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Q3 2008 DEI Holdings, Inc. Earnings Conference Call - Final.

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OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the DEI Holdings 2008 Results Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Wednesday, November 5, 2008. I would now like to turn the conference over to John Mills with ICR. Please go ahead, sir.

JOHN MILLS, SENIOR MANAGING DIRECTOR, ICR: Thank you. Good afternoon, ladies and gentlemen. Welcome to DEI Holdings Third Quarter 2008 Earnings Conference Call. During the presentation all participants will be in a listen-only mode and afterward we will conduct a question and answer session. On the call today from the company are Jim Minarik, President and Chief Executive Officer and Kevin Duffy, Executive Vice President and Chief Financial Officer.

By now everyone should have access to the press release which went out today approximately 1pm Pacific Time. If you have not received the release it's available on the Investor Relations portion of DEI Holdings website at deiholdings.com.

Before we begin today we'd like to remind everyone of the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The following prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

For a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements we refer you to DEI Holdings more 10-K filed with the SEC.

I'd like to remind you that the company will present some financial results on a pro forma. We believe that pro forma results provide useful information to investors by excluding specific revenue, costs and expenses that are not indicative of core operating results. Also this presentation will discuss pro forma and adjusted EBITDA which are non-GAAP financial measures.

We believe pro forma and adjusted EBITDA are important measure to better understand our operating performance as well. The earnings release distributed today as well the company's website include a full set of reconciliations of pro forma to GAAP numbers and EBITDA to GAAP numbers. And with that, I'd like to turn the call over to Minarik. Go ahead, Jim.

JIM MINARIK, PRESIDENT & CEO, DEI HOLDINGS: Good afternoon, everyone and thanks for joining us. Today we plan to discuss our third quarter results, the progress of our restructuring initiatives including our announcement today to exit the satellite radio business and what we're seeing in the fourth quarter and how we continue to position the company for the future.

However, first I'd like to thank all of our employees, customers and suppliers for their continued support. In the midst of an extremely difficult and volatile economic environment with the efforts of all of our employees and partners we delivered strong results this quarter with a 48% improvement in operating income to $0.04 of earnings per share compared with a loss of $0.05 a share a year ago.

Our earnings growth was positive relative to many others in the CE industry and was made possible by a number of factors. First, we were able to grow our sales and gain market share in the home audio business which includes our Polk and Definitive Technology brands. Specifically we continue to make progress on rolling out Polk at Best Buy and in the third quarter we shipped additional new products to Best Buy such as Soundbar 360.1, our complete single home theatre solution.

Our relationship with Best Buy now extends across multiple product categories and retail formats with Polk home products and Viper Security and Remote Start products in the Best Buy stores and our Definitive Premium home theatre loud speakers in Best Buy's Magnolia stores. We also expect to ship our first order of Definitive Technology products to Best Buy China in the next few months. Given these initiatives we're well-positioned for the holiday season at Best Buy as they continue to take share in the CE marketplace both here and abroad.

Second, as we have discussed previously we have began a comprehensive review of our infrastructure and operating expense base a year earlier this year. As part of this initiative we proactively implemented a number of cost-cutting activities which contributed to a $3 million reduction in our Q3 2008 operating expenses versus the prior year. Given the continued uncertainty of the macroeconomic environment and our decision to exit the satellite radio business, we are further reviewing our cost structure in an effort to identify additional expense reductions.

For example, through a series of acquisitions we've accumulated a number of logistics and distributions platforms that are certainly not optimal. Consequently we recently retained a consulting firm with expertise in logistics optimization and are now formally studying our entire supply chain, starting in the Far East and extending throughout our operations in North America. We expect the results of this study to be completed at the end of this year and to implement its recommendations by mid-year 2009.

In addition to this initiative we plan to continue right-sizing all of our facilities and other overhead in all divisions...

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