Tempe, Ariz. - Rockford Corp. announced plans to restructure its operations and place MB Quart Germany in receivership due to losses of $750,000 per quarter.
Rockford also said it plans to sell its majority interest in the SimpleDevices Wi-Fi software business, although it will continue a relationship with that company and retain Rockford's Omnifi brand and product offering.
The company said MB Quart will also continue to be sold in the North America.
Rockford’s overall strategy is to return to its core car audio business and divest itself of non-auto related businesses, the company said.
Gary Suttle, president and CEO said, “Our core mobile audio business remains strong. We are number one in amplifiers and number two in speakers. And we continue to capture market share.” Suttle added that Rockford plans to reduce inventory, cut costs and find ways to engineer more value into our products. Suttle also said Rockford “is in a position to grow our OEM business.”
The company noted that while WiFi “will play an important role in mobile car audio” in the future, “we think that the capital we would deploy while this business ramps up is better spent on our core business and reducing our debt."
The continued losses at Rockford's MB Quart GmbH subsidiary in Germany led the company to announce it will discontinue the German operations of its subsidiary MB Quart GmbH. “After considering several options, Rockford has decided to place MB Quart GmbH into receivership under German law. This action will eliminate approximately $750,000 in operating loss per quarter and is expected to have a minimal cash impact. Rockford will continue to own and develop the MB Quart brand in North America. This will result in a reserve against its investment in the MB Quart German operations in the third quarter,” said Suttle.
In terms of growing its core business, Rockford noted that it recently increased distribution by adding Pep Boys and it will begin shipping its Lightning Audio and Q-Logic brands to the chain in October, followed by OmniFi in November.
Rockford said its OEM market share increased 10 percent last year and continues to grow. The company is currently working with Nissan, and has contracts with Mitsubishi. It is also in negotiations with other car makers, it said.
A spokesman added, “This summer saw solid demand for mobile audio products and we worked out much of the backlog in the US. We expect sales for the remainder of the year will be slightly higher than last year despite lower overall market sales in the US. The company has worked through many of the production issues experienced during the first half of the year. We believe the shortcomings in our product development process that were experience in the first half have been addressed sufficiently to prevent this from occurring next year.”
To facilitate its strategic realignment, Rockford will take additional non-cash reserves or write-offs during the third quarter. These are expected to total an estimated $25 million, detailed as follows:
About $11 million in reserves against Rockford's investment in and inter-company loan to MB Quart GmbH.
About $7 million to establish a valuation allowance against Rockford's U.S. deferred tax assets
About $3 million for Omnifi and other inventory
About $4 million for goodwill associated with Rockford's
acquisition of the Q-Logic brand and business
Rockford noted that its shareholder's equity remains substantially positive after these adjustments.