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Company Contacts:   Investor Relations:
Universal Power Group, Inc.  Lambert, Edwards & Associates
469.892.1122 616.233.0500
Mimi Tan, SVP    Jeff Tryka, CFA or Karen Keller
tanm@upgi.com jtryka@lambert-edwards.com
                                   

Universal Power Group Reports Second Quarter 2012 Results
 
 
CARROLLTON, Texas — Aug. 9, 2012 — Universal Power Group, Inc. (NYSE MKT: UPG), a Texas-based distributor and supplier of batteries and related power accessories, and a third-party logistics provider, today announced financial results for the second quarter and six months ended June 30, 2012.

For the second quarter, UPG reported income from continuing operations of $406,000, or $0.08 per diluted share, on net sales of $23.6 million, compared with income from continuing operations of $189,000, or $0.04 per diluted share, on net sales of $21.6 million for the second quarter of 2011.  UPG’s Monarch Outdoor Adventures, LLC (Monarch) subsidiary was sold on May 4, 2012, and results from Monarch have been reported as discontinued operations.  Including the results from Monarch, UPG reported a net loss of $97,000, or ($0.02) per diluted share compared with net income of $125,000, or $0.03 per diluted share, in the second quarter of 2011.

“Our results for the second quarter were affected by the loss incurred on the sale of our Monarch subsidiary, but we generated solid operating improvement in our results from continuing operations when compared to the prior year,” stated Ian Edmonds, UPG’s President and Chief Executive Officer.  “Our results were also enhanced by improved performance of our supply chain, as increased deliveries from our Chinese suppliers enabled us to satisfy customer demand and rebuild inventories that had been depleted since the second quarter of 2011.”

Second Quarter and Six Month Results
Net sales for the second quarter increased 9.3%, to $23.6 million from $21.6 million in the second quarter of 2011.  The increase in net sales in the 2012 second quarter was primarily driven by an increase in sales of batteries and related power accessories, as well as growth from ProTechnologies, Inc. (PTI), which UPG acquired on April 20, 2011.

Gross profit decreased to $4.2 million in the quarter, compared with $4.4 million in the second quarter of 2011, due mainly to supply chain disruptions in China over the past year.  As a percent of sales, gross margin decreased to 17.8% in the second quarter of 2012, from 20.2% in the prior year.  Operating expenses decreased 10.1% to $3.5 million in the second quarter of 2012, from $3.9 million in the second quarter of 2011.  The decrease in operating expenses included lower personnel costs, reduced professional fees, and decreased marketing, travel and facility expenses.

Primarily as a result of the lower operating expenses, operating income increased to $704,000 for the current quarter, compared with operating income of $485,000 in the second quarter of 2011.  Interest expense was $153,000 in the second quarter, or flat when compared with the prior year.  UPG generated pre-tax income from continuing operations of $551,000 compared to a pre-tax income from continuing operations of $335,000 in the prior year.  UPG reported income from continuing operations of $406,000, or $0.08 per diluted share in the second quarter of 2012, compared to income from continuing operations of $189,000, or $0.04 per diluted share in the second quarter of 2011.  Including discontinued operations, the Company reported a net loss of $97,000, or ($0.02) per diluted share, compared to net income of $125,000, or $0.03 per diluted share in the second quarter of 2011.

For the first six months of 2012, net sales grew 15.8%, to $49.9 million, from $43.1 million in the comparable period of 2011.  The increase in net sales contributed to higher gross profit of $8.8 million compared to $8.7 million for the first six months of 2011.  As a percent of sales, gross margin for the first six months of 2012 decreased to 17.7% of sales from 20.1% of sales for the comparable period of 2011.  The increased cost of sales was the result of a number of factors, including the supply chain disruptions coming from China as well as higher material and labor costs from manufacturers.  Total operating expenses increased $289,000, or 4.0%, to $7.6 million from $7.3 million in the prior year.  Operating expenses for the first six months of 2012 included the expenses of PTI, which were not present for the entire period in 2011.

 
 
 
 
For the first six months of 2012, operating income decreased slightly to approximately $1.3 million compared to $1.4 million for the same period in 2011. Pre-tax income from continuing operations remained consistent at approximately $1.1 million compared to the same period in 2011.  Interest expense for the first six months of 2012 was flat at approximately $300,000 compared to the same period in 2011.  Income from continuing operations was $742,000, or $0.14 per diluted share, compared to income from continuing operations of $682,000, or $0.14 per diluted share, for the comparable period in 2011.  Including discontinued operations, net income was $195,000, or $0.04 per diluted share, compared to net income of $528,000, or $0.11 per diluted share, for the comparable period in 2011.

Balance Sheet and Financial Position
At June 30, 2012 inventory was $38.8 million, up $14.6 million from $24.2 million at Dec. 31, 2011.  The inventory balance at the end of 2011 was much lower than historical levels as a result of the supply chain issues in China.  Compared to a year ago, inventory levels are up $9.4 million from $29.4 million at June 30, 2011.  As manufacturing delays and delivery lead times associated with the Chinese supply chain issues improved during the second quarter, UPG was able to rebuild inventories to meet current business demand, including adequate safety stock.

Accounts receivable increased to $13.1 million, from $13.0 million at the end of 2011.  Accounts payable increased by $6.3 million, to $13.2 million during the period.  Total working capital increased to $20.4 million, from $19.9 million at the end of 2011.  For the first six months of 2012, net cash used in operations was $7.8 million compared to $2.8 million provided by operating activities in the first six months of 2011. Operating cash flow for the first six months of 2012 reflects the increase in inventory, which was partially offset by a $6.3 million increase in accounts payable.

Edmonds concluded:  “We endured some short-term pain with the sale of Monarch in the second quarter, but it is important to note that over the long term, the loss will be offset by improved results as we focus the resources formerly devoted to that subsidiary to our core businesses of batteries, related power accessories and third-party logistics.  We also made considerable progress in rebuilding our inventories and meeting the demands of our customers as we worked to recover from the supply chain issues in China by utilizing our diversified supply base in Asia.  However, the closure of so many factories in China continued to adversely affect our margins in the quarter as we saw higher product costs combined with the need to honor our pricing commitments to our customers.  As we work through these issues, we expect to see improving trends in revenues and margins, as well as more historical levels of inventory and receivables in the future.”


Conference Call Information
Universal Power Group will host an investor conference call today, Thursday, Aug. 9, 2012 at 11:30 a.m. ET (10:30 a.m. CT) to discuss the Company’s financial results for the second quarter and six months ended June 30, 2012.

Interested parties may access the conference call by dialing 1.888.396.2356; passcode 59545398.  The conference call will also be broadcast live at www.upgi.com and through the Thomson StreetEvents Network.  Individual investors can listen to the call at www.earnings.com, Thomson’s individual investor portal.  Institutional investors can access a webcast of the call via Thomson StreetEvents (www.streetevents.com), a password-protected event management site.

A replay of the conference call will be made available through Aug. 16, 2012 by calling 1.888.286.8010, passcode 93340506, and an archived webcast will be available at www.upgi.com.

About Universal Power Group, Inc.
Universal Power Group, Inc. (NYSE MKT: UPG) is a leading supplier and distributor of batteries and power accessories, and a provider of supply chain and other value-added services.  UPG's product offerings include proprietary brands of industrial and consumer batteries of all chemistries, chargers, jump-starters, 12-volt accessories, low voltage wire and cable products, and solar and security products.  UPG's supply chain services include procurement, warehousing, inventory management, distribution, fulfillment and value-added services such as sourcing, battery pack assembly and coordinating battery recycling efforts, as well as product development.  For more information, please visit the UPG website at www.upgi.com.

Forward-Looking Statements
Statements in this press release that are not statements of historical or current fact constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the Company's actual operating results to be materially different from any historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements that explicitly describe these risks and uncertainties, readers are urged to consider statements that contain terms such as "believes," "belief," "expects," "expect," "intends," "intend," "anticipate," "anticipates," "plans," "plan," to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties described from time to time in the Company's filings with the Securities and Exchange Commission. Historical financial results are not necessarily indicative of future performance.
 
 
 
 
 
UNIVERSAL POWER GROUP, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
(Amounts in thousands)

 
   
June 30,
2012
    
December 31,
2011
  
   
(unaudited)
        
             
CURRENT ASSETS
            
Cash and cash equivalents
   $ 302     $ 283  
Accounts receivable:
                
Trade, net of allowance for doubtful accounts of $339 (unaudited) and $384
     13,119       12,972  
Other
     478       442  
Inventories – finished goods, net of allowance for obsolescence of $620 (unaudited) and $830
     38,809       24,174  
Current deferred tax assets
     1,143       972  
Income tax receivable
     307       721  
Prepaid expenses and other current assets
     1,634       1,426  
Total current assets
     55,792       40,990  
                 
PROPERTY AND EQUIPMENT
                
Logistics and distribution systems
     1,901       1,871  
Machinery and equipment
     707       1,044  
Furniture and fixtures
     519       511  
Leasehold improvements
     394       389  
Vehicles
     155       171  
Total property and equipment
     3,676       3,986  
Less accumulated depreciation and amortization
     (3,097 )     (3,128 )
Net property and equipment
     579       858  
                 
GOODWILL
     1,387       1,387  
INTANGIBLES, net
     428       527  
OTHER ASSETS
     94       100  
NON-CURRENT DEFERRED TAX ASSET
     291       213  
      2,200       2,227  
TOTAL ASSETS
   $ 58,571     $ 44,075  

 
 
 
 
UNIVERSAL POWER GROUP, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
(Amounts in thousands)


   
June 30,
2012
    
December 31,
2011
  
   
(unaudited)
        
             
CURRENT LIABILITIES
            
Line of credit
   $ 20,582     $ 12,654  
Accounts payable
     13,162       6,845  
Accrued liabilities
     1,532       1,213  
Current portion of settlement accrual
     —       241  
Current portion of capital lease and note obligations
     106       119  
Current portion of deferred rent
     —       14  
Total current liabilities
     35,382       21,086  
                 
LONG-TERM LIABILITIES
                
Capital lease and note obligations, less current portion
     180       229  
                 
TOTAL LIABILITIES
     35,562       21,315  
                 
COMMITMENTS AND CONTINGENCIES
                
                 
SHAREHOLDERS’ EQUITY
                
Common stock - $0.01 par value, 50,000,000 shares authorized, 5,020,000 shares issued and outstanding
     50       50  
Additional paid-in capital
     16,345       16,339  
Retained earnings
     6,614       6,419  
Accumulated other comprehensive loss
     —       (48 )
Total shareholders’ equity
     23,009       22,760  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 58,571     $ 44,075  

 
 
 
 
 UNIVERSAL POWER GROUP, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
(Amounts in thousands except per share data)

 
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2012
    
2011
    
2012
    
2011
  
Net sales
   $ 23,583     $ 21,580     $ 49,921     $ 43,109  
Cost of sales
     19,392       17,218       41,077       34,429  
Gross profit
     4,191       4,362       8,844       8,680  
                                 
Operating expenses
     3,487       3,877       7,572       7,283  
                                 
Operating income
     704       485       1,272       1,397  
                                 
Interest expense
     (153 )     (150 )     (296 )     (290 )
Other, net
     —       —       127       —  
Total other expense, net
     (153 )     (150 )     (169 )     (290 )
                                 
Income from continuing operations before provision for income taxes
     551       335       1,103       1,107  
Provision for income taxes
     (145 )     (146 )     (361 )     (425 )
Income from continuing operations
     406       189       742       682  
Discontinued operations:
                                
Loss from operations of discontinued Monarch Outdoor Adventures, LLC
(including loss on disposal of $616 in Q2 2012)
     (646 )     (88 )     (707 )     (228 )
Provision for income taxes
     143       24       160       74  
Loss  on discontinued operations
     (503 )     (64 )     (547 )     (154 )
Net income (loss)
   $ (97 )   $ 125     $ 195     $ 528  
Net income (loss) per share
                                
Basic:
                                
Income from continuing operations
   $ 0.08     $ 0.04     $ 0.15     $ 0.14  
Loss on discontinued operations
   $ (0.10 )   $ (0.01 )   $ (0.11 )   $ (0.03 )
Net income (loss)
   $ (0.02 )   $ 0.03     $ 0.04     $ 0.11  
Diluted:
                                
Income from continuing operations
   $ 0.08     $ 0.04     $ 0.14     $ 0.14  
Loss on discontinued operations
   $ (0.10 )   $ (0.01 )   $ (0.10 )   $ (0.03 )
Net income (loss)
   $ (0.02 )   $ 0.03     $ 0.04     $ 0.11  
Weighted average shares outstanding
                                
Basic
     5,020       5,020       5,020       5,020  
Diluted
     5,194       5,029       5,198       5,037  
 
 
 
 
 
UNIVERSAL POWER GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
(Amounts in thousands)
 

   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
   
2012
    
2011
    
2012
    
2011
  
Net income (loss)
   $ (97 )   $ 125     $ 195     $ 528  
Amortization of hedging instrument
     20       29       48       58  
Comprehensive income (loss)
   $ (77 )   $ 154     $ 243     $ 586  
                                 
 
 
 
 
 
UNIVERSAL POWER GROUP, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
(Amounts in thousands)

   
Six Months Ended June 30,
  
   
2012
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net income
   $ 195     $ 528  
Items not requiring (providing) cash, net of effect of disposition and acquisition:
                
Depreciation and amortization
     239       374  
Provision for bad debts
     38       94  
Provision for obsolete inventory
     320       360  
Deferred income taxes
     (249 )     68  
Loss on disposal of Monarch
     616       —  
Gain on disposal of property
     —       (1 )
Stock-based compensation
     6       14  
Changes in operating assets and liabilities
                
Accounts receivable – trade
     (192 )     (1,554 )
Accounts receivable – other
     44       (1 )
Inventories
     (15,120 )     3,746  
Income taxes receivable/payable
     413       (643 )
Prepaid expenses and other assets
     (210 )     (32 )
Accounts payable
     6,317       (40 )
Accrued liabilities
     (4 )     335  
Settlement accrual
     (241 )     (375 )
Deferred rent
     (14 )     (44 )
Net cash provided by (used in) operating activities
     (7,842 )     2,829  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Net cash paid in Progressive Technologies, Inc.
acquisition
     —       (2,267 )
Net cash received on Monarch sale
     40       —  
Purchases of property and equipment
     (51 )     —  
Proceeds from sales of equipment
     —       1  
Net cash (used in) investing activities
     (11 )     (2,266 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Net activity on line of credit
     7,928       (255 )
Payments on capital lease and note obligations
     (56 )     (211 )
Net cash provided by (used in) financing activities
     7,872       (466 )
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
     19       97  
Cash and cash equivalents at beginning of period
     283       215  
Cash and cash equivalents at end of period
   $ 302     $ 312  
                 
SUPPLEMENTAL DISCLOSURES
                
Income taxes paid
   $ 65     $ 954  
Interest paid
   $ 297     $ 225