##### 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 September 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
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II  OTHER INFORMATION
    
    
    19Item 1. Legal Proceedings
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20EX-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)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,052
    
    
    $
    4,760Accounts receivable, net of allowance for doubtful accounts of
$1,711 and $1,521
at September 30, 2008 and December 31, 2007, respectively
    
    
    58,679
    
    
    
    77,366Inventories
    
    
    79,109
    
    
    
    64,219Income taxes receivable
    
    
    5,905
    
    
    
    9,783Prepaid expenses and other current assets
    
    
    4,324
    
    
    
    7,115Deferred tax assets
    
    
    6,038
    
    
    
    6,038Total current assets
    
    
    163,107
    
    
    
    169,281Property and equipment, net
    
    
    7,473
    
    
    
    7,353Intangible assets, net
    
    
    151,736
    
    
    
    157,265Other assets
    
    
    7,001
    
    
    
    6,535Total assets
    
    $
    329,317
    
    
    $
    340,434LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    48,636
    
    
    $
    44,814Accrued liabilities
    
    
    22,738
    
    
    
    28,527Current portion of senior notes payable
    
    
    667
    
    
    
    2,669Total current liabilities
    
    
    72,041
    
    
    
    76,010Revolving loan
    
    
    
    
    
    
    4,000Senior notes, less current portion
    
    
    257,924
    
    
    
    260,257Deferred tax liabilities
    
    
    10,114
    
    
    
    8,864Other liabilities
    
    
    3,284
    
    
    
    5,201Total liabilities
    
    
    343,363
    
    
    
    354,332Commitments and contingencies (Note 10)Shareholders deficit:Common stock, $0.01 par value:Authorized shares  100,000; issued and outstanding shares  25,531 and 25,420
at September 30, 2008 and December 31, 2007, respectively
    
    
    255
    
    
    
    254Paid-in capital
    
    
    115,469
    
    
    
    114,674Accumulated other comprehensive income (loss)
    
    
    (198
    )
    
    
    1,257Accumulated deficit
    
    
    (129,572
    )
    
    
    (130,083
    )Total shareholders deficit
    
    
    (14,046
    )
    
    
    (13,898
    )Total liabilities and shareholders deficit
    
    $
    329,317
    
    
    $
    340,434
  1




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DEI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share amounts)
 Three Months Ended Sept. 30,
    
    
    Nine Months Ended Sept. 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales:Security and entertainment product sales, net
    
    $
    58,753
    
    
    $
    65,998
    
    
    $
    166,759
    
    
    $
    185,292Satellite radio product sales, net of $14,879 and $45,912
of cost
for the three and nine months ended September 30, 2008,
respectively (Note 2)
    
    
    2,253
    
    
    
    17,463
    
    
    
    9,511
    
    
    
    60,637Royalty and other revenue
    
    
    838
    
    
    
    1,029
    
    
    
    4,995
    
    
    
    3,224Net sales
    
    
    61,844
    
    
    
    84,490
    
    
    
    181,265
    
    
    
    249,153Cost of sales:Cost of security and entertainment sales
    
    
    32,846
    
    
    
    37,668
    
    
    
    91,321
    
    
    
    105,015Cost of satellite radio sales (Note 2)
    
    
    
    
    
    
    17,234
    
    
    
    
    
    
    
    54,537Total cost of sales
    
    
    32,846
    
    
    
    54,902
    
    
    
    91,321
    
    
    
    159,552Gross profit
    
    
    28,998
    
    
    
    29,588
    
    
    
    89,944
    
    
    
    89,601Operating expenses:Selling, general and administrative
    
    
    19,986
    
    
    
    23,084
    
    
    
    65,625
    
    
    
    65,676Amortization of intangibles
    
    
    1,360
    
    
    
    1,255
    
    
    
    4,099
    
    
    
    3,662Provision for litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074Total operating expenses
    
    
    21,346
    
    
    
    24,339
    
    
    
    69,724
    
    
    
    74,412Income from operations
    
    
    7,652
    
    
    
    5,249
    
    
    
    20,220
    
    
    
    15,189Other income (expense):Interest expense
    
    
    (5,745
    )
    
    
    (6,717
    )
    
    
    (18,099
    )
    
    
    (20,614
    )Interest income
    
    
    32
    
    
    
    58
    
    
    
    147
    
    
    
    262Income (loss) before provision for (benefit from) income taxes
    
    
    1,939
    
    
    
    (1,410
    )
    
    
    2,268
    
    
    
    (5,163
    )Provision for (benefit from) income taxes
    
    
    845
    
    
    
    (158
    )
    
    
    1,757
    
    
    
    (1,154
    )Net income (loss)
    
    $
    1,094
    
    
    $
    (1,252
    )
    
    $
    511
    
    
    $
    (4,009
    )Net income (loss) per common share:Basic
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.02
    
    
    $
    (0.15
    )Diluted
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.02
    
    
    $
    (0.15
    )Weighted average number of common shares:Basic
    
    
    25,803
    
    
    
    25,904
    
    
    
    25,830
    
    
    
    25,929Diluted
    
    
    25,812
    
    
    
    25,904
    
    
    
    25,845
    
    
    
    25,929
  2




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DEI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
 Nine Months Ended September 30,2008
    
    
    2007Operating activitiesNet income (loss)
    
    $
    511
    
    
    $
    (4,009
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    7,293
    
    
    
    7,147Non-cash interest expense
    
    
    1,284
    
    
    
    911Non-cash stock-based compensation
    
    
    935
    
    
    
    657Deferred taxes
    
    
    1,250
    
    
    
    (98
    )Changes in operating assets and liabilities, net of
effects of acquisitions:Accounts receivable, net
    
    
    18,310
    
    
    
    92,039Inventories
    
    
    (15,417
    )
    
    
    50,824Prepaid expenses and other current assets
    
    
    2,762
    
    
    
    3,909Accounts payable
    
    
    4,097
    
    
    
    (86,726
    )Accrued liabilities
    
    
    (5,779
    )
    
    
    (16,970
    )Income taxes receivable
    
    
    3,838
    
    
    
    (7,072
    )Other
    
    
    (1,469
    )
    
    
    1,621Net cash provided by operating activities
    
    
    17,615
    
    
    
    42,233Investing activitiesPurchases of property and equipment
    
    
    (2,420
    )
    
    
    (2,178
    )Acquisitions of businesses, net of cash acquired
    
    
    
    
    
    
    (11,066
    )Net cash used in investing activities
    
    
    (2,420
    )
    
    
    (13,244
    )Financing activitiesProceeds from revolving loan
    
    
    29,000
    
    
    
    74,500Payments on senior notes and revolving loan
    
    
    (37,335
    )
    
    
    (106,801
    )Debt amendment fees
    
    
    (1,823
    )
    
    
    (1,011
    )Payments received on shareholder loan
    
    
    
    
    
    
    7Net cash used in financing activities
    
    
    (10,158
    )
    
    
    (33,305
    )Net effect of exchange rates on cash
    
    
    (745
    )
    
    
    (84
    )Increase (decrease) in cash and cash equivalents
    
    
    4,292
    
    
    
    (4,400
    )Cash and cash equivalents at beginning of period
    
    
    4,760
    
    
    
    9,861Cash and cash equivalents at end of period
    
    $
    9,052
    
    
    $
    5,461
  3




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




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited and in thousands, except per share amounts)
 Fair Value Measurement
      Fair Value Measurements at September 30, 2008 UsingQuoted Prices inActive Markets for
    
    Significant Other
    
    SignificantIdentical Assets
    
    Observable Inputs
    
    Unobservable Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalAssetsMoney market fund
    
    $
    561
    
    
    $
    
    
    
    $
    
    
    
    $
    561LiabilitiesDerivatives
    
    $
    
    
    
    $
    3,586
    
    
    $
    
    
    
    $
    3,586
 Recent Accounting Pronouncements
  5




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited and in thousands, except per share amounts)
    3. Warranty Liability
   Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Beginning balance
    
    $
    4,554
    
    
    $
    4,353
    
    
    $
    4,248
    
    
    $
    8,631Increases in reserve
    
    
    1,395
    
    
    
    3,534
    
    
    
    3,985
    
    
    
    7,605Costs charged
against reserve
    
    
    (1,327
    )
    
    
    (3,995
    )
    
    
    (3,611
    )
    
    
    (12,344
    )Ending balance
    
    $
    4,622
    
    
    $
    3,892
    
    
    $
    4,622
    
    
    $
    3,892
 6




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited and in thousands, except per share amounts)
 4. Other Comprehensive Income (Loss)
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,094
    
    
    $
    (1,252
    )
    
    $
    511
    
    
    $
    (4,009
    )Other comprehensive income (loss):Foreign currency translation effects
    
    
    (876
    )
    
    
    2,170
    
    
    
    (1,827
    )
    
    
    3,298Unrealized gain (loss) on interest rate swap, net
of tax
    
    
    441
    
    
    
    (1,544
    )
    
    
    372
    
    
    
    (1,097
    )Comprehensive income (loss)
    
    $
    659
    
    
    $
    (626
    )
    
    $
    (944
    )
    
    $
    (1,808
    )
  Sept. 30,
    
    
    December 31,2008
    
    
    2007Foreign currency translation effects
    
    $
    1,961
    
    
    $
    3,788Unrealized loss on interest rate swap, net of tax
    
    
    (2,159
    )
    
    
    (2,531
    )Accumulated other comprehensive income (loss)
    
    $
    (198
    )
    
    $
    1,257
 5. Derivative Instruments and Hedging Activities
    September 30, 2008
    
    
    December 31, 2007Beginning balance
    
    $
    (2,531
    )
    
    $
    Changes in fair value of derivatives
    
    
    616
    
    
    
    (4,189
    )Deferred income tax provision
    
    
    (244
    )
    
    
    1,658Ending balance
    
    $
    (2,159
    )
    
    $
    (2,531
    )
  7




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited and in thousands, except per share amounts)
  6. Stock-Based Compensation
    7. Net Income (Loss) Per Common Share
  8




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DEI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
(Unaudited and in thousands, except per share amounts)
  Three Months Ended Sept. 30,
    
    
    Nine Months Ended Sept. 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    1,094
    
    
    $
    (1,252
    )
    
    $
    511
    
    
    $
    (4,009
    )Weighted average common shares outstanding  basic
    
    
    25,803
    
    
    
    25,904
    
    
    
    25,830
    
    
    
    25,929Net income (loss) per common share  basic
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.02
    
    
    $
    (0.15
    )Calculation of diluted net income (loss) per common
share:Weighted average common shares outstanding  basic
    
    
    25,803
    
    
    
    25,904
    
    
    
    25,830
    
    
    
    25,929Dilutive effect of stock options
    
    
    1
    
    
    
    
    
    
    
    8
    
    
    
    Dilutive effect of unvested RSUs
    
    
    8
    
    
    
    
    
    
    
    7
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    25,812
    
    
    
    25,904
    
    
    
    25,845
    
    
    
    25,929Net income (loss) per common share  diluted
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.02
    
    
    $
    (0.15
    )
  8. Income Taxes
     9




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




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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 report 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
  11




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Restructuring Activities and Other Business Developments
    Results of Operations
  12




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales:Security and entertainment product sales, net
    
    $
    58,753
    
    
    $
    65,998
    
    
    $
    166,759
    
    
    $
    185,292Satellite radio product sales, net of $14,879 and
$45,912 of cost for
the three and nine months ended September 30,
2008, respectively
    
    
    2,253
    
    
    
    17,463
    
    
    
    9,511
    
    
    
    60,637Net product sales
    
    
    61,006
    
    
    
    83,461
    
    
    
    176,270
    
    
    
    245,929Royalty and other revenues related to
security and entertainment products
    
    
    821
    
    
    
    873
    
    
    
    4,861
    
    
    
    2,917Other revenues related to satellite radio products
    
    
    17
    
    
    
    156
    
    
    
    134
    
    
    
    307Royalty and other revenues
    
    
    838
    
    
    
    1,029
    
    
    
    4,995
    
    
    
    3,224Net sales
    
    
    61,844
    
    
    
    84,490
    
    
    
    181,265
    
    
    
    249,153Cost of sales:Cost of security and entertainment sales
    
    
    32,846
    
    
    
    37,668
    
    
    
    91,321
    
    
    
    105,015Cost of satellite radio sales
    
    
    
    
    
    
    17,234
    
    
    
    
    
    
    
    54,537Total cost of sales
    
    
    32,846
    
    
    
    54,902
    
    
    
    91,321
    
    
    
    159,552Security and entertainment gross profit,
including royalty and other revenue
    
    
    26,728
    
    
    
    29,203
    
    
    
    80,299
    
    
    
    83,194Satellite radio gross profit, including other revenue
    
    
    2,270
    
    
    
    385
    
    
    
    9,645
    
    
    
    6,407Consolidated gross profit
    
    $
    28,998
    
    
    $
    29,588
    
    
    $
    89,944
    
    
    $
    89,601Security and entertainment gross profit margin
    
    
    44.9
    %
    
    
    43.7
    %
    
    
    46.8
    %
    
    
    44.2
    %Satellite radio gross profit margin
    
    
    n/a
    
    
    
    2.2
    %
    
    
    n/a
    
    
    
    10.5
    %Consolidated gross profit margin
    
    
    46.9
    %
    
    
    35.0
    %
    
    
    49.6
    %
    
    
    36.0
    %
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
 Net Sales
    13




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Gross Profit and Income from Operations
     Interest Expense
  Provision for (benefit from) Income Taxes
  14




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Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
 Net Sales
     Gross Profit and Income from Operations
    15




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Interest Expense
  Provision for (benefit from) Income Taxes
  Liquidity and Capital Resources
   16




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Recent Accounting Pronouncements
  17




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
   Foreign Currency Exchange Risk
  18




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Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
   
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
 31.1
    
    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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SIGNATURES
  DEI HOLDINGS, INC.(Registrant)Date: November 5, 2008
    
    By:
    
    /s/ James E. MinarikName:
    
    James E. MinarikTitle:
    
    President and Chief Executive OfficerDate: November 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
 31.1
    
    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