Rockford Corporation

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Rockford Corporation

546 South Rockford Drive
Tempe, Arizona 85281
U.S.A.
Telephone: (480) 967-3565
Toll Free: (800) 366-2349
Fax: (480) 966-3983
Web site:http://www.rockfordcorp.com

Public Company
Incorporated: 1980
Employees: 515
Sales: $144.6 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: ROFO
NAIC: 334310 Audio and Video Equipment Manufacturing

Rockford Corporation designs and manufactures high-performance audio equipment for automobiles and home use. Most of its car audio equipment is sold under Rockford Fosgate brands Punch and Punch POWER, and their primary target market is young men aged 16 to 24. Rockford also produces sound amplifiers; signal processors; source units, such as CD players and AM/FM radios; and speakers, including mid-ranges, full-ranges, tweeters, woofers, and subwoofers (a speaker at least eight inches in diameter for bass frequency output). Rockford’s lower-priced line of car audio products are sold through Lightning Audio under the Strike, Storm, and Bolt brands. Home theater products, including state-of-the-art surround sound, are marketed under the Fosgate Audionics brand and professional equipment is sold under the Hafler brand. The company’s products are available at over 2,300 independent retailers domestically, at more than 400 Best Buy stores, and through distributors and sales representatives in more than 60 countries.

1970s: Reinventing the Market for Car Audio

The history of the Rockford Corporation can be traced to Fosgate Electronics, a specialty amplifier manufacturer foundedby Jim Fosgate, the inventor of the company’s first powerful amplifiers. While experimenting with audio technology, Fosgate owned and operated a small company called Pro-Line, in Salt Lake City, which produced radio transmitters and receivers for remote control model airplanes. In his spare time, he worked on his “Frequency Energizer,” a circuit that adjusted for loss of high- and low-end audio frequencies as they channeled through to the speakers. Fred Hulan, owner of Audio Mart in Kansas City, encouraged Fosgate, providing him with information obtained in his own work. At the time, Hulan installed state-of-the-art audio equipment, called the Acoust-A-Voice, in homes and theaters. Hulan reported to Fosgate the inefficiencies he found in the system, and Fosgate applied his Frequency Energizer circuit to compensate for loss of high and low tones during sound amplification.

After many late night sessions of experimentation, Fosgate and some audio enthusiast friends developed Fosgate’s first audio product for the consumer market. The PR-7000 amplifier integrated the Frequency Energizer into a 30-watt car amplifier using a tape loop. Fosgate demonstrated his amplifier at the Consumer Electronics Show in Chicago in 1973, attaching a $300 price tag. Initially, it proved to be an impossible task to find buyers for such an expensive piece of equipment, especially one for which no source unit with appropriate audio outputs existed.

Then, innovations by Fosgate Electronics, particularly that of the Punch Equalization circuit, introduced a level of car audio quality previously unknown, stimulating the market for high-performance car audio equipment which sold through specialty audio retailers. The company marketed its products under the Punch and Punch POWER brands, the latter being the top-of-the-line audio equipment.

By the late 1970s Fosgate Electronics had developed a base of retailer customers, and Jim Fosgate let the company manage itself while he began experimenting with surround sound technology. However, financial difficulties arose at the company that ultimately resulted in its producing lower quality equipment. Fosgate looked for someone to buy the company so that he would be free to concentrate on new inventions. In 1980 a venture capital company, Camelback Capital Corp., purchased Fosgate Electronics, renaming it Rockford Corporation for the street where the company had been located for almost a decade. At this time the company employed 25 people and recorded just under $1 million in annual sales. In 1982 Robert Pothier, of Camelback Capital, became president of Rockford Corporation.

New Ownership in the 1980s

The immediate issues requiring the attention of the new owners involved the quality of the company’s products and development of new products. Engineer John France led the effort by applying Fosgate’s technology to new product design. France’s innovations included the use of MOSFET (metal oxide semiconductor field effect transistors) power for stable sound quality with small circuitry impedance loads. Rockford engineers made formidable improvements to MOSFET technology, an important aspect of quality sound amplification. France also developed a circuit protector first used in the POWER 1000 amplifier.

The quality of the amplifying technology required the development of new speakers. Specifically, audio dealers were reporting that Rockford Fosgate amplifiers were blowing out speakers, and that no speakers on the market could handle the output. After some research into the best speakers on the market, Rockford decided to design speakers itself. The company looked for a quality speaker manufacturer with whom to form a partnership, choosing Carbonneau of Grand Rapids, Michigan. Rockford Carbonneau (later Rockford Acoustic Designs) began production on high-performance audio speakers in 1985, manufacturing a line of woofers, mid-ranges, and tweeters.

Without the advertising budget of its main competitors Kenwood and Pioneer, Rockford pursued methods of marketing that focused on the audio specialty market. In 1985 Rockford became involved the National Autosound Challenge Association to raise awareness of the new capabilities of car stereo. Company employees participated in co-authoring the judging sheet and rule book for the contest, as well as in determining the standards for winning the Autosound Challenge. Rockford then assisted specialty audio retailers in staging contests.

Rockford formed the Rockford Technical Training Institute in 1986 to educate audio dealers and salespeople about the company’s products. Training involved system design, installation, speaker enclosure, and system design with existing components from other manufacturers. Rockford brought customers to Tempe, Arizona, for training, rather than train at audio stores, in order to obtain the participants’ undivided attention.

Another strategy for gaining market share involved the acquisition of another pioneer audio electronics company, the David Hafler Company, in 1987. David Hafler had been regarded as the father of high fidelity audio; his 50-watt tube amplifiers amazed audio specialists in 1954. Hafler’s first company, Dynaco, began the trend toward amplifier kits from which audio enthusiasts built their own amplifiers. The David Hafler Company, formed in 1979, manufactured high quality amplifiers and preamplifiers prewired or, for $100 less, as kits. In the acquisition of Hafler, Rockford also acquired a subsidiary, Acoustat, a manufacturer of high performance electrostatic loudspeakers and electronics. Under the combined talent of Hafler and Rockford engineering staff, the Hafler brand defined the standard in professional audio technology being used by movie theaters, concert venues, traveling musicians, sound recording studios, and broadcast studios while achieving international acclaim.

Merging the engineering staffs from Rockford and Hafler resulted in new patented technology, including the Trans-nova power amplifier. The amplifier used MOSFETs to add power to voltage current without a gain in noise or distortion. The audio signal’s “gain stages,” levels of increased power, occurred at shorter intervals and less frequently, providing sound output truer to an the original input than ordinary amplifiers.

New Management and Profitability in the 1990s

While Rockford-Fosgate products gained in quality and popularity, the company continued to struggle financially through the 1980s. Problems included product obsolescence, inventory overstock, and delays in product development. In 1992 Rockford instituted a new management team, including Gary Suttle as president and CEO. Reorganization involved the discontinuation or redesign of product lines which Generaled little or no profit; implementing new marketing and advertising strategies; improving management information systems; and shortening the product development time from up to 24 months to between six and nine months. Product development increased from seven new product introductions in 1991 to 104 new products in 1999. The company earned a profit in 1994, but investments in infrastructure and employee hiring resulted in losses in 1995 and 1996. Nevertheless, Rockford became profitable in 1997, with net earnings of $1.6 million on sales of $87.4 million.

On a solid financial footing, Rockford sought to expand into new markets through national retailers. In August 1998 the company’s merchandise became available through Crutchfield, a national consumer electronics catalog retailer. The following March, Best Buy, the largest volume retailer of consumer electronics, began to offer Rockford Fosgate brand products at its chain of 312 stores. High-performance car audio products fit with Best Buy’s strategy to provide a wide range of products to its customers. The electronics merchant stocked eight models of amplifiers and a limited selection of woofers and speakers, making an initial purchase of $4.4 million in merchandise and an additional $10.5 million over the next four months.

Company Perspectives:

We are Rockford Corporation! Fanatics about audio. We are the standard of excellence when it comes to sound. We invent new technologies to create innovative products of exceptional quality and performance providing the ultimate sensory experience.

The move toward national chain distribution was risky for Rockford, as it potentially alienated specialty audio dealers with whom the company had engaged in business over the long-term. Also, mainstream exposure could have diminished the prestige of the Rockford Fosgate brand name. To compensate for these risks, Rockford decided to create new brands with lower price points for distribution through Best Buy.

Also during this time, Rockford purchased Lightning Audio, a manufacturer and distributor of car audio accessories. Scott Deley had founded Lightning Audio in 1993 to provide the car audio market with power capacitors which prevented problems of power supply, such as dimming headlights, prompted by high level sound audio.

Other new products in 1999 included six digital amplifiers, a surround sound process for mobile audio, and an MP3 changer which allowed MP3 music downloaded from the Internet to be played in car CD players. Rockford developed the first car amplifier that could be custom designed, in terms of function and visual aesthetic, by the consumer. Under the Hafler brand, the company introduced a new series of light-weight, high-performance amplifiers for use in movie theaters and concerts tours. Also, Rockford launched an Internet web site designed for customer self-service. Using BEA WebLogic Server, the company developed sophisticated software which allowed dealers, sales representatives, and company administrators to track orders and shipments, and review account information.

New products, new sales outlets, and a strong economy fueled growth at Rockford. Revenues increased from $87.6 million in 1998 to $123.9 million in 1999, with Best Buy accounting for 20 percent of sales, at $24.7 million. Net income more than doubled from $2.3 million to $6.5 million in 1999, as the company began to use global sources for raw materials and certain components at competitive rates. Lightning Audio amplifiers and speakers were produced in Korea and China, and a four-year agreement with Hyundai Electronics of Korea involved overseas manufacturing of Rockford-Fosgate brand products in accordance with Rockford specifications.

International sales rose slightly to $18.4 million, as increased sales in Europe compensated for slower sales in Asia and Latin America. Rockford began a transition to one-step distribution in certain overseas markets, using independent sales representatives who sold products direct to retailers on behalf of the company, rather than distributors who purchased products wholesale. This allowed for lower overhead and competitive pricing of its products. The company implemented the change in Canada and Germany in 1999, opening a warehouse and sales office in Germany as well as in Austria the next year.

Growth in the 21st Century

Rockford filed with the Securities and Exchange Commission for an initial public offering of stock in May 1999. Due to poor market conditions, the actual offering did not occur for another year, in April 2000. Rockford sold three million shares at $11 per share, raising $32.5 million for continued research and development, investment in new technologies by other companies, and to pay debt.

Funds from the public offering allowed Rockford to remain on the leading edge of audio equipment, particularly with surround sound technology. Rockford acquired a company co-owned by Jim Fosgate and Charles Wood, Fosgate Audionics. Wood founded Audionics in 1969 and merged with Fosgate Research in 1986. Both companies had been involved in the development of surround sound technology for the home environment. In 1982, the home theater originated with the Audionics Space and Image Composers and Fosgate Research TATE processors, both of which used multi-channel decoders to detect the Dolby Motion Picture Matrix Surround information. Fosgate Audionics used a unique matrix decoder designed by Fosgate to further improve the processor’s ability to read hidden information for a fuller account of sound recording, including two-channel stereo recordings, even when an older recording techniques or older recordings were used. The Rockford Fosgate division applied the surround sound technology for the automotive stereo market, utilizing the new circuitry of Dolby ProLogic II technology. The company became the first in the industry to license Dolby Pro Logic Surround Sound Decoder technology. Jim Fosgate and Charles Wood remained at Rockford as engineering consultants.

Rockford also made an important stride in amplifier technology with the Single Terminal Alternating Rail Dual Sampling Topology (STARDUST). STARDUST allowed more amplification power, over 1,000 watts, in a smaller size amplifier and with less usage of current from the charging system. The lower energy consumption, resulted in cooler system operation and, hence, better and more reliable performance. Rockford introduced the technology in new amplification products in early 2000 and was granted a patent on the technology in August.

The company used the complex capabilities of its Internet software to boost sales in 2000. In preparation for a new line of home theater products under the Hafler brand, the company had launched a new web site in August 2000. The Hafler.com web site featured user-friendly system design assistance, including three-dimensional virtual reality applications, to help consumers choose components.

Key Dates:

1973:: Jim Fosgate introduces the PR-7000 amplifier.
1981:: Venture capital firm acquires Fosgate’s company and renames it Rockford Corporation.
1985:: Company begins to design and manufacture speakers that handle amplifier output.
1987:: Company acquires the David Hafler Company.
1992:: New management team begins transformation to profitability.
1996:: Company is profitable and begins to market CD players.
1999:: Best Buy, the consumer electronics giant, starts stocking Rockford Fosgate products.
2000:: Rockford goes public and acquires Fosgate Audionics.

For 2001 Rockford redesigned much of its product line, including the Lightning Audio entry level performance systems and Rockford Fosgate amplifiers and subwoofers. Rockford Fosgate introduced its most powerful, high-performance subwoofer, the Power HX2. Lightning Audio launched two new lines of amplifiers and subwoofers, under the Bolt and Storm brand names, to be sold at over 400 Best Buy stores nationwide. For the fifth year in a row, Rockford products won several awards at the annual Consumer Electronics Show.

Fosgate Audionics introduced two new amplifiers for the home theater market, FA600.3 and the FA1000.5, feeding 200 watts per channel. The amplifiers utilized a Trans-ana circuitry, an improvement on the Trans-nova technology, but manufactured at a lower cost. The Switch Mode Power Supply (SMPS) technology provided a steady supply of power for those exuberant passages in music and movie soundtracks, allowing the full effect of a rising and descending crescendo to remain intact in the home theater.

In addition to the two amplifiers, Fosgate Audionics’ 2001 products included four passive speakers, three powered subwoofers, and two processor components. Marketing focused on custom installation through specialty audio and home theater retailers and independent distributors. The company presumed that Fosgate Electonics’ early customers, males age 16 to 24 in the 1970s, would comprise some share of the customer base for its quality home audio products. The Fosgate Audionics line replaced the Hafler brand of home theater products, previously sold over the Internet.

Steady growth continued at Rockford, increasing it share of the car audio market in a period of overall decline in the industry. In 2000 sales reached $144.6 million and net income rose to $8 million. Lightning Audio sales more than tripled to $10 million. International sales grew 26.1 percent, to $23.2 million, with improved economic conditions in Asia and Latin America. In its efforts to implement one-step distribution overseas, the company opened a sales and warehouse subsidiary in Japan in 2001.