Gross profit for the year increased $2.3 million, or 14.5% year-over-year due mainly to a change in product mix. As a percentage of sales, gross margins improved to 15.5% from 14.7% a year ago. For the full year, operating expenses increased $3.3 million, due to a number of unusual items, including increased bad debt expense attributable to the more challenging credit environment, additional rent associated with a transition to a larger warehouse facility, higher wages and employee benefit costs due in part to the addition of new sales, customer service and finance professionals, and severance costs. Consequently, operating income fell to $3.2 million from $4.2 million in the previous year.

Net sales for the fourth quarter of 2008 decreased 4.4% to $27.5 million due to a softening in its third-party logistics business, while revenues from its core battery and power accessory business were stable compared to the previous year. As a result of this shift in revenue mix, Universal Power Group’s core battery business as a percentage of net sales increased to 53.7% for the fourth quarter of 2008 from 51.6% in the fourth quarter of 2007.

Gross profit for the quarter increased $0.6 million, or 13.7% year-over-year due mainly to a change in product mix. As a percentage of sales, gross margins in the quarter improved to 17.1% from 14.4% a year ago. Operating expenses increased $1.5 million year-over-year in the 2008 fourth quarter, due mainly to higher bad debt expense, additional rent associated with a transition to a larger warehouse facility, higher wage and employee benefit costs and severance costs. Operating income for the quarter fell to $16 thousand from $920 thousand in the previous year. Overall Universal Power Group reported a net loss of $0.2 million, or $0.04 per diluted share in the fourth quarter of 2008, compared with net earnings of $0.4 million, or $0.08 per diluted share in the same quarter of 2007.

Fourth-Quarter and Full-Year Highlights

Universal Power Group reported core battery and related power accessory revenues (from sources other than Brink’s Home Security and its authorized dealers) remained almost unchanged at $14.8 million in the fourth quarter of 2008, compared with $14.9 million in the year-ago quarter. For the full year, core battery and related power accessory revenues increased 21.0% to $64.8 million, from $53.6 million in 2007, reflecting growth of new and existing customer accounts and the introduction of new products.

Revenue from Brink’s Home Security and its authorized dealers in the fourth quarter of 2008 decreased 8.6% year-over-year to $12.7 million, compared with $13.9 million in the fourth quarter of 2007. Universal Power Group believes this decrease is due mainly to the impact of the economic downturn on the residential housing market. Concentration of revenues with Brink’s Home Security and its authorized dealers made up 46.3% of total revenues in the fourth quarter of 2008, compared with 48.4% in the previous year’s quarter. For the full year, revenues from Brink’s Home Security and its authorized dealers fell 3.4% to $53.1 million from $55.0 million in 2007, and concentration of revenues fell to 45.0% from 50.6%.

Gross margin as a% of revenues increased to 17.1% in the fourth quarter of 2008, compared with 14.4% in the comparable 2007 quarter, due mainly to an improved product mix. Full-year gross profit increased to $18.3 million, or 15.5% of sales, from $16.0 million, or 14.7% of sales in the previous year, due mainly to a shift towards higher-margin business.

Recent Developments

In November 2008, Universal Power Group announced a new agreement with Brink’s Home Security to continue providing third-party logistics services. The agreement extends Universal Power Group’s services another two years with successive one-year renewal terms.

In addition, Universal Power Group announced in December 2008 that it entered into a licensing agreement with Eveready Battery Company, Inc., a division of Energizer Holdings, Inc., to develop a line of consumer products under the Energizer brand for distribution through mass, specialty and automotive stores. The four-year agreement, with a two-year automatic renewal provides Universal Power Group with exclusive rights to develop, market and sell Energizer-branded automotive battery chargers and maintainers, as well as automotive jump starters. In addition, Universal Power Group will have non-exclusive rights to develop, market and sell Energizer-branded power inverters used mainly in the automotive market.

In January 2009, Universal Power Group also reported that it completed the acquisition of the Monarch line of hunting products, of which the company purchased all of the tangible and intangible assets. The high-quality Monarch product line is a strategic extension of Universal Power Group’s existing outdoor product line and customer base. Universal Power Group plans to leverage its global network of suppliers and extensive experience in supply chain logistics to reduce manufacturing and other supply chain costs for the acquired product lines.

Outlook

Edmonds continued, “Exiting 2008, we are on financially sound footing with a strong balance sheet and line of credit to provide the resources for Universal Power Group’s continued growth. In addition to taking steps to manage the difficult economic conditions, we are also focused on developing higher-margin products, and diversifying our markets to minimize our exposure to the broader economy. Despite the extraordinary conditions affecting the global economy, we are cautiously optimistic about our business in 2009. We know the challenge before us is significant; however, we are convinced we have adequate resources and the right team of people to lead Universal Power Group to the inevitable economic recovery.”

“Beyond our financial results, we saw the fourth quarter of 2008 as an important and transitional period in the growth of Universal Power Group,” said Ian Edmonds, interim president and chief executive officer. “During the quarter, we secured an alliance with Energizer to develop and market a new line of products, secured a new agreement with Brink’s Home Security to continue providing third-party logistics services, and made progress in our expansion and product line diversification initiatives.

“It is also important to note that despite several recent changes within our senior management team, our board remains confident in the capabilities of our current team,” continued Edmonds. “Our executive staff remains intact and we have a sales, marketing and operational team in place that is fully prepared to grow the business. In addition, we are beginning a search for a chief financial officer.”

“Looking ahead to the first quarter of 2009, we are focused on controlling costs and managing our operations during these tough economic conditions,” said Edmonds. “That said, we expect incremental costs in the first quarter due to a separation agreement related to a recent executive departure as well as the negotiated termination of our relationship with an independent sourcing agent.

“For the full year 2009, we are focused on improving our overall operating efficiency and cost structure, and we will be closely monitoring our accounts receivable and will continue monitoring credit risks within our customer base. Longer term, we are excited about our budding relationship with Energizer, which adds another well-known brand to our strong roster of strategic relationships. This relationship demonstrates the scope of capabilities Universal Power Group can offer our customers and partners – from product development and marketing, to sourcing, global supply chain management and logistics. We look forward to opportunities for expanding our relationship with Energizer, as well as forging new relationships with other partners,” concluded Edmonds.