SOURCE: Rockford Corporation

October 19, 2010 21:36 ET

Rockford Corporation Reports Third Quarter and Year-to-Date 2010 Profit

TEMPE, AZ--(Marketwire - October 19, 2010) - Rockford Corporation (PINKSHEETS: ROFO) today announced financial results for the three and nine months ended September 30, 2010.

Net income for the three months ended September 30, 2010 was $0.7 million, compared to a net loss of $0.5 million for the same period in 2009. Net income for the nine months ended September 30, 2010 was $2.5 million, compared to a net loss of $0.1 million for the same period in 2009. Net income for the comparable nine month period in 2009 included a gain of approximately $0.5 million from a January 2009 repurchase at a discount of $2.5 million face value of convertible notes.

Net sales for the three months ended September 30, 2010, increased 16.6% to $14.3 million compared to net sales of $12.3 million for the same period in 2009. Net sales for the nine months ended September 30, 2010, increased 0.9% to $42.6 million compared to net sales of $42.2 million for the same period in 2009. The increase in net sales for the three and nine month period was primarily due to increases in Rockford's core aftermarket, international and OEM channels. This increase was partially offset by lower sales to Best Buy after Rockford's decision early in 2010 to cease selling to Best Buy. OEM royalty revenue for the nine months ended September 30, 2010, was $2.2 million compared to $1.1 million for the same period in 2009.

As a percent of net sales, gross margin for the three months ended September 30, 2010 increased to 36.9% compared to 32.5% for the same period in 2009. As a percent of net sales, gross margin for the nine months ended September 30, 2010 increased to 37.0% compared to 31.6% for the same period in 2009. The increase in gross margin percentage was primarily due to lower product costs, lower fixed costs resulting from the closure of Rockford's Michigan warehouse in June 2009, and higher OEM royalty revenue.

Operating expenses for the three months ended September 30, 2010, increased 3.1% to $4.5 million compared to $4.4 million for the same period in 2009. Operating expenses for the nine months ended September 30, 2010, decreased 4.3% to $13.1 million compared to $13.7 million for the same period in 2009. The decrease in operating expenses for the nine month period compared to the prior year was primarily due to lower professional and legal fees, as well as lower payroll and related expenses.

William R. Jackson, Rockford's President, commented, "The marketplace in the third quarter remained challenging. Many of our retailers reported sluggish sales and reduced consumer traffic patterns towards the end of the quarter. In the face of this challenging environment, Rockford's overall sales for the third quarter were up in all of our continuing sales channels. Year to date we are slightly ahead of the comparable period in 2009, even though 2009 included sales to Best Buy throughout the period. We think this increase confirms that our decision early in 2010 to end our relationship with Best Buy, and focus on retailers who are more aligned with our objectives, was the right one."

Mr. Jackson stated, "Net income for the third quarter and for the nine months ended September 30, 2010 represents a positive swing of $1.2M and $2.6M, respectively, compared to the same periods in 2009. Operating expenses are in line with our plan and are down 4.3% year to date. OEM royalties continue to track ahead of the same period in 2009. New car sales have improved during 2010 and, as a result, our business with Nissan and Mitsubishi has also improved. We are confident about our overall business model and our position in the marketplace."

Mr. Jackson observed, "Dealers and distributors continue to comment on the strength of our Rockford Fosgate product offering. Our team has worked hard through the summer selling season supporting our retailers in many creative ways, including events exploiting our new Sound Lab presentation vehicles. In addition, we just launched a viral marketing campaign called 'What's your Volume 2.0.' This video contest and sales promotion is offered in cooperation with Suzuki Motorsports and features a grand prize of a custom Suzuki motorcycle and a $5,000 Rockford Fosgate system. The contest allows consumers to submit online videos telling the world why they are the biggest Rockford Fosgate fanatic. In addition to the contest prizes, consumers receive discount coupons towards the purchase of Rockford Fosgate gear and Suzuki motorcycles. Tools like the Sound Lab vehicle and 'What's your Volume 2.0' help drive consumer excitement for high performance car audio and create sales opportunities for our dealers. Retailers who are creating and promoting an exciting car audio experience continue to do well even in the current market environment."

Mr. Jackson concluded, "Our performance through the third quarter feels good. The overall retail and new vehicle markets still remain uncertain, however we feel confident in our cost structure and market position. We remain cautiously optimistic about the balance of the year."

Liquidity and Capital Resources

Rockford's cash provided by operations was $0.2 million for the nine months ended September 30, 2010 as compared to $7.4 million during the comparable period in 2009. Net income of $2.5 million was the primary source of cash from operations and an increase in accounts receivable of $2.2 million was the primary use of cash from operations.

Rockford's asset-based credit facility with Wells Fargo Capital Financial continues to have the terms described in Rockford's annual report for the year ended December 31, 2009. Under the agreement, pricing options based on LIBOR and prime rates are available to Rockford. The LIBOR and prime interest rate options were approximately 2.26% and 3.25% at September 30, 2010, respectively. As of September 30, 2010, Rockford was in compliance with all applicable covenants. Availability under the credit facility at September 30, 2010 was approximately $5.3 million in excess of the outstanding balance of $4.6 million. Rockford has paid off its senior notes and all other material financing facilities (other than ordinary course financing of trade payables), so that the Wells Fargo credit facility is Rockford's only significant bank financing arrangement.

Rockford anticipates, based on its operating plans and cash flow forecast, that cash flow from operations for 2010 and 2011, and available borrowings under its credit facility, will be adequate to meet Rockford's requirements for current capital expenditures, working capital and interest payments for the next twelve months.

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®, Lightning Audio®, and Renegade brand names.

Rockford's primary brand websites include: www.rockfordfosgate.com, www.rockfordacousticdesign.com, and www.lightningaudio.com and www.renegadecaraudio.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 business experienced a significant loss in 2008 (with almost all of the loss in the fourth quarter). In response we reduced our operating expenses in order to reduce our working capital needs and break-even sales level. We were able to improve our financial performance, achieving a relatively small loss for 2009. We achieved an increase in our sales, and a profit, in the first nine months of 2010. We cannot be certain whether we will be able to continue this increase in sales and return to profitability.

If our sales return to a negative trend or if competitive and market circumstances require us to increase our costs to maintain sales, 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 in our operations and 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. In the worst case, we might not be able to continue our business as we currently plan.

When considering our forward-looking statements, you should keep in mind the risk factors discussed in our press releases and earnings reports, as well as the risk factors generally applicable to a small business such as ours. We particularly call your attention to the risk factors and other cautionary statements identified on our investor relations web-site, http://rockfordcorp.com/ir/, in a document titled "Risk Factors That May Affect Rockford's Operating Results, Business Prospects and Stock Price" (the "Risk Disclosure"). We updated the Risk Disclosure as of October 19, 2010. Our business is subject to the risk factors noted in the Risk Disclosure and other risk factors identified above. These risk factors, particularly those identified in the Risk Disclosure, and other risk factors that we have 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)
($000s omitted except per share amounts)





                                  Three months ended    Nine months ended
                                     September 30,        September 30,
                                  -------------------- --------------------
                                    2009       2010      2009       2010
                                  --------   --------- --------   ---------

Net sales                         $ 12,288   $  14,330 $ 42,203   $  42,573
Cost of goods sold                   8,294       9,044   28,866      26,839
                                  --------   --------- --------   ---------
  Gross profit                       3,994       5,286   13,337      15,734

Operating expenses:

  Sales and marketing                2,033       2,005    6,363       6,066

  General and administrative         1,943       1,982    5,955       5,510

  Research and development             408         531    1,342       1,503
                                  --------   --------- --------   ---------
Total operating expenses             4,384       4,518   13,660      13,079
                                  --------   --------- --------   ---------
  Operating income(loss)              (390)        768     (323)      2,655

Interest and other (income)
 expense, net                           70          34     (215)        150
                                  --------   --------- --------   ---------

  Income(loss) before income
   taxes                              (460)        734     (108)      2,505
Income(loss) tax expense                 4          --       12          --
                                  --------   --------- --------   ---------
Net income (loss)                 $   (464)  $     734 $   (120)  $   2,505
                                  ========   ========= ========   =========
Net income (loss) per common
 share:
  Basic                           $  (0.05)  $    0.09 $  (0.01)  $    0.29
                                  ========   ========= ========   =========
  Diluted                         $  (0.05)  $    0.08 $  (0.01)  $    0.28
                                  ========   ========= ========   =========
Weighted average shares:
  Basic                              8,581       8,582    8,581       8,582
                                  ========   ========= ========   =========
  Diluted                            8,581       9,287    8,581       9,109
                                  ========   ========= ========   =========






Rockford Corporation
Condensed Consolidated Balance Sheets (unaudited)
(In thousands)

                                              December 31,   September 30,
                                                  2009           2010
                                              -------------  -------------
ASSETS

Current assets:
  Cash                                        $        ----  $        ----
  Accounts receivable, net                            9,946         12,046
  Inventories                                         5,754          6,143
  Prepaid expenses and other current assets             378            520
                                              -------------  -------------

    Total current assets                             16,078         18,709

Property and equipment, net                           1,540          1,533
Other assets                                            177            247
                                              -------------  -------------

    Total assets                              $      17,795  $      20,489
                                              =============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                            $       5,269  $       4,599
  Accrued salaries and incentives                       737          1,102
  Accrued warranty and returns                          740            700
  Other accrued liabilities                           1,934          2,093
  Notes payable                                       2,603             19
  Asset based credit facility                         1,630          4,573
                                              -------------  -------------

    Total current liabilities                        12,913         13,086

Other long-term liabilities                             213            136
                                              -------------  -------------
    Total liabilities                                13,126         13,222

Shareholders' equity:
  Common stock                                           94             94
  Additional paid-in-capital                         38,680         38,773
  Retained deficit                                  (32,794)       (30,289)
  Treasury stock                                     (1,311)        (1,311)
                                              -------------  -------------
    Total shareholders' equity                        4,669          7,267
                                              -------------  -------------

    Total liabilities and shareholders'
     equity                                   $      17,795  $      20,489
                                              =============  =============





Rockford Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

                                                            Nine months
                                                               ended
                                                           September 30,
                                                         -----------------
                                                           2009      2010
                                                         -------   -------
Cash flow from operating activities:
Net income (loss)                                        $  (120)  $ 2,505
Adjustments to reconcile net income to net cash provided
 by operating activities:
  Depreciation and amortization                              618       428
  Share based compensation expense                            94        92
  Provision for doubtful accounts                            174       134
  Provision for inventory                                    (15)      131
  Net gain on buyback of notes                              (497)       --
  Gain on sale of property and equipment                     (87)      (26)
  Impairment of other assets                                  33        --
  Changes in operating assets and liabilities:
    Accounts receivable                                     (358)   (2,233)
    Inventories                                            8,159      (521)
    Prepaid expenses and other current assets                 52      (141)
    Accounts payable                                        (683)     (670)
    Accrued salaries and incentives                         (557)      364
    Accrued warranty and returns                              69       (40)
    Other accrued expenses                                   509       160
                                                         -------   -------
      Net cash provided by operating activities            7,391       183
Cash flow from investing activities:
Purchases of property and equipment                         (309)     (470)
Decrease (increase) in other assets                           31      (150)
Proceeds from sale of property and equipment                  89        77
                                                         -------   -------
      Net cash used in investing activities                 (189)     (543)
Cash flow from financing activities:
Proceeds from line of credit                              38,452    44,338
Payments on line of credit                               (42,463)  (41,394)
Payments on notes payable and other debt                  (3,152)   (2,584)
                                                         -------   -------
Payments on capital lease obligations                        (39)       --
      Net cash (used in) provided by financing
       activities                                         (7,202)      360
Effect of exchange rate changes on cash                       --        --
                                                         -------   -------
      Net change in cash flow                                 --        --
Cash and cash equivalents at beginning of period              --        --
                                                         -------   -------
Cash and cash equivalents at end of period               $    --   $    --
                                                         =======   =======



Contact Information

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