Net sales for the three months ended December 31, 2010, increased 8.2% to $11.7 million compared to net sales of $10.8 million for the same period in 2009. Net sales for the year ended December 31, 2010, increased 2.4% to $54.2 million compared to net sales of $53.0 million for the same period in 2009. The increase in net sales for the three and twelve month period was primarily due to increases in Rockford's core aftermarket, international and OEM sales channels. These increases were 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 year ended December 31, 2010, was $2.9 million compared to $1.9 million for the same period in 2009. Net income for the three months ended December 31, 2010 was $0.2 million, compared to a net loss of $0.6 million for the same period in 2009. Net income for the year ended December 31, 2010 was $2.7 million, compared to a net loss of $0.8 million for the same period in 2009. The 2009 annual net loss included a gain of approximately $0.5 million from the January 2009 repurchase at a discount of $2.5 million face value of convertible notes.
As a percent of net sales, gross margin for the three months ended December 31, 2010 increased to 36.4% compared to 32.6% for the same period in 2009. As a percent of net sales, gross margin for the year ended December 31, 2010 increased to 36.8% compared to 31.8% 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 December 31, 2010, were flat at $4.1 million compared to $4.1 million for the same period in 2009. Operating expenses for the year ended December 31, 2010, decreased 3.2% to $17.2 million compared to $17.7 million for the same period in 2009. The decrease in operating expenses for the year compared to the prior year was primarily due to lower professional, as well as lower payroll and related expenses.
William R. Jackson, Rockford's Chief Executive Officer and President, commented, "We are very pleased with our 4th quarter and 2010 full year results. Our business is typically seasonal and the 4th quarter presents challenges. However this year, our retailers and distributors experienced improved traffic and sell through of our core products. The OEM business continues to improve when compared with 2009. New car sales have stabilized and our business with Nissan, Mitsubishi and Suzuki has improved. Our team worked hard in the 4th quarter to drive sell through with our customers. Our 4th quarter results represent a $0.8 million improvement in net income when compared to the 4th quarter of 2009. This improvement was primarily driven by increased sales and higher gross margins."
Mr. Jackson continued: "The 2010 annual results represent a $3.5 million improvement in net income when compared to 2009. Although the car audio aftermarket was bumpy throughout the year, our team was able to work closely with our retailers and distributors and grow our core business. The launch of Renegade and Lightning Audio products in 2010 had a positive impact for our domestic retailers and international distributors. Our Rockford Fosgate business experienced solid growth in all of our continuing distribution channels. Our sales team was even able to make up for the loss of revenue resulting from our decision to leave Best Buy. Given the market dynamics, I am very pleased with the results."
Mr. Jackson observed: "Our OEM business in 2010 was better than the previous two years and royalty contributions in 2010 were $1.0 million higher than in 2009. Gross margin percentages were up 5% in 2010, primarily driven by lower operating costs, increased OEM royalties and lower product costs. I am very pleased with the performance of the Rockford team in 2010. They stayed focused on our customers and managed the business appropriately for the year."
Mr. Jackson noted: "In January 2011 we exhibited our new product offerings for 2011 at the Palms Hotel in Las Vegas. Our new products include approximately 100 new additions to our lines. Dealer and distributor turnout was better than in 2010 and the reception for the new products was excellent. The product lines for 2011 are focused on better integration in the vehicle and improved applications. We began shipping some of the new items in the first quarter and will continue to roll out models over the next several months. In addition, we launched two new brands into the North American market, BRAX and Helix. These products, developed by Audiotech Fischer GmbH in Germany, represent a high end solution for the discriminating audiophile. Rockford has become the exclusive marketer and distributor in North America for the BRAX and Helix lines of products. Dealer sign up and first product shipments have begun in the first quarter of 2011."
Mr. Jackson concluded: "We feel good about our 2010 results and our prospects for 2011. Our business model is working well and our brand portfolio is being accepted well in the market place. We expect to be profitable and have increased revenues in the first quarter of 2011 compared to the first quarter of 2010; however, we remain cautious regarding the overall health of the economy and any potential supply chain impact due to the recent events in Japan. The car audio aftermarket is showing some signs of improvement and we remain focused on working closely with our retailers and distributors to take advantage of consumer's willingness to spend and improve sell through and new customer activations."
Liquidity and Capital Resources - Rockford's cash provided by operations was $3.4 million for the year ended December 31, 2010 as compared to $10.9 million during the comparable period in 2009. Net income of $2.7 million was the primary source of cash from operations and a decrease in accounts payables of $1.0 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 December 31, 2010, respectively. As of December 31, 2010, Rockford was in compliance with all applicable covenants. Availability under the credit facility at December 31, 2010 was approximately $6.8 million in excess of the outstanding balance of $1.5 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 2011 and 2012, 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.
Stock Buyback Program - Rockford also announced that its Board of Directors has approved a new program to purchase up to 870,000 shares, or approximately 10%, of Rockford's Common Stock in the open market or through privately negotiated transactions. Rockford has approximately 8.7 million shares outstanding currently. The program will expire on December 31, 2012, but may be suspended or discontinued at any time. Rockford has repurchased approximately 0.8 million shares under its previously announced stock buyback programs that had authorized purchases of up to approximately 0.9 million shares.
Richard G. Vasek, Rockford's Chief Financial Officer, commented: "The Board of Directors has a positive long-term view of Rockford and its prospects. This program underscores our belief in Rockford's future and creates an opportunity to enhance long-term shareholder value. This program will allow us to make prudent use of our current liquidity to take advantage of opportunities in the market for Rockford's shares." Mr. Vasek continued: "Rockford management will direct the program. We have not established specific goals as to the number of shares to be acquired or the purchase price. Our decisions about these matters will be based on market conditions, working capital requirements, general business conditions and other factors we decide are relevant. If we decide conditions are not favorable, then we will not make any purchases."
Mr. Vasek concluded: "This program will be funded using borrowings on our existing credit facility. If any shares are purchased they may be retired or they may be made available for employee benefit plans or other corporate purposes. Rockford has no specific plans that would result in a sale of any Common Shares that Rockford may purchase under the program."
About Rockford Corporation - Setting the standard for excellence in the audio industry, the Rockford Corporation markets and distributes high-performance audio systems for the mobile audio aftermarket and OEM market. Headquartered in Tempe, Arizona, Rockford Corporation distributes its products under six brands: Rockford Fosgate®, Rockford Acoustic Design®, Lightning Audio®, Brax™, Helix™ and Renegade®. For more information, please visit: www.rockfordfosgate.com, www.rockfordacousticdesign.com, www.lightningaudio.com, www.braxhifi.com, www.helixhifi.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 2010. We cannot be certain whether we will be able to sustain 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.
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