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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File Number 000-30138
ROCKFORD CORPORATION
(Exact Name of Registrant as Specified in its Charter)
ARIZONA 86-0394353
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
546 South Rockford Drive 85281
Tempe, Arizona (Zip Code)
(Address of Principal Executive Offices)
(480) 967-3565
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practical date:
As of June 30, 2000, there were 7,519,631 shares of Common Stock, $.01 par
value per share, outstanding.
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ROCKFORD CORPORATION
TABLE OF CONTENTS
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Part I: Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - 3
June 30, 2000 and December 31, 1999
Condensed Consolidated Income Statements - 4
Three and Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Shareholders' 5
Equity - June 30, 2000, March 31, 2000
and December 31, 1999
Condensed Consolidated Statements of Cash Flows - 6
Six Months Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 7
June 30, 2000
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 13
Market Risk
Part II: Other Information
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROCKFORD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 6,995 $ 917
Accounts receivable, less allowances of $1,908,000 and
$1,830,000 at June 30, 2000 and December 31, 1999,
respectively 31,428 21,081
Inventories, net 17,027 14,926
Deferred income taxes 3,805 3,661
Prepaid expenses and other 3,408 2,682
------- -------
Total current assets 62,663 43,267
Property and equipment, net 5,217 5,541
Goodwill, net 2,358 2,108
Other assets 1,359 1,231
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$71,597 $52,147
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,559 $ 7,442
Accrued salaries and incentives 3,240 5,068
Accrued warranty 4,153 3,512
Income taxes payable 595 319
Other accrued expenses 6,966 4,287
Current portion of long-term debt 1,839 1,420
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Total current liabilities 28,352 22,048
Notes payable and long-term debt, less current portion 0 16,565
Capital lease obligations, less current portion 582 777
Shareholders' equity:
Common stock, $.01 par value - authorized 40,000,000
shares; 7,519,631 and 4,753,146 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively 75 48
Additional paid-in capital 28,316 3,686
Retained earnings 14,028 8,685
Accumulated other comprehensive income 244 338
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Total stockholders' equity 42,663 12,757
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$71,597 $52,147
======= =======
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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ROCKFORD CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
--------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $45,137 $34,113 $79,725 $65,911
Cost of goods sold 27,561 20,654 48,674 40,221
------ ------ ------ ------
Gross profit 17,576 13,459 31,051 25,690
Sales, general and administrative expenses 11,847 9,712 21,739 18,619
------ ----- ------ ------
Operating income 5,729 3,747 9,312 7,071
Interest and other expense 273 414 734 845
--- --- --- ---
Income before tax 5,456 3,333 8,578 6,226
Income tax expense 2,040 1,315 3,235 2,406
----- ----- ----- -----
Net income $3,416 $2,018 $5,343 $3,820
====== ====== ====== ======
Net income per share:
Basic $0.50 $0.44 $0.91 $0.85
===== ===== ===== =====
Diluted $0.41 $0.32 $0.73 $0.64
===== ===== ===== =====
Weighted average shares used in computation:
Basic 6,899 4,602 5,848 4,508
===== ===== ===== =====
Diluted 8,431 6,270 7,366 6,081
===== ===== ===== =====
See notes to condensed consolidated financial statements.
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ROCKFORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME TOTAL
------ ------ ---------- -------- ------------- -------
(IN THOUSANDS)
Balance at December 31, 1999 4,753 $ 48 $ 3,686 $ 8,685 $ 338 $12,757
Currency translation (80) (80)
Net income 1,927 1,927
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Comprehensive income 1,847
Exercise of warrants 68 44 44
------- ------- ------- ------- ------- -------
Balance at March 31, 2000 4,821 $ 48 $ 3,730 $10,612 $ 258 $14,648
======= ======= ======= ======= ======= =======
Currency translation (14) (14)
Net income 3,416 3,415
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Comprehensive income 3,401
Initial public offering, less expenses 2,543 25 24,164 24,189
Conversion of sub-debentures 114 1 276 278
Exercise of stock options 42 1 146 147
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Balance at June 30, 2000 7,520 $ 75 $28,316 $14,028 $ 244 $42,663
======= ======= ======= ======= ======= =======
See notes to condensed consolidated financial statements.
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ROCKFORD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2000 1999
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(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 5,343 $ 3,820
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,971 810
Gain on sale of property and equipment (3) (9)
Provision for doubtful accounts 246 727
Provision for inventory 640 666
Minority Interest 0 (21)
Changes in operating assets and liabilities:
Accounts Receivable (10,593) (8,795)
Inventories (2,740) (2,233)
Prepaid expenses and other assets (870) (1,136)
Accounts payable 4,117 2,242
Accrued salaries and incentives (1,828) 740
Accrued warranty 641 187
Income taxes payable 276 670
Other accrued expenses 2,679 3,520
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (121) 1,188
INVESTING ACTIVITIES
Purchases of property and equipment (1,647) (847)
Proceeds from sale of property and equipment 3 10
Acquisition of business, net of cash acquired 0 (1,555)
Increase in other assets (378) (236)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,022) (2,628)
FINANCING ACTIVITIES
Proceeds from(payments on) note payable (15,812) 2,904
Payments on other long-term debt (206) (415)
Proceeds from the exercise of warrants and stock options 128 43
Proceeds from sale of capital stock 24,530 0
Payments on capital lease obligations (323) (255)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,317 2,277
EFFECT OF EXCHANGE RATE CHANGES ON CASH (96) (53)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 6,078 784
Cash and cash equivalents at beginning of period 917 470
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,995 $ 1,254
======== ========
See notes to condensed consolidated financial statements.
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Rockford Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2000
1. BASIS OF PRESENTATION
We have prepared our unaudited condensed consolidated financial statements in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Operating results for the three-month periods and six-month periods ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000.
For further information, refer to the consolidated financial statements and
footnotes for the year ended December 31, 1999 included in our final prospectus
filed with the SEC on April 20, 2000, SEC Registration No. 333-79285. This
document is available by searching the SEC's EDGAR Database at www.sec.gov.
2. INVENTORIES
Inventories consist of the following at:
JUNE 30, DECEMBER 31,
2000 1999
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(IN THOUSANDS)
Raw materials $ 8,270 $ 5,578
Work-in-progress 819 647
Finished goods 9,450 10,350
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18,539 16,575
Less allowances for reserves (1,512) (1,649)
-------- --------
$ 17,027 $ 14,926
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3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted pro forma
net income per share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- ---------
Numerator: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income $3,416 $2,018 $5,343 $3,820
Effect of dilutive securities interest impact of convertible
debentures 10 19 23 46
----- ----- ----- -----
Numerator for diluted net income per share, income available to common
stockholders after assumed conversions $3,426 $2,037 $5,366 $3,866
===== ===== ===== =====
Denominator:
Denominator for basic net income per share, weighted average shares 6,899 4,602 5,848 4,508
Effect of dilutive securities:
Employee stock options 1,212 1,084 1,143 1,086
Warrants 8 80 19 80
Convertible debentures 312 504 356 407
--- --- --- ---
Dilutive potential common shares 1,532 1,668 1,518 1,573
----- ----- ----- -----
Denominator for diluted net income per share, adjusted weighted
average shares and assumed conversions 8,431 6,270 7,366 6,081
===== ===== ===== =====
Basic net income per share $0.50 $0.44 $0.91 $0.85
===== ===== ===== =====
Diluted net income per share $0.41 $0.32 $0.73 $0.64
===== ===== ===== =====
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion and analysis of financial condition and results of operations
should be read in conjunction with the unaudited condensed consolidated
financial statements and the related disclosures included elsewhere in this
report. For further information, please refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations included as part of
our final prospectus filed with the SEC on April 20, 2000, SEC Registration No.
333-79285.
FORWARD-LOOKING STATEMENTS
From time to time, in this report and in other written reports and oral
statements we make, we will refer to expectations about our future performance.
The words "anticipates," "plans," "believes," "estimated," "intends," "expects,"
"projects" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such words.
Our forward-looking statements, include but are not limited to our statements
about:
- business strategy and competitive challenges;
- growth strategy;
- productivity and profitability enhancement plans;
- new product service introductions; and
- liquidity and capital resources.
Our statements are based on information currently known to our management and on
our management's beliefs and assumptions. They involve various risks and
uncertainties, some beyond our control, including the risks and uncertainties
identified in the "Risk Factors" section of our final prospectus filed with the
SEC on April 20, 2000, SEC Registration No. 333-79285. We encourage you to
review the "Risk Factors" section for a discussion of some of these risks and
uncertainties. Our actual results could differ materially from those expressed
in our forward-looking statements for any of these reasons or for other reasons
that we do not foresee.
We have undertaken no obligation to publicly update or revise our
forward-looking statements, whether as a result of new information, future
events or otherwise.
OVERVIEW
History
Rockford is a designer, manufacturer and distributor of high performance mobile
audio systems under the "Rockford Fosgate" and "Lightning Audio" brand names for
the worldwide mobile audio aftermarket. Rockford also sells professional audio
and home theater products under the "Hafler" brand name.
Rockford has manufacturing facilities in Tempe, Arizona and Grand Rapids,
Michigan; warehousing operations in Singapore; and sales and warehousing
operations in Japan and Germany.
Business
We generated over 98% of our sales through the second quarter of 2000 from our
mobile audio products. We recognize revenues from sales when we ship products to
the distributor or dealer. Sales are reported net of discounts and returns.
Related expenses, such as commissions, bonuses, cooperative advertising
allowances to dealers and other program expenses, warranty expenses and bad debt
expenses, are accrued when the related sales are recognized. We have no other
significant obligations subsequent to shipment, as we
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do not install our products.
In the U.S., we sell our mobile audio products using commissioned independent
sales representative firms who are supported by our employee regional managers.
Internationally, we sell products in over 60 countries. In Japan, we sell
through a wholly owned subsidiary. In Canada and Germany (since 1999), and
Austria (beginning in early 2000) we sell through commissioned independent sales
representatives. In other countries, we have established relationships with
independent distributors who purchase our products and resell them to retailers.
In March 1999, we began selling through Best Buy. Including its $4.4 million
initial purchase of our products to stock its distribution channel, Best Buy
accounted for 22.8% of our sales for the six months ended June 30, 1999. Best
Buy sales accounted for 15.8% of our sales for the six months ended June 30,
2000. Our growth plan contemplates that Best Buy will continue to account for a
significant portion of our sales for the foreseeable future.
In June 1999, we acquired Lightning Audio, a manufacturer and distributor of
mobile audio accessories. In January 2000, at the Consumer Electronics Show, we
introduced a new line of amplifiers and subwoofers under the Lightning Audio
brand. We began shipping these new products to our dealers at the end of the
first quarter of 2000. In February, at the National Association of Music
Merchants Show (NAMM), we introduced our new line of C Series amplifiers, which
began shipping under the Hafler brand name at the end of first quarter 2000.
During the second quarter of 2000 we began shipping several new products and
technologies, including a new Dolby Surround Pro-Logic II processor, new MP3
changers and our newest digital amplifier. Although these products do not
represent a significant percentage of total sales, demand has exceeded our
expectations and we believe they will help maintain Rockford's position as a
technological leader in the industry.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, selected consolidated
statements of operations data expressed as a percentage of net sales:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
--------- ---------- -------- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 61.1 60.5 61.1 61.0
---- ---- ---- ----
Gross profit 38.9 39.5 38.9 39.0
Sales, general and administrative expenses 26.2 28.5 27.2 28.3
---- ---- ---- ----
Operating income 12.7 11.0 11.7 10.7
Interest and other expense, net 0.6 1.2 0.9 1.3
---- --- --- ----
Income before tax 12.1 9.8 10.8 9.4
Income tax expense 4.5 3.9 4.1 3.6
---- --- --- ----
Net income 7.6% 5.9% 6.7% 5.8%
==== ==== ==== ====
Cost of goods sold primarily consists of raw materials, direct labor and
manufacturing costs associated with production of our products as well as
warranty, warehousing and customer service expenses.
Sales, general and administrative expenses primarily consist of:
- - Sales and marketing expenses - salaries, sales commissions and costs of
advertising, trade shows, distributor and sales representative conferences
and freight.
- - General and administrative expenses - salaries, corporate-wide employee
incentive plan, facilities and other costs of our accounting, finance,
management information systems, administrative and executive departments, as
well as legal, accounting and other professional fees and expenses
associated with our business.
- - Research and development expenses - salaries associated with our research
and development personnel.
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Geographic Distribution of Sales
Our sales by geographic region were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
REGION:
United States $37,210 $28,867 $66,773 $56,172
Other Americas 3,112 1,688 4,661 3,355
Europe 2,111 2,307 3,771 3,929
Asia 2,704 1,251 4,520 2,455
----- ----- ----- -----
Total sales (1) $45,137 $34,113 $79,725 $65,911
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(1) Sales are attributed to geographic regions based on the location of
customers. No single foreign country accounted for greater than 10% of our
sales.
In the following discussion, certain increases or decreases may differ due to
rounding.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net Sales. Sales increased by $13.8 million, or 20.9%, to $79.7 million for the
six months ended June 30, 2000 from $65.9 million for the six months ended June
30, 1999. The increase in sales was primarily attributable to growth in our
mobile audio specialty dealer sales and the acquisition of Lightning Audio. Best
Buy accounted for $12.6 million or 15.8% of our sales for the six months ended
June 30, 2000, compared to $15.0 million or 22.8% of our sales for the six
months ended June 30, 1999, which included a $4.4 million initial purchase of
our products to stock its distribution channel. In addition, sales to mobile
audio specialty dealers increased by $9.3 million, or 22.0%, to $51.5 million
for the six months ended June 30, 2000 from $42.2 million for the six months
ended June 30, 1999. The increase in sales to mobile audio specialty dealers was
primarily due to increases in our core business of mobile audio products and new
product sales from the acquisition of Lightning Audio. U.S. sales increased by
$10.6 million, or 18.9%, to $66.8 million for the six months ended June 30, 2000
from $56.2 million for the six months ended June 30, 1999. International sales
increased by $3.2 million, or 33.0%, to $12.9 million for the six months ended
June 30, 2000 from $9.7 million for the six months ended June 30, 1999. An
increase in sales in Asia and the Americas, as a result of improving economic
conditions, was offset by slightly decreased sales in Europe.
Cost of Goods Sold. Cost of goods sold increased by $8.5 million, or 21.1%, to
$48.7 million for the six months ended June 30, 2000 from $40.2 million for the
six months ended June 30, 1999. Substantially all of the increase was due to
increased sales. As a percent of sales, cost of goods sold increased slightly to
61.1% for the six months ended June 30, 2000 from 61.0% for the six months ended
June 30,1999.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses increased by $3.1 million, or 16.7%, to $21.7 million for the six
months ended June 30, 2000 from $18.6 million for the six months ended June 30,
1999. The increase primarily was related to an increase in sales commissions and
freight expenses due to the increase in sales, the Lightning Audio acquisition
in June 1999 and additional engineers hired in preparation for the development
of new products. As a percent of sales, general and administrative expenses
decreased to 27.2% for the six months ended June 30, 2000 from 28.3% for the six
months ended June 30, 1999 because some of the expenses in this category are
fixed and do not fluctuate with sales.
Operating Income. Operating income increased by $2.2 million, or 31.0%, to $9.3
million for the six months ended June 30, 2000 from $7.1 million for the six
months ended June 30, 1999. This increase primarily was attributable to our
increased sales and relatively stable fixed costs. As a percent of sales,
operating income increased to 11.7% for the six months ended June 30, 2000 from
10.7% for the six months ended June 30, 1999. The primary reason for this
increase was the net effect of the component changes mentioned above.
Interest and Other Expense, Net. Interest and other expense, net primarily
consists of interest expense. Interest and other expense, net
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decreased by $0.1 million, or 12.5%, to $0.7 million for the six months ended
June 30, 2000 from $0.8 million for the six months ended June 30, 1999. Interest
expense was reduced due to the payoff of the bank credit facility in April 2000
after our initial public offering. The interest expense remaining after our
initial public offering consists primarily of interest paid on existing capital
leases.
Income Tax Expense. Income tax expense increased by $0.8 million to $3.2 million
for the six months ended June 30, 2000 from $2.4 million for the six months
ended June 30, 1999. The effective income tax rates were 37.7% for the six
months ended June 30, 2000 and 38.6% for the six months ended June 30, 1999. The
primary reason for this decrease was a permanent lowering of state income tax
rates.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Net Sales. Sales increased by $11.0 million, or 32.2%, to $45.1 million for the
three months ended June 30, 2000 from $34.1 million for the three months ended
June 30, 1999. The increase in sales was primarily attributable to growth in our
mobile audio specialty dealer sales and the acquisition of Lightning Audio. Best
Buy accounted for $6.3 million, or 13.9% of our sales, for the three months
ended June 30, 2000 compared to $6.6 million, or 19.3% of our sales, for the
three months ended June 30, 1999. In addition, sales to mobile audio specialty
dealers increased by $6.6 million, or 28.8%, to $29.5 million for the three
months ended June 30, 2000 from $22.9 million for the three months ended June
30, 1999. The increase in sales to mobile audio specialty dealers was primarily
due to increases in our core business of mobile audio products and new product
sales from the acquisition of Lightning Audio.
U.S. sales increased by $8.3 million, or 28.7%, to $37.2 million for the three
months ended June 30, 2000 from $28.9 million for the three months ended June
30, 1999. International sales increased by $2.7 million, or 51.9%, to $7.9
million for the three months ended June 30, 2000 from $5.2 million for the three
months ended June 30, 1999. An increase in sales in Asia and the Americas, as a
result of improving economic conditions, was offset by slightly decreased sales
in Europe.
Cost of Goods Sold. Cost of goods sold increased by $6.9 million, or 33.3%, to
$27.6 million for the three months ended June 30, 2000 from $20.7 million for
the three months ended June 30, 1999. Substantially all of the increase was due
to increased sales. As a percent of sales, cost of goods sold increased to 61.1%
for the three months ended June 30, 2000 from 60.5% for the three months ended
June 30,1999. The primary reasons for the increase as a percent of sales was a
slight shift towards lower margin products.
Sales, General and Administrative Expenses. Sales, general and administrative
expenses increased by $2.1 million, or 21.6%, to $11.8 million for the three
months ended June 30, 2000 from $9.7 million for the three months ended June 30,
1999. The increase primarily was related to an increase in sales commissions and
freight expenses due to the increase in sales, the Lightning Audio acquisition
in June 1999 and additional engineers hired in preparation for the development
of new products. As a percent of sales, sales, general and administrative
expenses decreased to 26.2% for the three months ended June 30, 2000 from 28.5%
for the three months ended June 30, 1999 because some of the expenses in this
category are fixed and do not fluctuate with sales.
Operating Income. Operating income increased by $2.0 million, or 54.1%, to $5.7
million for the three months ended June 30, 2000 from $3.7 million for the three
months ended June 30, 1999. This increase primarily was attributable to our
increased sales and relatively stable fixed costs. As a percent of sales,
operating income increased to 12.7% for the three months ended June 30, 2000
from 11.0% for the three months ended June 30, 1999. The primary reason for this
increase was the net effect of the component changes mentioned above.
Interest and Other Expense, Net. Interest and other expense, net primarily
consists of interest expense. Interest and other expense, net decreased by $0.1
million, or 25.0%, to $0.3 million for the three months ended June 30, 2000 from
$0.4 million for the three months ended June 30, 1999. Interest expense was
reduced due to the payoff of the bank credit facility in April 2000 using the
proceeds of our initial public offering. The interest expense remaining after
our initial public offering consists primarily of interest paid on existing
capital leases.
Income Tax Expense. Income tax expense increased by $0.7 million to $2.0 million
for the three months ended June 30, 2000 from $1.3 million for the three months
ended June 30, 1999. The effective income tax rates were 37.4% for the three
months ended June 30, 2000 and 39.5% for the three months ended June 30, 1999.
The primary reason for this decrease was a permanent lowering of state income
tax rates.
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LIQUIDITY AND CAPITAL RESOURCES
Since 1995, we have financed our business primarily using cash flows from
operations, bank borrowings and borrowings from shareholders. In the second
quarter of 2000 we added the proceeds of our initial public offering to this
financing. We had working capital of $34.3 million at June 30, 2000 compared to
$21.2 million at December 31, 1999. At June 30, 2000, we maintained $7.0 million
of cash and cash equivalent balances.
As of June 30, 2000, we had a $0.2 million balance on our $20.0 million bank
credit facility, which is collateralized by substantially all of our assets and
consists of a revolving line-of-credit, a term loan and an equipment financing
arrangement. We paid off this bank credit facility during April 2000 using the
proceeds from our initial public offering. We subsequently incurred the amounts
outstanding under the bank credit facility, of approximately $0.2 million due
to funding for certain letters of credit. The revolving line-of-credit has a
blended variable interest rate per annum of LIBOR plus 300 basis points or
prime plus 75 basis points. The term loan has a fixed interest rate of 10.67%
per annum. The equipment financing arrangement has, at our option three days
prior to the time used, a fixed interest rate per annum based on five-year U.S.
Treasury notes plus 425 basis points or a variable interest rate per annum
based on the bank's base rate plus 125 basis points. To date, we have not used
this equipment financing arrangement. As of June 30, 2000, the bank credit
facility had a weighted-average interest rate of 10.25% per annum. The bank
credit facility is scheduled to mature on June 19, 2001. It requires that
we:
- have $8.0 million in earnings before interest, taxes, depreciation
and amortization, computed monthly on a rolling 12 month basis;
- maintain debt service coverage of 1.0 to 1 for total debt and 1.3
to 1 for senior debt;
- incur no more than $2.0 million of indebtedness per year outside
our existing credit arrangements; and
- make capital expenditures of no more than $3.0 million per year,
except that we may also make an aggregate $2.0 million of capital
expenditures in excess of this limit using off-balance sheet
financing.
We also have a $5.0 million capital lease credit facility under which leases can
be funded until April 12, 2001, at which time the availability to enter into
additional leases expires. We use the capital lease credit facility for the
purchase of capital equipment under agreements structured as three-year capital
lease obligations. As of June 30, 2000, the capital lease credit facility had an
outstanding balance of $1.1 million with a weighted average interest rate of
8.12% per annum.
As of March 31, 2000, we also had $976,000 of 8.5% convertible subordinated
debentures outstanding, which were due to mature in May 2002. Of this amount:
- $277,417 of debentures were converted into 113,609 shares of
common stock upon completion of our initial public offering on
April 20, 2000; and
- The remaining $698,247 of debentures were outstanding at June 30,
2000, but were scheduled to be redeemed on July 10, 2000, pursuant
to a redemption notice we sent to the holders on June 5, 2000. We
had the right to give 30 days notice of redemption after our
common stock had traded for 30 consecutive trading days at a price
above $3.66 per share. This condition was satisfied on June 2,
2000. The debenture holders were permitted to convert the debt to
common stock at any time prior to their redemption date at the
conversion price of $2.44 per share. On July 10, 2000, all
remaining holders of the debentures converted the debentures into
stock before they were redeemed. Consequently, the debentures were
no longer outstanding after July 10, 2000, and we did not make any
cash payments to redeem them.
Net cash provided by (used in) operating activities was ($0.1) million for the
six months ended June 30, 2000 and $1.2 million for the six months ended June
30, 1999. Cash provided by operating activities is less than net income due to
the effect of increasing working capital requirements created by the growth in
our sales, especially in our accounts receivable. The increased working capital
is partially offset by a decrease in depreciation and amortization.
Net cash used in investing activities was ($2.0) million for the six months
ended June 30, 2000 and ($2.6) million for the six months
12
13
ended June 30, 1999. Net cash used in investing activities was primarily related
to purchases of property and equipment. However, in 1999, net cash used in
investing activities also included $1.6 million used for the acquisition of
Lighting Audio.
Net cash provided by financing activities was $8.3 million for the six months
ended June 30, 2000 and $2.3 million for the six months ended June 30, 1999. Net
cash provided by financing activities for 2000 was primarily a result of the net
proceeds received from our April 20, 2000 initial public offering of $24.5
million offset by the repayment of our credit facility and other debt
obligations. For 1999, net cash provided by financing activities was primarily
due to borrowings and repayments of our credit facilities and other debt
obligations.
We may pursue acquisitions of businesses, products or technologies that could
complement or expand our business and product offerings. Any material
acquisition could result in an increase in working capital requirements
depending on the amount, timing and nature of the consideration we agree to pay.
We believe that the net proceeds received by us from our April 20, 2000 initial
public offering, together with our existing resources and anticipated cash flows
from operations, will be sufficient to meet our cash needs for the next twelve
months.
TRANSITION TO THE YEAR 2000
We did not experience any interruption to our business as a result of the
transition to January 1, 2000, and we are not aware of any Year 2000 related
problems associated with our internal systems or software, or with the software
and systems of our vendors or distributors. We intend to maintain efforts
relating to internal Year 2000 compliance, however, we do not anticipate any
significant future costs with respect to this issue.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
13
14
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.
(a)-(c) Not applicable.
(d) On April 19, 2000, our Registration Statement on Form S-1 (No.
333-79285) was declared effective by the SEC. Pursuant to that
Registration Statement, we offered 2,500,000 shares at $11.00 per
share. The managing underwriters of the offering were Dain
Rauscher Wessels, McDonald Investments Inc., and Needham &
Company, Inc. The underwriters also elected to exercise an
over-allotment option to purchase an additional 42,500 shares.
Including the proceeds from the over-allotment purchase, the net
proceeds to us from the offering, after deducting underwriting
discounts and commissions and estimated offering expenses payable
by us, were approximately $24.3 million. Pending use of the net
proceeds as described below, we have invested them in short-term,
interest-bearing, investment-grade securities.
We used approximately $19.5 million to fully repay the outstanding
balance of our credit facility, which consisted of a revolving
line-of-credit and a term loan. We did not use the equipment
financing component of our credit facility so none of the proceeds
were used to repay that portion of our credit facility. The
revolving line-of-credit had a blended variable interest rate per
annum of LIBOR plus 300 basis points or prime plus 75 basis
points. The term loan had a fixed annual interest rate of 10.67%.
We plan to use the remaining $4.8 million of proceeds from our
initial public offering for working capital and other corporate
purposes, including new product development, and marketing
expansion. We may also use a portion of the remaining proceeds to
acquire or invest in complementary businesses, products or
technologies; however, we have not at this time identified a
specific acquisition or allocated a specific amount for this
purpose.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Articles of Incorporation+
3.2 Restated Bylaws as amended through July 27, 2000*
3.2.1 Amendment to Bylaws adopted by the Board of Directors on July 27,
2000
3.3 Amendment to Articles of Incorporation filed on January 12, 1988+
3.4 Amendment to Articles of Incorporation filed on May 12, 1999+
3.5 Amendment to Articles of Incorporation filed on May 17, 1999+
3.6 Amendments to Bylaws adopted by the Board of Directors on May 14,
1999+
3.7 Amendment to Articles of Incorporation filed on July 1, 1999+
4.1 Specimen Common Stock Certificate+
4.2 Reference is made to the Articles of Incorporation, as amended, and
the Restated Bylaws, as amended, filed as Exhibits 3.1, 3.2, 3.2.1,
3.3, 3.4, 3.5, 3.6 and 3.7 for a description of the rights of the
holders of Common Stock.
10.1 1994 Stock Option Plan+
10.2 1997 Stock Option Plan+
10.3 1999 Employee Stock Purchase Plan as amended and restated+
10.4 Employment Agreement by and between Rockford Corporation and W. Gary
Suttle+
10.5 Indemnity Agreement by and between Rockford Corporation and W. Gary
Suttle+
10.6 Letter Agreement by and between Rockford Corporation and Best Buy
Corporation**+
10.7 Joint Development and Supply Agreement by and between Rockford
Corporation and Hyundai Electronics Industries Co., Ltd.**+
10.8 Form of Dealership Agreements+
10.9 Standard Industrial Commercial Multi-Tenant Lease - Gross American
Industrial Real Estate Association Lease, and amendments and addendum
thereto, by and between Rockford River LLC and Rockford Corporation+
10.9.1 Amendment to Standard Industrial Commercial Multi-Tenant Lease -
Gross American Industrial Real Estate Association Lease, by and
between Rockford River LLC and Rockford Corporation+
10.10 Standard Industrial Lease - Gross, and amendments and addendum
thereto, by and between Cloyce Clark and Rockford Corporation+
10.10.1 Amendment to Standard Industrial Lease - Gross by and between
Cloyce Clark and Rockford Corporation+
10.11 Lease Agreement, and addenda thereto, by and between Carbonneau
Industries, Inc. and Rockford Corporation+
10.11.1 Amendment to Lease Agreement by and between Carboneau Industries,
Inc. and Rockford Corporation +
14
15
10.12 Master Lease Agreement and amendments thereto, by and between Banc
One Leasing Corporation and Rockford Corporation+
10.13 Loan and Security Agreement by and between Rockford Corporation and
FINOVA Capital Corporation+
10.13.1 Amendment No. 1 to Loan and Security Agreement by and between FINOVA
Capital Corporation and Rockford Corporation+
10.13.2 Amendment No. 2 to Loan and Security Agreement by and between FINOVA
Capital Corporation and Rockford Corporation+
10.14 Employee 401(k) Deferred Compensation Plan and amendments thereto+
10.15 Manufacturing and Distribution Agreement by and between Path Group,
Inc. and Rockford Corporation**+
10.15.1 Addendum to the Manufacturing and Distribution Agreement by and
between Path Group, Inc., and Rockford Corporation**+
10.15.2 Addendum to the Manufacturing and Distribution Agreement by and
between Path Group, Inc. and Rockford Corporation**+
10.16 Product Sales Agreement by and between Rockford Corporation and
Avnet Electronics Marketing**+
10.17 Convertible Subordinated Debenture Amendment Agreement and Agreement
to Rename as Senior Notes+
10.18 Form of Senior Note due February 3, 1999 and Warrant+
10.19 Schedule for Senior Notes and Warrants+
10.20 Convertible Subordinated Debenture Purchase Agreement+
10.21 Form of 8.5% convertible Subordinated Debenture due May 1, 2002+
10.22 Schedule for 8.5% Convertible Subordinated Debentures+
10.23 Warrant issued to the Vrolyk Partnership 97-A to expire June 1, 2007+
10.24 Services and Option Agreement by and between W. Gary Suttle,
Caroline S. Bartol, individually and as representative of the estate
of John G. Bartol and Rockford Corporation+
10.25 Amendment of Services and Option Agreement by and between W. Gary
Suttle, Monument Investors Limited Partnership as successor to
Caroline S. Bartol and the estate of John G. Bartol and Rockford
Corporation+
10.26 Amendment of Services and Option Contract by and between W. Gary
Suttle, Monument Investors Limited Partnership as successor to
Caroline S. Bartol and the estate of John G. Bartol and Rockford
Corporation+
10.27 Consulting and Option Contract by and between Rockford Corporation
and Grisanti, Galef & Goldress, Inc.+
10.28 Amendment and Renewal of Consulting and Option Contract by and
between Rockford Corporation and Grisanti, Galef & Goldress, Inc.+
10.29 Amendment of Consulting and Option Contract by and between Rockford
Corporation and Grisanti, Galef & Goldress, Inc.+
10.30 Letter from Timothy Bartol, General Partner for the Boulder
Investors Partnership exercising rights under Bridge Loan
Conversion and Extension Agreement by and between Rockford
Corporation and Boulder Investors Ltd. Partnership, as successor to
Caroline S. Bartol+
10.31 Fifth Amendment to Bridge Loan Conversion and Extension Agreement by
and between Rockford Corporation and Boulder Investors Ltd.
Partnership, as successor to Caroline S. Bartol+
10.32 Bridge Loan Conversion and Extension Agreement by and between
Rockford Corporation and Caroline S. Bartol+
10.33 Bridge Loan Agreement by and between Rockford Corporation and
Caroline S. Bartol+
10.34 1990 Restricted Stock Grant and Tax Loan Agreement and Promissory
Note+
10.35 Form of Indemnification Agreement+
10.35.1 Schedule for Indemnification Agreement+
10.36 FINOVA - Schedule of Loan and Security Agreement+
10.39 Financing Lease Schedule No. 1000100950 by and between Banc One
Leasing Corporation and Rockford Corporation+
27 Financial Data Schedule for the period ended June 30, 2000
99 Final Prospectus filed with the SEC on April 20, 2000, SEC
Registration No. 333-79285, which includes consolidated financial
statements and footnotes for the year ended December 31, 1999,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Risk Factors, each incorporated herein by
reference.+
* Revised versions of these exhibits, reflecting current information, are
filed with this report.
** Portions of the document have been omitted and filed separately with the
Commission under a request for confidential treatment which was
granted by the Commission.
+ Previously filed with registration statement effective April 19, 2000
and/or amendments thereto.
(b) Reports on Form 8-K
None.
15
16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned duly
authorized officer.
ROCKFORD CORPORATION
Date: July 26, 2000 By: /s/ James M Thomson
--------------------------------------
James M. Thomson
Vice President of Finance,
Chief Financial Officer and Secretary
(Principal Financial Officer and Duly
Authorized Officer)
16
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
3.1 Articles of Incorporation +
3.2 Restated Bylaws as amended through July 27, 2000 *
3.2.1 Amendment to Bylaws adopted by the Board of Directors on July 27,
2000
3.3 Amendment to Articles of Incorporation filed on January 12, 1988 +
3.4 Amendment to Articles of Incorporation filed on May 12, 1999 +
3.5 Amendment to Articles of Incorporation filed on May 17, 1999 +
3.6 Amendments to Bylaws adopted by the Board of Directors on May 14,
1999 +
3.7 Amendment to Articles of Incorporation filed on July 1, 1999 +
4.1 Specimen Common Stock Certificate +
4.2 Reference is made to the Articles of Incorporation, as amended, and
the Restated Bylaws, as amended, filed as Exhibits 3.1, 3.2, 3.2.1,
3.3, 3.4, 3.5, 3.6 and 3.7 for a description of the rights of the
holders of Common Stock.
10.1 1994 Stock Option Plan +
10.2 1997 Stock Option Plan +
10.3 1999 Employee Stock Purchase Plan as amended and restated +
10.4 Employment Agreement by and between Rockford Corporation and
W. Gary Suttle +
10.5 Indemnity Agreement by and between Rockford Corporation and W. Gary
Suttle +
10.6 Letter Agreement by and between Rockford Corporation and Best Buy
Corporation **+
10.7 Joint Development and Supply Agreement by and between Rockford
Corporation and Hyundai Electronics Industries Co., Ltd. **+
10.8 Form of Dealership Agreements +
10.9 Standard Industrial Commercial Multi-Tenant Lease - Gross American
Industrial Real Estate Association Lease, and amendments and
addendum thereto, by and between Rockford River LLC and Rockford
Corporation +
10.9.1 Amendment to Standard Industrial Commercial Multi-Tenant Lease -
Gross American Industrial Real Estate Association Lease, by and
between Rockford River LLC and Rockford Corporation +
10.10 Standard Industrial Lease - Gross, and amendments and addendum
thereto, by and between Cloyce Clark and Rockford Corporation +
10.10.1 Amendment to Standard Industrial Lease - Gross by and between
Cloyce Clark and Rockford Corporation +
10.11 Lease Agreement, and addenda thereto, by and between Carbonneau
Industries, Inc. and Rockford Corporation +
10.11.1 Amendment to Lease Agreement by and between Carbonneau Industries,
Inc. and Rockford Corporation +
10.12 Master Lease Agreement and amendments thereto, by and between Banc
One Leasing Corporation and Rockford Corporation +
10.13 Loan and Security Agreement by and between Rockford Corporation and
FINOVA Capital Corporation +
10.13.1 Amendment No. 1 to Loan and Security Agreement by and between
FINOVA Capital Corporation and Rockford Corporation +
10.13.2 Amendment No. 2 to Loan and Security Agreement by and between
FINOVA Capital Corporation and Rockford Corporation +
10.14 Employee 401(k) Deferred Compensation Plan and amendments thereto +
10.15 Manufacturing and Distribution Agreement by and between Path Group,
Inc. and Rockford Corporation **+
10.15.1 Addendum to the Manufacturing and Distribution Agreement by and
between Path Group, Inc., and Rockford Corporation. **+
10.15.2 Addendum to the Manufacturing and Distribution Agreement by and
between Path Group, Inc. and Rockford Corporation **+
10.16 Product Sales Agreement by and between Rockford Corporation and
Avnet Electronics Marketing **+
10.17 Convertible Subordinated Debenture Amendment Agreement and
Agreement to Rename as Senior Notes +
10.18 Form of Senior Note due February 3, 1999 and Warrant +
10.19 Schedule for Senior Notes and Warrants +
10.20 Convertible Subordinated Debenture Purchase Agreement +
10.21 Form of 8.5% convertible Subordinated Debenture due May 1, 2002 +
10.22 Schedule for 8.5% Convertible Subordinated Debentures +
10.23 Warrant issued to the Vrolyk Partnership 97-A to expire June 1,
2007 +
10.24 Services and Option Agreement by and between W. Gary Suttle,
Caroline S. Bartol, individually and as representative of the
estate of John G. Bartol and Rockford Corporation +
10.25 Amendment of Services and Option Agreement by and between W. Gary
Suttle, Monument Investors Limited Partnership as successor to
Caroline S. Bartol and the estate of John G. Bartol and Rockford
Corporation +
10.26 Amendment of Services and Option Contract by and between W. Gary
Suttle, Monument Investors Limited Partnership as successor to
Caroline S. Bartol and the estate of John G. Bartol and Rockford
Corporation +
10.27 Consulting and Option Contract by and between Rockford Corporation
and Grisanti, Galef & Goldress, Inc. +
10.28 Amendment and Renewal of Consulting and Option Contract by and
between Rockford Corporation and Grisanti, Galef & Goldress, Inc. +
10.29 Amendment of Consulting and Option Contract by and between Rockford
Corporation and Grisanti, Galef & Goldress, Inc. +
18
10.30 Letter from Timothy Bartol, General Partner for the Boulder
Investors Partnership exercising rights under Bridge Loan
Conversion and Extension Agreement by and between Rockford
Corporation and Boulder Investors Ltd. Partnership, as successor to
Caroline S. Bartol +
10.31 Fifth Amendment to Bridge Loan Conversion and Extension Agreement
by and between Rockford Corporation and Boulder Investors Ltd.
Partnership, as successor to Caroline S. Bartol +
10.32 Bridge Loan Conversion and Extension Agreement by and between
Rockford Corporation and Caroline S. Bartol +
10.33 Bridge Loan Agreement by and between Rockford Corporation and
Caroline S. Bartol +
10.34 1990 Restricted Stock Grant and Tax Loan Agreement and Promissory
Note +
10.35 Form of Indemnification Agreement +
10.35.1 Schedule for Indemnification Agreement +
10.36 FINOVA - Schedule of Loan and Security Agreement +
10.39 Financing Lease Schedule No. 1000100950 by and between Banc One
Leasing Corporation and Rockford Corporation +
27 Financial Data Schedule for the period ended June 30, 2000
99 Final Prospectus filed with the SEC on April 20, 2000, SEC
Registration No. 333-79285, which includes consolidated financial
statements and footnotes for the year ended December 31, 1999,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, and Risk Factors, each incorporated herein
by reference. +
* Revised versions of these exhibits, reflecting current information,
are filed with this report.
** Portions of the document have been omitted and filed separately
with the Commission under a request for confidential treatment
which was granted by the Commission.
+ Previously filed with registration statement effective April 19,
2000 and/or amendments thereto.