    
    
    16,168
    
    
    
    16,168
    
    
    
    24,299Total cost of sales
    
    $
    27,331
    
    
    $
    16,168
    
    
    $
    43,499
    
    
    $
    58,351Security and entertainment gross profit,
including royalty and other revenue
    
    $
    26,978
    
    
    
    
    
    
    $
    26,978
    
    
    $
    24,844Satellite radio gross profit, including other revenue
    
    
    4,564
    
    
    
    
    
    
    
    4,564
    
    
    
    3,535Consolidated gross profit
    
    $
    31,542
    
    
    $
    
    
    
    $
    31,542
    
    
    $
    28,379Security and entertainment gross profit margin
    
    
    49.7
    %
    
    
    
    
    
    
    49.7
    %
    
    
    42.2
    %Satellite radio gross profit margin
    
    
    
    
    
    
    
    
    
    
    22.0
    %
    
    
    12.7
    %Consolidated gross profit margin
    
    
    53.6
    %
    
    
    
    
    
    
    42.0
    %
    
    
    32.7
    %
 Net Sales
    12




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Gross Profit and Income from Operations
      Interest Expense
  Provision for (benefit from) Income Taxes
 13




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Six
Months Ended June 30, 2008 Compared with the Six Months Ended June 30, 2007
 As Reported
    
    
    Reclassification
    
    
    Non-GAAP
    
    
    As ReportedSix Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2008
    
    
    2008
    
    
    2007Sales:Security and entertainment product sales, net
    
    $
    108,006
    
    
    $
    
    
    
    $
    108,006
    
    
    $
    119,294Satellite radio product sales, net
    
    
    7,258
    
    
    
    31,033
    
    
    
    38,291
    
    
    
    43,174Net product sales
    
    
    115,264
    
    
    
    31,033
    
    
    
    146,297
    
    
    
    162,468Royalty and other revenues related to
security and entertainment products
    
    
    4,040
    
    
    
    
    
    
    
    4,040
    
    
    
    2,044Other revenues related to satellite radio products
    
    
    117
    
    
    
    
    
    
    
    117
    
    
    
    151Royalty and other revenues
    
    
    4,157
    
    
    
    
    
    
    
    4,157
    
    
    
    2,195Net sales
    
    $
    119,421
    
    
    $
    31,033
    
    
    $
    150,454
    
    
    $
    164,663Cost of sales:Cost of security and entertainment sales
    
    
    58,475
    
    
    
    
    
    
    
    58,475
    
    
    
    67,347Cost of satellite radio sales
    
    
    
    
    
    
    31,033
    
    
    
    31,033
    
    
    
    37,303Total cost of sales
    
    $
    58,475
    
    
    $
    31,033
    
    
    $
    89,508
    
    
    $
    104,650Security and entertainment gross profit, including royalty and other revenue
    
    $
    53,571
    
    
    
    
    
    
    $
    53,571
    
    
    $
    53,991Satellite radio gross profit, including other revenue
    
    
    7,375
    
    
    
    
    
    
    
    7,375
    
    
    
    6,022Consolidated gross profit
    
    $
    60,946
    
    
    $
    
    
    
    $
    60,946
    
    
    $
    60,013Security and entertainment gross profit margin
    
    
    47.8
    %
    
    
    
    
    
    
    47.8
    %
    
    
    44.5
    %Satellite radio gross profit margin
    
    
    
    
    
    
    
    
    
    
    19.2
    %
    
    
    13.9
    %Consolidated gross profit margin
    
    
    51.0
    %
    
    
    
    
    
    
    40.5
    %
    
    
    36.4
    %
 Net Sales
   14




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Gross Profit and Income from Operations
      Interest Expense
  Provision for (benefit from) Income Taxes
 15




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Liquidity and Capital Resources
       16




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Recent Accounting Pronouncements
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
 17




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Foreign Currency Exchange Risk
  
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders
   18




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##### Table of Contents



Nominee
    
    Votes in Favor
    
    WithheldTroy D. Templeton
    
    
    16,317,878
    
    
    
    3,569,552James E. Minarik
    
    
    19,471,182
    
    
    
    416,248Edmond S. Thomas
    
    
    19,443,705
    
    
    
    443,725Andrew D. Robertson
    
    
    19,412,575
    
    
    
    474,855
   Votes in Favor
    
    Votes Against
    
    Abstained
    
    Broker Non-Votes10,613,556
    
    
    3,874,670
    
    
    
    112,566
    
    
    
    5,286,638
  Votes in Favor
    
    Votes Against
    
    Abstained
    
    Broker Non-Votes19,617,710
    
    
    106,235
    
    
    
    129,431
    
    
    
    34,054
 
 Item 5.
Other Information
       
 Item 6. Exhibits.
 10.35
    
    Employment Agreement by and between the Registrant and Kevin
P. Duffy, dated as of August 4, 200831.1
    
    Rule 13a-l4(a)/15d-l4(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-l4(a)/15d-14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 19




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##### Table of Contents



SIGNATURES
  DEI HOLDINGS, INC.(Registrant)Date: August 5, 2008
    By:
    /s/ James E. MinarikName:
    James E. MinarikTitle:
    President and Chief Executive OfficerDate: August 5, 2008
    By:
    /s/ Kevin P. DuffyName:
    Kevin P. DuffyTitle:
    Executive Vice President and Chief Financial Officer 20




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##### Table of Contents



EXHIBIT INDEX
 10.35
    
    Employment Agreement by and between the Registrant and Kevin P. Duffy, dated as of August 4, 200831.1
    
    Rule 13a-l4(a)/15d-l4(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-l4(a)/15d-l4(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer