Use these links to rapidly review the documentUltimate Electronics, Inc. Form 10-Q Index

United States
Securities and Exchange CommissionWashington, D.C. 20549

FORM 10-Q

|(Mark One)                                    |                                                                                         
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                             | Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934           
|For the Quarterly Period Ended April 30, 2003
|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 0-22532

ULTIMATE ELECTRONICS, INC.(Exact name of registrant as specified in its charter)

Delaware

84-0585211(State or other jurisdiction of
incorporation or organization)

(I.R.S. employer
identification no.)


321 West 84th Avenue, Suite A, Thornton, Colorado 80260(Address of principal executive offices, zip code)

(303) 412-2500(Registrant's telephone number, including area code)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange
Act): Yes ý    No o

The
number of outstanding shares of common stock as of June 12, 2003 was 14,660,329.





Ultimate Electronics, Inc.  Form 10-Q  Index



|               |  |                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------
|PART I.        |  | FINANCIAL INFORMATION                                                                                         
|Item 1.        |  | Financial Statements:                                                                                         
|               |  | Condensed Consolidated Balance Sheets as of April 30, 2003 (unaudited) and January 31, 2003                   
|               |  | Consolidated Statements of Operations for the three months ended April 30, 2003 and 2002 (unaudited)          
|               |  | Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2003 and 2002 (unaudited)
|               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                              
|Item 2.        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market Risk                                                    
|Item 4.        |  | Controls and Procedures                                                                                       
|PART II.       |  | OTHER INFORMATION                                                                                             
|Item 1.        |  | Legal Proceedings                                                                                             
|Item 2.        |  | Changes in Securities                                                                                         
|Item 3.        |  | Defaults Upon Senior Securities                                                                               
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                           
|Item 5.        |  | Other Information                                                                                             
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                              
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT INDEX 





Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ULTIMATE ELECTRONICS, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (amounts in thousands, except share and per share data)

|                                                                           |                                                                                                                                                      | April 30,
2003                             |         | January 31,
2003
|-------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------
|
|Assets:                                                                    |                                                                                                                                                      |                                            |         |                 
|Current assets:                                                            |                                                                                                                                                      |                                            |         |                 
|                                                                           | Cash and cash equivalents                                                                                                                            |                                            | $       | 3,415           
|                                                                           | Accounts receivable, net                                                                                                                             |                                            |         | 40,034          
|                                                                           | Merchandise inventories, net                                                                                                                         |                                            |         | 105,838         
|                                                                           | Other current assets                                                                                                                                 |                                            |         | 3,640           
|                                                                           |                                                                                                                                                      |                                            |         |                 
|                                                                           |                                                                                                                                                      | Total current assets                       |         |                 
|Property and equipment, net                                                |                                                                                                                                                      |                                            | 142,937 |                 
|Other long-term assets                                                     |                                                                                                                                                      |                                            | 2,774   |                 
|                                                                           |                                                                                                                                                      |                                            |         |                 
|                                                                           |                                                                                                                                                      | Total assets                               |         | $               
|                                                                           |                                                                                                                                                      |                                            |         |                 
|Liabilities and Stockholders' Equity:                                      |                                                                                                                                                      |                                            |         |                 
|Current liabilities:                                                       |                                                                                                                                                      |                                            |         |                 
|                                                                           | Accounts payable                                                                                                                                     |                                            | $       | 29,263          
|                                                                           | Accrued liabilities                                                                                                                                  |                                            |         | 23,446          
|                                                                           | Deferred revenue                                                                                                                                     |                                            |         | 792             
|                                                                           | Other current liabilities                                                                                                                            |                                            |         | 130             
|                                                                           |                                                                                                                                                      |                                            |         |                 
|                                                                           |                                                                                                                                                      | Total current liabilities                  |         |                 
|Revolving line of credit                                                   |                                                                                                                                                      |                                            | 28,949  |                 
|Deferred revenue, less current portion                                     |                                                                                                                                                      |                                            | 217     |                 
|Capital lease obligations, including related parties, less current portion |                                                                                                                                                      |                                            | 1,395   |                 
|Other long-term liabilities                                                |                                                                                                                                                      |                                            | 2,204   |                 
|                                                                           |                                                                                                                                                      |                                            |         |                 
|                                                                           |                                                                                                                                                      | Total long-term liabilities                |         |                 
|Commitments and contingencies                                              |                                                                                                                                                      |                                            |         |                 
|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40,000,000 Issued and outstanding shares: 14,580,682 at April 30, 2003 and January 31, 2003 |                                            |         | 146             
|                                                                           | Additional paid-in capital                                                                                                                           |                                            |         | 164,290         
|                                                                           | Retained earnings                                                                                                                                    |                                            |         | 47,806          
|                                                                           |                                                                                                                                                      |                                            |         |                 
|                                                                           |                                                                                                                                                      | Total stockholders' equity                 |         |                 
|                                                                           |                                                                                                                                                      |                                            |         |                 
|                                                                           |                                                                                                                                                      | Total liabilities and stockholders' equity |         | $               
|                                                                           |                                                                                                                                                      |                                            |         |                 

See
accompanying notes to Condensed Consolidated Financial Statements.



ULTIMATE ELECTRONICS, INC.        CONSOLIDATED STATEMENTS OF OPERATION        (Unaudited)        (amounts in thousands, except share and per share data)

|                                                                                   |  | Three Months Ended
April 30, |           
|---------------------------------------------------------------------------------- |  | ---------------------------- | ----------
|
|Sales                                                                              |  | $                            | 155,685   
|Cost of goods sold                                                                 |  |                              | 104,776   
|                                                                                   |  |                              |           
|Gross profit                                                                       |  |                              | 50,909    
|Selling, general and administrative expenses                                       |  |                              | 53,160    
|                                                                                   |  |                              |           
|Income (loss) from operations                                                      |  |                              | (2,251    
|Interest expense                                                                   |  |                              | 45        
|                                                                                   |  |                              |           
|Income (loss) before taxes and cumulative effect of change in accounting principle |  |                              | (2,296    
|Income tax expense (benefit)                                                       |  |                              | (872      
|                                                                                   |  |                              |           
|Income (loss) before cumulative effect of change in accounting principle           |  |                              | (1,424    
|Cumulative effect of change in accounting principle                                |  |                              |          
|                                                                                   |  |                              |           
|Net loss                                                                           |  | $                            | (1,424    
|                                                                                   |  |                              |           
|Loss per sharebasic                                                               |  | $                            | (.10      
|Loss per sharediluted                                                             |  | $                            | (.10      
|Weighted average shares outstandingbasic                                          |  |                              | 14,580,727
|Weighted average shares outstandingdiluted                                        |  |                              | 14,580,727

See
accompanying notes to Condensed Consolidated Financial Statements.



ULTIMATE ELECTRONICS, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (Unaudited)        (amounts in thousands)

|                                                 |  | Three Months Ended
April 30, |        
|------------------------------------------------ |  | ---------------------------- | -------
|
|Cash Flows from Operating Activities:            |  |                              |        
|Net cash used in operating activities            |  | $                            | (14,495
|Cash Flows from Investing Activities:            |  |                              |        
|Purchases of property and equipment, net         |  |                              | (5,357 
|                                                 |  |                              |        
|Net cash used in investing activities            |  |                              | (5,357 
|Cash Flows from Financing Activities:            |  |                              |        
|Net borrowings under revolving line of credit    |  |                              | 20,629 
|Principal payments on capital lease obligations  |  |                              | (21    
|Proceeds from exercise of stock options          |  |                              |       
|                                                 |  |                              |        
|Net cash provided by financing activities        |  |                              | 20,608 
|                                                 |  |                              |        
|Net increase in cash and cash equivalents        |  |                              | 756    
|Cash and cash equivalents at beginning of period |  |                              | 2,659  
|                                                 |  |                              |        
|Cash and cash equivalents at end of period       |  | $                            | 3,415  
|                                                 |  |                              |        

See
accompanying notes to Condensed Consolidated Financial Statements.





ULTIMATE ELECTRONICS, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)        April 30, 2003

1. Significant Accounting Policies



Ultimate Electronics, Inc. is a leading specialty retailer of consumer electronics and home entertainment products located in the Rocky Mountain, Midwest
and Southwest regions of the United States. The Company currently operates 58 stores, including 40 stores in Arizona, Idaho, Illinois, Iowa, Minnesota, Missouri, Nevada, New Mexico, Oklahoma, South
Dakota, Texas and Utah under the trade name Ultimate Electronics, 11 stores in Colorado under the trade name SoundTrack and seven stores in Minnesota under the trade name Audio King.

The
accompanying unaudited condensed consolidated financial statements of Ultimate Electronics, Inc. should be read in conjunction with the Company's consolidated financial
statements for the year ended January 31, 2003. Significant accounting policies disclosed therein have not changed except as discussed in Note 2. The Company's unaudited condensed
consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States for
interim financial reporting and the regulations of the Securities and Exchange Commission for quarterly reporting. Accordingly, they do not include all information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements. In the Company's opinion, the statements include all adjustments, consisting only of normal recurring adjustments
that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. Operating results for the three month period ended April 30,
2003 are not necessarily indicative of the results that may be expected for the year ending January 31, 2004. Seasonal fluctuations in sales of the Company's products result primarily from the
purchasing patterns of consumers. 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). For
further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 2003 and
other filings with the Securities and Exchange Commission.



The unaudited condensed consolidated financial statements include the accounts of all subsidiaries. All intercompany accounts and transactions have been
eliminated upon consolidation.



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.



The Company sells consumer electronics and home entertainment products, and along with the sale of this merchandise, offers and sells installation services and/or
warranties, which can be purchased


separately by the customer and which are separately priced off a standard price list. Revenues from non-merchandise components represent approximately 6% of the Company's total sales. Revenue is
recognized at the time the customer takes possession of the merchandise or such merchandise is delivered to the customer. The Company recognizes revenues from services, such as home and mobile
installation, home delivery and setup, and repair services, at the time the service is provided. Sales, which includes net warranty revenue, consists of gross sales less discounts, price guarantees,
returns and allowances.

The
Company sells extended warranty 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 and all performance obligations and risk of
loss with respect to such contracts are the responsibility of such administrator and other parties. For extended warranty contracts entered into prior to February 1, 2000, the Company
recognizes revenues, net of direct selling expenses, over the term of the obligor contracts, as the Company was deemed to be the obligor under the terms of its extended warranty master contract.
Effective February 1, 2000, the Company reconstructed 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 Company retains a commission which it now recognizes as revenue from the sale of these non-obligor contracts at the time of sale to the customers.



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.



Statement of Financial Accounting Standard No. 123, "Accounting for Stock Based Compensation" (SFAS 123), establishes accounting and reporting
standards for stock based employee compensation plans, as amended. As permitted by SFAS 123, 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. In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based CompensationTransition and Disclosure" (SFAS 148), which amends SFAS 123 to provide alternative methods of transition to the SFAS 123 fair value method of
accounting for stock-based compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 25, "Interim Financial Reporting," to require disclosure in
the significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income in annual and interim financial statements.
The Company has implemented all required disclosures of SFAS 148 in the accompanying consolidated financial statements.

The
Company's pro forma information, amortizing the fair value of the options over their vesting period, is as follows:

Three Months Ended
April 30,2003

2002Net loss as reported

$
(1,424
)
$
(341
)SFAS 123 compensation expense, net of tax


(377
)

(313
)Pro forma net loss

$
(1,801
)
$
(654
)Basic loss per share as reported

$
(.10
)
$
(.03
)Pro forma basic loss per share


(.12
)

(.06
)Diluted loss per share


(.10
)

(.03
)Pro forma diluted loss per share


(.12
)

(.06
)


For
a detailed description regarding the assumptions used to calculate the compensation expense noted above, refer to Note 7 in the Company's Annual Report on
Form 10-K for the year ended January 31, 2003.

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.



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. The Company reduces advertising expense with cooperative advertising from its vendors. The Company's cooperative advertising from its vendors consists of three basic types:
(i) market development funds of a fixed amount per period; (ii) cooperative advertising credits that are deducted from each invoice; and (iii) cooperative advertising funds that
are accrued for as purchases are made and are collected either monthly, quarterly, semi-annually or annually. The Company often provides proof of performance of advertising to its vendors.
Cooperative advertising payments vary with individual programs and with individual vendors.

As
discussed in Note 2 to the Company's January 31, 2003 Annual Report on Form 10-K, the Company elected to adopt early, effective February 1,
2002, the provisions of EITF 02-16, "Accounting by Customer (including a Reseller) for Certain Consideration Received from a Vendor" (EITF 02-16).

The
amount of the Company's cooperative advertising receivable at April 30, 2003 and January 31, 2003 is as follows:

April 30, 2003

January 31, 2003Cooperative advertising receivable

$
17,060

$
13,694


The
amounts of cooperative advertising that are being netted against advertising expense for the three months ended April 30, 2003 and 2002 are as follows:

Three Months Ended
April 30,2003

2002Gross advertising expense

$
13,768

$
13,298Cooperative advertising


(8,734
)

(8,445
)Net advertising expense

$
5,034

$
4,853


2. New Accounting Pronouncements



In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is effective for fiscal
periods beginning after June 15, 2002. The Company adopted SFAS 143 on February 1, 2003. The adoption of SFAS 143 had no impact on the consolidated financial position,
results of operations or cash flows of the Company.



In April 2002, the FASB issued Statement 145, "Rescission of Statements 4, 44 and 62" ("SFAS 145"). SFAS 145 rescinds Statement 4, "Reporting
Gains and Losses from Extinguishment of Debt, "Statement 44, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements, "and Statement 62, "Accounting for Intangible Assets of
Motor Carriers". SFAS 145 requires gains and losses on extinguishment of debt to be classified as either extraordinary items or in continuing operations in accordance with the provisions of APB
30. Further, any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented, that does not meet the criteria in APB 30 for extraordinary item
classification, is required to be reclassified to continuing operations. SFAS 145 also amends Statement 13, "Accounting for Leases" to require certain lease modifications that have economic
effects similar to sale-leaseback transactions to be accounted for in the same manner as sale-leaseback transactions. The provisions of FAS 145 related to the recession
of Statement 4 are effective for financial statements issued for fiscal years beginning after May 15, 2002. The Company adopted SFAS 145 on February 1, 2003. The impact of
the adoption was to reclassify a $254,000 loss on


extinguishment of debt recorded on the January 31, 2001 consolidated financial statement of income from an extraordinary item to interest expense.



In June 2002, the FASB Issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146), which
addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (EITF
94-3), "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS 146,
the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the Company commits to the exit plan. This statement is effective for
exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a material impact on the consolidated financial position, results of
operations or cash flows of the Company.



In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), an interpretation of Accounting
Research Bulletin No. 51, to address the consolidation issues
around certain types of entities, including variable interest entities ("VIE"). FIN 46 requires a VIE to be consolidated if the Company's variable interest (i.e. investment in the entity) will absorb
a majority of the entity's expected losses and/or residual returns if they occur. FIN 46 is applicable immediately to any VIE formed after January 31, 2003 and must be applied in the third
quarter 2003 to any such entity created before February 1, 2003. The Company is reviewing the provisions of FIN 46 and does not expect its implementation to have a material effect on the
financial position, results of operations or cash flows of the Company.

3. Contingencies

On April 7, 2003, a complaint captionedHoward Fisher v. J. Edward McEntire, et. al.was filed against the
Company and three of its officers and directors in the United States District Court of the District of Colorado. The complaint is a purported class action lawsuit on behalf of purchasers of the
Company's common stock during the period between March 13, 2002 and August 8, 2002. The complaint claims damages for alleged violations of Section 11 of the Securities Act of
1933, as amended, and Section 10(b) of the Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under the 1934 act. The Company believes the complaint is without
merit and intends to defend the matter vigorously. The Company has not provided for any potential loss associated with this lawsuit in the accompanying financial statements.





Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Some statements contained in this Quarterly Report on Form 10-Q are forward-looking statements as defined in the Private Securities Litigation Reform Act of
1995. Such statements include statements relating to, among other things:



These
forward-looking statements are subject to numerous risks, uncertainties and assumptions, including local, regional and national economic conditions; the availability of new
products; competition in our targeted markets; the availability of adequate financial resources; the timing of new store openings; weather conditions in our markets; and other factors discussed in our
Annual Report on Form 10-K for the fiscal year ended January 31, 2003. We disclaim any obligation to update forward-looking statements, whether as a result of new
information, future events or otherwise.



Sales.Sales for the three months ended April 30, 2003 increased 10% to $155.7 million from
$142.2 million for the three months ended April 30, 2002. The increase in sales was primarily due to sales from the 12 new stores we opened in the prior year. Sales of comparable stores
were down 8% for the three months ended April 30, 2003. We believe the decrease in comparable store sales was primarily due to the effects of the war in Iraq and a weak economy.
Comparable store sales include sales for stores open at least 13 months and exclude (i) sales for stores recently relocated and expanded until 13 months after completion and
(ii) sales for stores in new markets until 13 months after 75% of the initial number of stores planned for the market have opened. Of the 58 stores we had open as of April 30,
2003, 41 were considered comparable stores.

Gross Profit.Gross profit for the three months ended April 30, 2003 increased 9% to $50.9 million
(32.7% of sales) from $46.7 million (32.8% of sales) for the three months ended April 30, 2002. During the quarter, our gross margins by product category remained stable compared
to the same period of the
prior year. Reduced amortization of warranties sold prior to February 1, 2000 negatively impacted our margins by 27 basis points.

Selling, General and Administrative.Selling, general and administrative expenses for the three months ended
April 30, 2003 were $53.2 million (34.2% of sales) compared to $44.5 million (31.3% of sales) for the three months ended April 30, 2002. Fixed expenses such as
occupancy,


depreciation and salaries increased by approximately 190 basis points as a percentage of sales over the first quarter of the prior year due to lower than anticipated sales for the quarter and
increased costs associated with the 12 new stores opened in the latter half of last year. Additionally, insurance costs for the quarter ended April 30, 2003 increased 60 basis points as a
percentage of sales due to the rising costs of healthcare.

Income From Operations.As a result of the foregoing, we recorded a loss from operations of $2.3 million (1.5% of
sales) for the three months ended April 30, 2003 compared to income from operations of $2.2 million (1.5% of sales) for the three months ended April 30, 2002.

Interest Expense.We recorded interest expense of $45,000 for the three months ended April 30, 2003, compared
to interest expense of $193,000 for the three months ended April 30, 2002 primarily due to lower amounts outstanding on our revolving line of credit in the current year. We had no
interest income during either period.

Cumulative Effect of Change in Accounting Principle.We changed our accounting principle with respect to recording
cooperative advertising allowances effective retroactively as of the beginning of fiscal 2003. As a result, we recorded a non-cash charge of $1.6 million, net of income tax, in the
first quarter of fiscal 2003 for the cumulative effect of the change in accounting principle on fiscal years prior to fiscal 2003.

Income Taxes.Our effective tax rate was 38.0% in both the three months ended April 30, 2003 and the
three months ended April 30, 2002.

Net Loss.Our net loss was $1.4 million for the three months ended April 30, 2003 compared to a net loss
of $341,000 for the three months ended April 30, 2002 for the reasons described above.



Historically, our 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. Our primary cash requirements are related to expenditures for new store openings, the relocation and/or remodeling of existing store locations, inventory
build-up prior to the holiday selling season and information technology systems. Expenditures for new store openings include leasehold improvements, fixtures and equipment, additional
inventory requirements, preopening expenses and selling, general and administrative expenses. We currently operate a total of 58 stores in 13 states.

Net
cash used in operating activities was $14.5 million for the three months ended April 30, 2003 compared to net cash used in operating activities of
$14.1 million for the three months ended April 30, 2002.

Net
cash used in investing activities was $5.4 million for the three months ended April 30, 2003, compared to $10.3 million for the three months ended
April 30, 2002 primarily for capital expenditures for new store openings and continued implementation of our new management information system.

Total
capital expenditures for fiscal 2004 are expected to be between $35 and $40 million, primarily for new store openings, several remodels of our existing stores and completion
of the implementation of our new management information system. We currently plan to open seven new stores in fiscal 2004 and to remodel our two Las Vegas stores in addition to the relocation and
expansion of our Rochester, Minnesota store in March 2003. We have signed leases for all of the new store locations. The cost of new stores is anticipated to average approximately
$3.4 million per store during fiscal 2004, which amount includes leasehold improvements, fixtures and equipment, inventory (net of payables) and preopening expenses. Leasehold improvements and
fixtures and equipment are expected to average approximately $2.2 million per store, depending on tenant allowances. The inventory requirement for each new store is expected to average
approximately $1.6 million, approximately $750,000 of which will



be financed through trade credits from our vendors. Preopening expenses for new stores are expected to average approximately $350,000, and include costs for advertising prior to opening and
recruitment and training of new employees. If we relocate existing stores, preopening costs are expected to average $150,000 and will be higher if we are required to terminate existing store leases
prior to their maturity. Total capital expenditures for fiscal 2004 also include capital expenditures of approximately $4.0 million anticipated to complete the implementation of our new
management information system. Through April 30, 2003, we have expended a total of approximately $21.7 million on our new management information system. We expect to complete the final
implementation of our new management information system by the end of summer 2003. We expect to incur costs of approximately $1.2 million as we complete training for our new management
information system and for costs to write-off our old system.

Net
cash provided by financing activities was $20.6 million for the three months ended April 30, 2003 compared to net cash provided by financing activities of
$25.4 million for the three months ended April 30, 2002, primarily related to net borrowings on our revolving line of credit.

We
currently have an $80 million credit agreement with Wells Fargo Finance, LLC, which expires in September 2004. Borrowings under this revolving line of credit are limited
to the lesser of (i) $80 million or (ii) 75% of eligible inventory plus the lesser of 75% of eligible accounts receivable and $2.5 million. Amounts borrowed bear interest,
payable monthly, based on a blend of (i) LIBOR plus 1.75% to 2.25% and (ii) Wells Fargo Bank's prime rate minus 0.375%. Our weighted average interest rate was 3.9% at April 30,
2003. Inventories, bank accounts, accounts receivable, equipment, intangibles, negotiable instruments, investment property, intellectual property and equity interests in our subsidiaries secure the
borrowings. The facility includes negative covenants that restrict our ability to incur indebtedness, create liens, enter into mergers and consolidations, pay dividends, repurchase our capital stock,
issue guarantees, sell or otherwise dispose of assets and engage in transactions with affiliates without the written consent of the bank. The facility also contains covenants regulating our gross
margins, inventory levels, tangible net worth and capital expenditures. As of April 30, 2003, we had a borrowing base of $80 million, of which approximately $28.9 million was
outstanding, and we were in compliance with all borrowing covenants.

We
believe that our cash flows from operations and borrowings under our revolving line of credit will be sufficient to fund our operations, debt repayment and anticipated expansion
through fiscal 2005. To fund the capital requirements for our anticipated expansion plans beyond that time, we may be required to seek additional financing, which could include an increase in our
revolving line of credit or additional debt or equity financings. We may also remortgage our Thornton, Colorado facility. We may not be able to obtain such funds on favorable terms, if at all.



We believe that inflation has not had a significant effect on our results of operations during the last few years. We cannot predict whether inflation will
have an impact on our results of operations in the future.



Our business is affected by seasonal consumer buying patterns. As is the case with many other retailers, our sales and profits have been greatest in our 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 our financial condition and results of operations.

Item 3. Qualitative and Quantitative Disclosures About Market Risk

The following discusses our exposure to market risks related to changes in interest rates and other general market risks. All of our investment and financing
decisions are supervised or managed by our executive officers. All of our merchandise inventory purchases are denominated in U.S. dollars.

Cash and Cash Equivalents.As of April 30, 2003, we had $3.4 million in cash and cash equivalents, which was
not restricted and in various non-interest bearing accounts. We consider all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents.

Outstanding Debt of the Company.We are exposed to market risk due to changes in U.S. interest rates. We do not engage in
financial transactions for trading or speculative purposes. We have an $80 million revolving line of credit. Amounts borrowed under the $80 million revolving line of credit bear interest
based on a blend of (i) LIBOR plus 1.75% to 2.25% and (ii) Wells Fargo Bank's prime rate minus 0.375%. Borrowings under this credit facility were $28.9 million as of
April 30, 2003. An increase in the interest rate on our revolving line of credit of 39 basis points (a 10% change from the bank's reference rate as of April 30, 2003) would have no
material effect on our operating results. We have not hedged against interest rate changes.

Item 4. Controls and Procedures

During the 90-day period prior to the filing date of this report, an evaluation was performed under the supervision and with the participation of our
management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures in providing reasonable assurance (based on our management's evaluation of the costs and benefits of possible controls and procedures) that we are able to
record, process, summarize and report the information required in our quarterly and annual reports under the Securities Exchange Act of 1934. The Chief Executive Officer and Chief Financial Officer
have concluded that the evaluation has provided them with reasonable assurance that our disclosure controls and procedures are effective.

There
have been no changes in our internal controls or in other factors known to us that could significantly affect these controls subsequent to their evaluation.





Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

On April 7, 2003, a complaint captionedHoward Fisher v. J. Edward McEntire, et. al.was filed against the
Company and three of its officers and directors in the United States District Court of the District of Colorado. The complaint is a purported class action lawsuit on behalf of purchasers of the
Company's common stock during the period between March 13, 2002 and August 8, 2002. The complaint claims damages for alleged violations of Section 11 of the Securities Act of
1933, as amended, and Section 10(b) of the Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under the 1934 act. The Company believes the complaint is without
merit and intends to defend the matter vigorously.

Item 2. Changes in Securities.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None

Item 6. Exhibits and Reports on Form 8-K.







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                    |  | Ultimate Electronics, Inc.
|------------------- |  | --------------------------
|Date: June 13, 2003 |  | By:                       





CERTIFICATIONS

I, J. Edward McEntire, certify that:

1.     I
have reviewed this quarterly report on Form 10-Q of Ultimate Electronics, Inc.;

2.     Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.     The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.     The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:
June 13, 2003

| |  | /s/J. EDWARD MCENTIREJ. Edward McEntire
| |  | ---------------------------------------



I,
Alan E. Kessock, certify that:

1.     I
have reviewed this quarterly report on Form 10-Q of Ultimate Electronics, Inc.;

2.     Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.     The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.     The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:
June 13, 2003

| |  | /s/ALAN E. KESSOCKAlan E. Kessock
| |  | ---------------------------------





EXHIBIT INDEX

|Exhibit No. |  | Item                                                              
|----------- |  | ------------------------------------------------------------------
|99          |  | Certifications under Section 906 of the Sarbanes-Oxley Act of 2002