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Rockford Corporation Announces Third Quarter and Year to Date 2009 Results
TEMPE, Ariz., Nov. 3 /PRNewswire-FirstCall/ -- Rockford Corporation
(Pink Sheets: ROFO) today announced financial results for the three and
nine months ended September 30, 2009.
Rockford's net loss for the three months ended September 30, 2009 was
$0.5 million compared to a net loss of $0.9 million for the comparable
period in 2008. Net loss for the nine month period ended September 30,
2009, was $0.1 million compared to $0.1 million for the comparable period
in 2008.
Net sales for the three months ended September 30, 2009 decreased to
$12.3 million compared to $18.2 million for the same period in 2008. Net
sales for the nine months ended September 30, 2009, were $42.2 million
compared to $58.4 million for the same period in 2008. The decrease in net
sales was primarily due to lower royalty revenue, reduced sales of
Rockford's Lightning Audio branded products, and reduced sales to
international customers. The third quarter of 2008 included a one-time
promotional shipment of approximately $3.0 million to a major customer for
a retail promotion that was not repeated in 2009. OEM royalty revenue for
the nine months ended September 30, 2009 and 2008 were $1.1 million and
$4.4 million, respectively.
As a percent of net sales, gross margin for the three months ended
September 30, 2009 increased to 32.5% compared to 27.9% for the same period
in 2008. As a percentage of net sales, gross margin for the nine months
ended September 30, 2009 decreased to 31.6% compared to 32.6% for the same
period in 2008. The decrease in gross margin percentage for the nine month
period was primarily due to lower royalty revenue.
Operating expenses for the three months ended September 30, 2009,
decreased 23.8% to $4.4 million compared to the 2008 level of $5.8 million.
Operating expenses for the nine month period ended September 30, 2009,
decreased 29.5% to $13.7 million compared to $19.4 million for the same
period in 2008. In the second quarter of 2008, operating expenses included
a special charge of approximately $0.5 million related to costs associated
with the elimination of two executive officer positions and in the third
quarter of 2008 operating expenses included a special charge of
approximately $0.3 million related to costs associated with the closing of
Rockford's manufacturing facility and a distributing facility.
William R Jackson, Rockford's President, commented, "The car audio
climate continues to be challenging. Our sales this quarter were negatively
impacted by lower sales of our Lightning Audio product line to our mass
retail customers and overall lower sales to our OEM and international sales
channels. In the third quarter of 2008 we had a $3.0 million promotional
sale of Lightning Audio products to a large mass retailer. Due to reduced
floor-space in the category and changes in this mass retailer's promotional
emphasis, we did not have the opportunity to repeat this event in 2009. The
OEM business is particularly difficult as new car sales continue to track
down compared to 2008. This has had a negative impact on both OEM sales and
OEM royalty revenue."
Mr. Jackson continued, "Our margins for the nine months ended September
30, 2009, were down slightly compared to the same period in 2008. The
decline was due to reduced OEM royalties. Overall expenses are tracking
well below 2008 levels and we feel confident in our overall business
structure."
Mr. Jackson noted, "The retail environment continues to be tough for
our dealers. Retailers are reporting spotty overall floor traffic.
Considering the consumer traffic patterns, we are pleased that we have
added many new dealers and believe our overall market-share has climbed.
Our core business in the specialty and regional channels remains solid. Our
sales teams are working very closely with our dealers and we have launched
a fourth quarter promotion for consumers (available on our web site) that
is focused on driving consumers into participating dealers' stores. We are
pleased by the initial feedback from our dealers about this promotion."
Mr. Jackson stated, "We began shipping Suzuki Motor Corporation audio
systems in the 3rd quarter of 2009. Their new sedan, the Kizashi, will be
on sale in the fourth quarter of 2009 and initial press reviews have been
very positive regarding both the vehicle and the audio system. Overall the
OEM business continues to be down significantly, but we are finally
beginning to see signs that new car production numbers are rising. We are
hopeful that these increases will be sustained, but obviously the new car
market remains very weak and we cannot be sure where it will ultimately
settle."
Mr. Jackson concluded, "The overall retail market is soft and presents
Rockford and its dealers with difficult challenges. Reduced consumer
confidence has impacted all channels and has made many of our dealers even
more cautious about taking on inventory. We continue to operate the
business tightly and our balance sheet is in good shape as we have
generated $7.4 million in cash from operations this year. We remain
cautiously optimistic about our business going forward."
Liquidity and Capital Resources
Rockford's cash provided by operations was $7.4 million for the nine
months ended September 30, 2009 compared to $1.3 million of cash provided
by operations for the nine months ended September 30, 2008. A reduction in
inventory was the primary source of cash for Rockford during the first nine
months of 2009, as Rockford's net inventory decreased to $4.9 million at
September 30, 2009 compared to $13.0 million at December 31, 2008. An
increase in accounts receivable and a reduction in trade payables was the
primary use of cash for operating activities during the first nine months
of 2009.
Rockford entered into an asset-based credit facility with Wachovia
Capital Financial Corporation (Western) as Agent and Wachovia Bank,
National Association as Arranger on March 29, 2004 and as amended most
recently on August 3, 2009. The terms continue to be as described in
Rockford's 10Q for the second quarter of 2009, filed on August 6, 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 2.25% and 3.25% at September 30, 2009, respectively. As of
September 30, 2009, Rockford was in compliance with all applicable
covenants. Availability under the credit facility at September 30, 2009 was
approximately $5.3 million in excess of the outstanding balance of $3.5
million.
At September 30, 2009, Rockford had $3.75 million of senior
subordinated secured notes outstanding compared to $7.5 million outstanding
at December 31, 2008. These notes were amended as disclosed in Rockford's
Annual Report filed with the SEC on April 15, 2009 and, as amended, require
equal payments of $1.25 million on each of December 10, 2009, June 10,
2010, and December 10, 2010. The notes are secured by a second priority
lien on certain Rockford assets. Rockford will be required to pay $2.5
million of the remaining outstanding notes during the next twelve months.
Based on current cash-flow forecasts, Rockford anticipates that it will
have available borrowings under its credit facility to complete this
repayment.
Rockford anticipates, based on its cash flow forecast, that cash flow
from operations at the expected level of operations for 2009 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 (http://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 and Lightning Audio brand names.
Rockford's primary brand websites include: http://www.rockfordfosgate.com,
http://www.rockfordacousticdesign.com, and http://www.lightningaudio.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 continued to decline in the first nine 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 sales erode further than we expect, 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) and we were able to achieve a relatively small loss for
the first nine months of 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.
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