SOURCE: Rockford Corporation

March 31, 2010 20:50 ET

Rockford Corporation Reports 2009 Results and Extends Credit Facility

TEMPE, AZ--(Marketwire - March 31, 2010) - Rockford Corporation (PINKSHEETS: ROFO) today announced financial results for the three and twelve months ended December 31, 2009 and an extension to its credit facility.

Net loss for the three months ended December 31, 2009 was $0.6 million, compared to $4.3 million for the comparable period in 2008. Net loss for the year ended December 31, 2009 was $0.8 million compared to $4.5 million for the year ended 2008. The loss for the year ended 2008 included approximately $2.3 million of special charges, including bad debt and severance costs.

Net sales for the three months ended December 31, 2009 increased 3.0% to $10.8 million compared to $10.5 million for the same period in 2008. Net sales for the year ended December 31, 2009, decreased 23.1% to $53.0 million compared to $68.9 million for the same period in 2008. The decrease in net sales was primarily due to lower sales in the mass retail, independent specialist and OEM distribution channels. OEM royalty revenue for 2009 was $1.9 million compared to $5.6 million for 2008.

As a percent of net sales, gross margin for the three months ended December 31, 2009 increased to 32.6% compared to 20.5% for the same period in 2008. As a percent of sales, gross margin for the year ended December 31, 2009 increased to 31.8% compared to 30.8% for the same period in 2008. The increase in gross margin percentage was primarily due to lower product costs and lower charges for inventory obsolescence as a result of outsourcing Rockford's production of inventory. This was partially offset by significantly lower royalty revenue.

Operating expenses for the three months ended December 31, 2009 decreased 35.2% to $4.1 million compared to the 2008 level of $6.3 million. The fourth quarter 2008 expense included approximately $1.3 million of special charges for severance costs and bad debt. Operating expenses for the twelve months ended December 31, 2009 decreased 30.9% to $17.7 million compared to the 2008 level of $25.7 million. The 2008 operating expenses included approximately $2.3 million of special charges, including bad debt and severance costs.

Rockford's cash provided by operations was $10.9 million for the twelve months ended December 31, 2009 compared to $0.9 million of cash used in operations during 2008. Reductions in inventory of $7.1 million and accounts receivable of $2.9 million were the primary sources of cash provided by operations for the twelve month period ended December 31, 2009.

William R. Jackson, Rockford's President, commented, "We are pleased to report an overall sales increase for the fourth quarter of 2009. Although the increase is small, we are cautiously optimistic that the retail market has stabilized. For the full year we experienced softness in all of our major domestic and international sales channels. In the fourth quarter, however, our major aftermarket sales channels and OEM business showed improvement compared to early 2009 levels."

Mr. Jackson continued: "Gross margins for the fourth quarter 2009 improved significantly over fourth quarter 2008. This was due to reduced end of life product sales and lower overall discounts in 2009 as compared to 2008. Royalties for the year were significantly lower than in 2008, which limited the overall margin improvement we reported. Operating expenses for fourth quarter of 2009 were down materially compared to prior year. We feel confident in our overall business structure moving into 2010."

Mr. Jackson noted: "We are pleased to announce a new brand for our mobile electronics portfolio, Renegade. This brand was initially developed by our new German distributor, Audio Design GmbH, for sales in the EU marketplace. The brand quickly became a leading line of mobile audio products in Germany. In late 2009, we finalized an agreement that gave us exclusive rights to market and sell Renegade products in North America. We began offering a complete line of Renegade products in January 2010. In addition, we are planning on re-launching the Lightning Audio brand globally in the second quarter of 2010. We believe these two brands will allow us to market aggressively to the first time mobile electronics buyer and offer our existing dealers and potential new dealers several entry level product alternatives."

Mr. Jackson concluded: "The overall market continues to be challenging. However, we believe we are beginning to see some improvement in the aftermarket retail and in the OEM markets. We continue to run the business tightly and generated over $10M in cash from operations in 2009. Our outlook for 2010 remains cautiously optimistic."

Extension and Amendment of Credit Facility

Rockford announced it has completed an amendment to its asset-based facility with Wells Fargo Capital Finance. Wells Fargo Capital Finance is the new name of Wachovia Capital Finance Corporation (Western), with whom Rockford has had its primary credit facility since March 2004. Going forward, Rockford will use the new Wells name to describe the facility.

The amendment extends Rockford's existing credit facility for three additional years, to March of 2014. At Rockford's request the total commitment under the facility is reduced from $20 million to $10 million to reflect Rockford's reduced working capital needs. The amendment also maintains the basic structure of the existing financial covenants, requiring that Rockford satisfy the covenants only if its excess availability is $2 million or less. Rockford's borrowing rates of LIBOR plus 200 bps to 300 bps will be maintained throughout the original term of the agreement ending in March 2011 and will increase starting in April 2011 to LIBOR plus 400 bps to 450 bps.

Richard G. Vasek, Rockford's Chief Financial Officer, said, "We believe this amendment and extension provides us the financial flexibility and visibility to fund our operations and repay our remaining notes."

About Rockford Corporation (www.rockfordcorp.com)

Rockford is a designer, marketer and distributor of high-performance audio systems for the mobile audio aftermarket and for the OEM market. Rockford's mobile audio products are marketed primarily under the Rockford Fosgate®, Rockford Acoustic Design®, Renegade, and Lightning Audio® brand names.

Rockford's primary brand websites include: www.rockfordfosgate.com, www.rockfordacousticdesign.com, and www.lightningaudio.com and www.installedge.com.

Forward-looking Statement Disclosure

We make forward-looking statements in this press release including but not limited to statements about our results of operations. These statements may be identified by the use of forward-looking terminology such as "may," "will," "believe," "expect," "anticipate," "estimate," "continue," or other similar words.

Forward-looking statements are subject to many risks and uncertainties. Rockford cautions you not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Actual results may differ materially from those anticipated in our forward-looking statements. Rockford disclaims any obligation or undertaking to update these forward-looking statements to reflect changes in our expectations or changes in events, conditions, or circumstances on which our expectations are based.

Our revenues declined in the first nine months of 2009 and only increased by a small amount in the last three months of 2009, primarily attributable to continued weakness in the mobile audio aftermarket and in OEM sales. The financial meltdown at the end of 2008 has clearly contributed to an already difficult environment and deepened the recession that may finally be coming to an end. This has led consumers and retailers to become even more conservative in their spending. We are reducing our operating expenses in order to reduce our working capital needs and break-even sales level.

If the fourth quarter increase in sales is not sustained and our sales resume their negative trend, we may not be able to achieve our business objectives and our current financing might not prove adequate to maintain our current business. In this event, we might have to consider changes that could include reductions in employee compensation and benefits, reductions in our working capital needs, changes in our distribution strategies, and potential exit strategies. We also might need to consider additional borrowings or equity financing. There is no assurance that we could implement operational changes or raise adequate new financing in the current economic environment. If we failed to do so, we could suffer setbacks in our competitive position, ability to improve our aftermarket and OEM businesses, and overall financial performance.

Our business swung to a loss in 2008 (with almost all of the loss in the fourth quarter). We were able to improve this performance and achieve a relatively small loss for 2009. We cannot be certain whether we will be able to return to profitability. If our current financing proves inadequate we may be forced to seek alternative sources of financing to maintain our business. In the current financial environment we can give no assurance that we will be able to secure such financing on acceptable terms. In the worst case, we may not be able to continue our business as we currently anticipate.

When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements identified in Rockford's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 15, 2009, as well as the potential impact to Rockford's share price and trading liquidity of the delisting and deregistration of Rockford's common stock. The risk factors noted above, particularly those identified in the discussion in Item 1A of the report, and other risk factors that Rockford has not anticipated or discussed, could cause our actual results to differ significantly from those anticipated in our forward-looking statements.

Rockford Corporation
Condensed Consolidated Statements of Operations (unaudited)
For the Three and Twelve Months Ended December 31, 2008 and  2009
($000s omitted except per share amounts)

                                       Three months       Twelve months
                                          ended               ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2008      2009      2008      2009
                                    --------  --------  --------  --------

Net sales                           $ 10,456  $ 10,772  $ 68,874  $ 52,975
Cost of goods sold                     8,309     7,258    47,670    36,124
                                    --------  --------  --------  --------
  Gross profit                         2,147     3,514    21,204    16,851
Operating expenses:
  Sales and marketing                  2,249     1,627    11,805     7,990
  General and administrative           3,382     2,026    11,201     7,981
  Research and development               644       416     2,646     1,758
                                    --------  --------  --------  --------
Total operating expenses               6,275     4,069    25,652    17,729
                                    --------  --------  --------  --------
  Operating loss                      (4,128)     (555)   (4,448)     (878)
Interest and other expense
 (income), net                           187        87         3      (128)
                                    --------  --------  --------  --------
  Loss from operations before
   income taxes                       (4,315)     (642)   (4,451)     (750)
Income tax expense (benefit)              24       (12)       24        --
                                    --------  --------  --------  --------
Net income loss                     $ (4,339) $   (630) $ (4,475) $   (750)
                                    ========  ========  ========  ========
Net income loss per common share:
  Basic                             $  (0.51) $  (0.07) $  (0.51) $  (0.09)
                                    ========  ========  ========  ========
  Diluted                           $  (0.51) $  (0.07) $  (0.51) $  (0.09)
                                    ========  ========  ========  ========
Weighted average shares:
  Basic                                8,581     8,581     8,697     8,581
                                    ========  ========  ========  ========
  Diluted                              8,581     8,581     8,697     8,581
                                    ========  ========  ========  ========



Rockford Corporation
Condensed Consolidated Balance Sheets (unaudited)
At December 31, 2008 and 2009
(In thousands)
                                                December 31,  December 31,
                                                    2008          2009
                                                ------------  ------------
ASSETS

Current assets:
    Cash                                        $         --  $         --
    Accounts receivable, net                          12,856         9,946
    Inventories                                       13,043         5,754
    Prepaid expenses and other current assets            551           378
                                                ------------  ------------

      Total current assets                            26,450        16,078

Property and equipment, net                            1,743         1,540
Other assets                                             332           177
                                                ------------  ------------

      Total assets                              $     28,525  $     17,795
                                                ============  ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
   Accounts payable                             $      3,980  $      5,269
   Accrued salaries and incentives                     1,367           737
   Accrued warranty and returns                          700           740
   Other accrued liabilities                           1,838         1,934
   Current portion of other long-term
    liabilities                                           52            --
   Notes payable                                       5,089         2,603
   Asset based credit facility                         7,547         1,630
                                                ------------  ------------

      Total current liabilities                       20,573        12,913

Notes payable                                          2,593            --
Other long-term liabilities                               66           213
                                                ------------  ------------
    Total liabilities                                 23,232        13,126

Shareholders' equity:
   Common stock                                           94            94
   Additional paid-in-capital                         38,554        38,680
   Retained deficit                                  (32,044)      (32,794)
   Treasury stock                                     (1,311)       (1,311)
                                                ------------  ------------
      Total shareholders' equity                       5,293         4,669
                                                ------------  ------------

      Total liabilities and shareholders'
       equity                                   $     28,525  $     17,795
                                                ============  ============

Contact Information

  • Executive Contact:
    Richard Vasek
    Chief Financial Officer
    Rockford Corporation
    (480) 517-3169