Rockford Corporation Announces Third Quarter and Year to Date 2009 Results
TEMPE, Ariz., Nov. 3, 2009 -- 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 (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: www.rockfordfosgate.com, www.rockfordacousticdesign.com, and 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.
Rockford Corporation
Condensed Consolidated Statements of Operations (unaudited)
For the Three and Nine Months Ended September 30, 2008 and 2009
($000s omitted except per share amounts)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2008 2009 2008 2009
---- ---- ---- ----
Net sales $18,187 $12,288 $58,418 $42,203
Cost of goods sold 13,110 8,294 39,361 28,866
------ ----- ------ ------
Gross profit 5,077 3,994 19,057 13,337
Operating expense:
Sales and marketing 2,950 2,033 9,555 6,363
General and administrative 2,159 1,943 7,819 5,955
Research and development 646 408 2003 1,342
----- ----- ---- -----
Total operating expenses 5,755 4,384 19,377 13,660
Operating loss (678) (390) (320) (323)
Interest and other expense
(income), net 206 70 (185) (215)
---- ---- ----- -----
Loss before income taxes (884) (460) (135) (108)
----- ----- ----- -----
Income tax expense - 4 - 12
---- ---- ---- ----
Net loss $(884) $(464) $(135) $(120)
===== ===== ===== =====
Net loss per common share:
Basic $(0.10) $(0.05) $(0.02) $(0.01)
====== ====== ====== ======
Diluted $(0.10) $(0.05) $(0.02) $(0.01)
====== ====== ====== ======
Weighted average shares:
Basic 8,581 8,581 8,735 8,581
===== ===== ===== =====
Diluted 8,581 8,581 8,735 8,581
===== ===== ===== =====
Rockford Corporation
Condensed Consolidated Balance Sheets (unaudited)
(In thousands)
December September
31, 2008 30, 2009
-------- ---------
Assets
Current assets:
Cash and cash equivalents $- $-
Accounts receivable, net 12,856 13,040
Inventories 13,043 4,899
Prepaid expenses and other current
assets 551 465
----- -----
Total current assets 26,450 18,404
Property and equipment, net 1,743 1,532
Other assets 332 228
----- -----
Total assets $28,525 $20,164
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $3,980 $3,297
Accrued salaries and incentives 1,367 814
Accrued warranty and returns 700 769
Other accrued liabilities 1,838 2,347
Current portion of other long-term
liabilities 161 124
Notes payable, net 4,980 2,500
Asset-based credit facility 7,547 3,536
------ ------
Total current liabilities 20,573 13,387
Notes payable, net 2,593 1,270
Other long-term liabilities 66 239
------ ------
Total liabilities 23,232 14,896
Shareholders' equity:
Common stock 94 94
Additional paid-in-capital 38,554 38,649
Retained deficit (32,044) (32,164)
Treasury stock (1,311) (1,311)
------ -------
Total shareholders' equity 5,293 5,268
----- -----
Total liabilities and shareholders'
equity $28,525 $20,164
======= =======
Rockford Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine months ended
September 30,
2008 2009
---- ----
Cash flow from operating activities:
Net income (loss) $(135) $(120)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,175 618
Gain on sale of property and equipment (55) (87)
Share based compensation expense 184 94
Provision for doubtful accounts 505 174
Provision for inventory 386 (15)
Impairment of other assets 188 33
Net gain on buyback of notes (812) (497)
Changes in operating assets and liabilities:
Accounts receivable (4,416) (358)
Inventories 693 8,159
Prepaid expenses and other current assets 275 52
Accounts payable 3,490 (683)
Accrued salaries and incentives 242 (557)
Accrued warranty and returns (424) 69
Other accrued expenses (18) 509
----- -----
Net cash provided by operating activities 1,278 7,391
Cash flow from investing activities:
Purchases of property and equipment (863) (309)
Proceeds from sale of property and equipment 66 89
Net proceeds from divestiture of businesses 100 -
Decrease in other assets 52 31
----- -----
Net cash used in investing activities (645) (189)
Cash flow from financing activities:
Proceeds from line of credit 55,871 38,452
Payments on line of credit (54,329) (42,463)
Payments on notes payable and other debt (1,727) (3,152)
Payments on capital lease obligations (35) (39)
Purchase of treasury stock (413) -
----- -----
Net cash used in financing activities (633) (7,202)
Effect of exchange rate changes on cash - -
----- -----
Net increase in cash flow - -
Cash and cash equivalents at beginning of period - -
----- -----
Cash and cash equivalents at end of period $- $-
===== =====