##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




---

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES AND EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

Commission File Number 000-30138



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ROCKFORD CORPORATION

(Exact Name of Registrant as Specified in Its
Charter)


|                                                                |  |                                  
|--------------------------------------------------------------- |  | ---------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|Arizona                                                         |  | 86-0394353                       
|(State or Other Jurisdiction of
	Incorporation or Organization) |  | (IRS Employer Identification No.)

546 South Rockford Drive

Tempe, Arizona 85281


(480) 967-3565


(Address and Telephone Number of Principal
Executive Offices)




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Securities Registered Pursuant to Section 12(b) of the Act:
None

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock ($.01 Par Value)

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                      No | 

Indicate by check mark if the disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of the voting stock held by
non-affiliates of the registrant was $29,247,640 as of
March 1, 2001.

There were 7,996,697 shares of Common Stock issued and
outstanding as of March 1, 2001.

Documents Incorporated by Reference: Portions of the
registrants definitive Proxy Statement relating to the
2001 Annual Meeting of Stockholders to be held on April 25,
2001 are incorporated by reference into Part III of this
report. Exhibit 99.1 to this report is also incorporated by
reference into Part I of this report.









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TABLE OF CONTENTS



|           |                                                                                               |  |  |  |  |  |  | 
|---------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I    
|           | Item I. Business                                                                             
|           | Item 2. Properties                                                                           
|           | Item 3. Legal Proceedings                                                                    
|           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II   
|           | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|           | Item 6. Selected Financial Data                                                              
|           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|           | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|           | Item 8. Financial Statements and Supplementary Data                                          
|           | Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure  
|PART III  
|           | Item 10. Directors and Executive Officers of the Registrant                                  
|           | Item 11. Executive Compensation                                                              
|           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|           | Item 13. Certain Relationships and Related Transactions                                      
|PART IV   
|           | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES
|EX-10.40  
|EX-10.41  
|EX-10.42  
|EX-23.1   
|EX-99.1   



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ROCKFORD CORPORATION

FORM 10-K


DECEMBER 31, 2000


TABLE OF CONTENTS

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|---------------------------------- | -------- | ----------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- |  | -- | -- | 
|                                   |          |                                                                                                 |                                                                                        | 
|                                   |          |                                                                                                
|Securities and Exchange Commission |          |                                                                                                
|Item Number and Description        |          |                                                                                                
|                                   |          |                                                                                                
|                                   |          | Page                                                                                           
|                                   |          |                                                                                                
|PART I                             |          |                                                                                                 |                                                                                        |  |    |   
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|                                   | Item 1.  |                                                                                                 | Business                                                                               |  |    | 2  | 
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|                                   | Item 2.  |                                                                                                 | Properties                                                                             |  |    | 15 | 
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|                                   | Item 3.  |                                                                                                 | Legal Proceedings                                                                      |  |    | 15 | 
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|                                   | Item 4.  |                                                                                                 | Submission of Matters to a Vote of Security Holders                                    |  |    | 16 | 
|                                  
|PART II                            |          |                                                                                                 |                                                                                        |  |    |   
|                                  
|                                  
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|                                   | Item 5.  |                                                                                                 | Market for Registrants Common Equity and Related
	Stockholder Matters                 |  |    | 16 | 
|                                  
|                                  
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|                                   | Item 6.  |                                                                                                 | Selected Financial Data                                                                |  |    | 17 | 
|                                  
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|                                   | Item 7.  |                                                                                                 | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |    | 18 | 
|                                  
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|                                   | Item 7A. |                                                                                                 | Quantitative and Qualitative Disclosures About Market Risk                             |  |    | 25 | 
|                                  
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|                                   | Item 8.  |                                                                                                 | Financial Statements and Supplementary Data                                            |  |    | 25 | 
|                                  
|                                  
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|                                   | Item 9.  |                                                                                                 | Changes in and Disagreements with Accountants on Accounting and
	Financial Disclosure  |  |    | 42 | 
|                                  
|PART III                           |          |                                                                                                 |                                                                                        |  |    |   
|                                  
|                                  
|                                  
|                                  
|                                   | Item 10. |                                                                                                 | Directors and Executive Officers of the Registrant                                     |  |    | 42 | 
|                                  
|                                  
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|                                  
|                                   | Item 11. |                                                                                                 | Executive Compensation                                                                 |  |    | 42 | 
|                                  
|                                  
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|                                   | Item 12. |                                                                                                 | Security Ownership of Certain Beneficial Owners and Management                         |  |    | 42 | 
|                                  
|                                  
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|                                   | Item 13. |                                                                                                 | Certain Relationships and Related Transactions                                         |  |    | 42 | 
|                                  
|PART IV                            |          |                                                                                                 |                                                                                        |  |    |   
|                                  
|                                  
|                                  
|                                  
|                                   | Item 14. |                                                                                                 | Exhibits, Financial Statement Schedules and Reports on
	Form  8-K                      |  |    | 43 | 
|                                  
|                                  
|                                  
|                                  
|Signatures                         |          |                                                                                                 | 46                                                                                     | 
|                                  
|                                  
|                                  
|                                  
|Exhibit  99.1.                     |          | Risk Factors that may Affect Rockfords Operating Results,
	Business Prospects, and Stock Price |                                                                                        |  | 47 |   

The market value of our voting stock held by non-affiliates
shown on the cover page is based on:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our estimate of the number of shares held by non-affiliates. Our
	calculation is our best good faith estimate for purposes of this
	Annual Report on Form 10-K. Shares held by affiliates
	included all outstanding shares beneficially owned by our
	executive officers and directors. They also include shares held
	by any shareholder who beneficially owned more than 10% of our
	shares, as disclosed in this report, except that we have not
	included in shares held by affiliates the shares that may be
	beneficially owned by Quaker Capital Management Corporation in
	light of its disclaimer of beneficial ownership. We are not
	bound by this figure for any other purpose; and
|
| |  | $6.9375 per share, the price at which our shares were last sold
	on March 1, 2001, as reported by The NASDAQ Stock Market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

1



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##### Table of Contents






PART I




Item I.  Business

Forward-Looking Statements And Risk Factors

We make forward-looking statements in this report including,
without limitation, statements concerning the future of our
industry, product development, business strategy (including the
possibility of future acquisitions), continued acceptance and
growth of our products, dependence on significant customers and
suppliers, and the adequacy of our available cash resources.
They may contain projections of results of operations or of
financial condition. You may identify these statements by our
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. We caution you not to place undue reliance on our
forward-looking statements, which speak only as at the date on
which they are made. Our actual results may differ materially
from those described in our forward-looking statements. We
disclaim any obligation or undertaking to update or revise our
forward-looking statements to reflect changes in our
expectations or changes in events, conditions, or circumstances
on which our expectations are based.

When considering our forward-looking statements, you should
keep in mind the risk factors and other cautionary statements
identified in this report and in Exhibit 99.1, Risk
Factors That May Affect Rockfords Operating Results,
Business Prospects and Stock Price, which is incorporated
in this report by this reference. The risk factors noted
throughout this report, particularly in the discussion in
Exhibit 99.1, and other risk factors that we have not
anticipated or discussed, could cause our actual results to
differ significantly from those anticipated in our
forward-looking statements.

Our Business

Rockford Corporation designs, manufactures and distributes
high-performance audio systems for the car, professional, and
home theater audio markets. Our car audio products are sold
primarily in the worldwide car audio aftermarket to consumers
who want to improve their existing car audio systems. We market
our car audio products under our Rockford Fosgate and Lightning
Audio brand names, selling products that include digital and
analog amplifiers, speakers, source units, CD changers and
accessories. Based on 2000 dollar sales, we rank first in U.S.
market share for car audio amplifiers and fourth for car
speakers. Under our Hafler brand, we market amplifiers and
speakers in the professional audio market. We plan to begin
selling Fosgate Audionics home theater products later this year.

We believe our ability to deliver innovative and technologically
advanced products appeals to our consumers desires for
distinctive, leading-edge products and powerful, high-quality
sound. We continue to develop new products to capitalize on
improvements in digital technology that have increased demand
for high-performance audio products. Our Rockford Fosgate,
Lightning Audio and Hafler products have won numerous consumer
and industry awards.

Our Brands

Our marketing and product development efforts are designed to
enhance our brand images and generate increased loyalty among
our consumers in each segment and among the retailers who sell
our products. We market our products under the following brands:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rockford Fosgate.We believe Rockford Fosgate is one of
	the most preferred high-performance car audio brands. According
	to NPD Intelect Market Tracking, based on dollar sales in 2000,
	our Rockford Fosgate brand ranks first in U.S. market share for
	car audio amplifiers and fourth for speakers. We believe our
	core consumers, 16-24 year old males, view Rockford Fosgate
	as the coolest car audio brand. Many of these
	consumers devote a significant portion of their time and
	disposable income to their car audio systems. We target these
	consumers by offering distinctive, leading-edge products and
	powerful, high-quality sound supported by aggressive grass roots
	marketing.

2



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Many of our core consumers are extremely loyal to our Rockford
	Fosgate brand and proudly display our logos on their cars and
	clothing. Our Rockford Fosgate products are marketed under four
	brand names: (1) Punch  the brand for the
	majority of our amplifiers, subwoofers, speakers and source
	units; (2) Punch Power  the brand for the
	highest performing car audio products we offer;
	(3) Connecting Punch  a full line of car audio
	installation accessories; and (4) Punch Sport 
	promotional items and clothing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Lightning Audio.In June 1999, as part of our growth
	strategy to develop additional brands, we acquired Lightning
	Audio, a manufacturer and distributor of car audio accessories.
	In addition to continuing to market accessories under this
	brand, we acquired Lightning Audio with a view toward marketing
	a complementary line of car audio products under the Lightning
	Audio brand. In January 2000, at the Consumer Electronics Show,
	we introduced amplifiers and subwoofers under the new Strike
	brand. At the 2001 Consumer Electronics Show, we expanded the
	product offering under the Strike brand by introducing a new
	line of full-range speakers. Additionally, we introduced new
	lines of amplifiers and subwoofers under the Bolt and Storm
	brands. The products under these three Lightning Audio brands
	are more moderately priced than our Rockford Fosgate products.
	Also under the Lightning Audio brand we have introduced the
	InstallEdge.com business-to-business brand that will offer back
	shop supplies to car audio installation shops, custom home audio
	installers and marine outfitters.
|
| |  | Hafler.We sell high-performance amplifiers and speakers
	to the professional audio market under our Hafler brand.
	Recording studios, broadcast studios, movie theaters, concert
	facilities, stadiums and touring bands use our Hafler
	professional audio products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Fosgate Audionics.We recently acquired the Fosgate
	Audionics brand and entered into a consulting agreement with the
	brands founders for engineering and product development
	services. We plan to distribute home theater speakers and
	electronic products under the Fosgate Audionics brand through
	conventional retail channels. Our target dealers for this brand
	are specialty audio and home theater stores.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Our Industry

Car Audio

For over 20 years, Rockford Fosgate has been the brand of
choice among our core consumers, 16-24 year old males. Many
of these consumers devote a significant portion of their time
and disposable income to their car audio systems. We believe our
core consumers perceive Rockford Fosgate as the
coolest car audio brand and we target our message to
them using aggressive grass roots marketing. As a result of our
consumers loyalty, we believe Rockford Fosgate has
generated loyalty among the retailers who use our brand,
products and distinctive marketing programs as a
pull brand to attract these consumers.

In June 1999, as part of our growth strategy to develop
additional brands, we acquired Lightning Audio, a manufacturer
and distributor of car audio accessories. In January 2000, at
the Consumer Electronics Show, we introduced a line of
high-performance amplifiers and subwoofers under the Lightning
Audio brand Strike, that are more moderately priced than our
Rockford Fosgate products. Our Lightning Audio Strike amplifier
won an EIA/ CES Innovation Award at the 2000 Consumer
Electronics Show. At the January 2001 Consumer Electronics
Show we introduced new lines of amplifiers and subwoofers under
the Bolt and Storm brands. Lightning Audio won two EIA/ CES
Innovation Awards for a Bolt amplifier and Storm subwoofer at
the 2001 Consumer Electronics Show.

In January 2001 we agreed with Nissan North America to develop a
Rockford branded OEM system for three new Nissan vehicles for
model year 2002. These vehicles will begin selling in the summer
of 2001. Rockford Fosgate systems will be standard in
Nissans Xterra SE and optional in the Xterra XE, the
Frontier Crew Cab, Supercharged Frontier Crew Cab and the
Sentra SE-R. Rockfords OEM systems installed in these
vehicles will include a radio/ CD player, speakers and an
amplifier.

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We currently sell our car audio products in the U.S. through
approximately 2,300 independent retail stores, including
specialty dealers, audio/video retailers, national consumer
electronics retailers and catalog merchants. Internationally, we
sell our car audio products in over 60 countries through
independent distributors and sales representatives. We believe
the Rockford Fosgate brand is as widely recognized in many parts
of the world as it is in the U.S.

Professional Audio and Home Theater

Recording studios, broadcast studios, movie theaters, concert
facilities, stadiums and touring bands use our Hafler
professional audio products. Our amplifiers and powered speakers
are designed for use in recording studios. We believe our
ability to meet the needs of this demanding niche positions us
well for expansion into other segments of the professional audio
market.

We are developing a full line of home theater products under the
brand Fosgate Audionics. We acquired the Fosgate Audionics brand
from its creators, Jim Fosgate and Charles Wood, pioneers in the
development of surround sound applications for home theater use.
Our home theater line will use technology from our Hafler brand
and we believe our home theater products will benefit from the
strong reputation of our Hafler brand. We plan to distribute our
Fosgate Audionics home theater line through conventional retail
channels.

Our Growth Strategy

Our goal is to design, produce and distribute the best
engineered and most recognized and respected brands of
high-performance audio products in the world. Each element of
our strategy is intended to enhance and reinforce the global
brand images of Rockford Fosgate, Lightning Audio, Hafler and
Fosgate Audionics among consumers and retailers. Key elements of
our growth strategy are to:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to introduce new and technologically innovative
	products;                                                              
|
| |  | Acquire and develop additional audio brands, taking advantage of
	our technology and distribution strengths;                     
|
| |  | Broaden our distribution by entering new distribution channels
	and increasing penetration of our existing distribution channels;
|
| |  | Capitalize on our worldwide brand recognition to increase sales
	in international markets; and                                   
|
| |  | Expand our professional audio business and enter the home
	theater market.                                                       

As a result of our strong brands and growth strategy, we believe
we can grow our business significantly and become a much larger
participant in the worldwide car, professional and home theater
audio markets.

Our Products

Percent of Sales by Product Class

Our sales since 1998 were divided among our principal product
classes as shown in the following table:

|               |       |                         |      |       |   |      |      |       |   |  |      |       |  
|-------------- | ----- | ----------------------- | ---- | ----- | - | ---- | ---- | ----- | - |  | ---- | ----- | -
|               |       |                        
|               |       | Year Ended December 31,
|               |       |                        
|               |       | 1998                    |      | 1999  |   | 2000
|               |       |                         |      |       |   |     
|Product Class: |       |                         |      |       |   |      |      |       |   |  |      |      
|              
|              
|              
|              
|Amplifiers     |       |                         | 49.7 | %     |   |      | 45.5 | %     |   |  | 43.9 | %    
|              
|              
|              
|              
|Speakers       |       |                         | 32.2 |       |   |      | 33.1 |       |   |  | 35.1 |      
|              
|              
|              
|              
|Accessories    |       |                         | 7.6  |       |   |      | 11.8 |       |   |  | 14.2 |      
|              
|              
|              
|              
|Others(1)      |       |                         | 10.5 |       |   |      | 9.6  |       |   |  | 6.8  |      
|               |       |                         |      |       |   |      |      |       |   |  |      |      
|               | Total |                         |      | 100.0 | % |      |      | 100.0 | % |  |      | 100.0 | %
|               |       |                         |      |       |   |      |      |       |   |  |      |      




|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes source units and other products of which no single
	product class accounted for more than 10% of our sales in any of
	these periods.

4



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##### Table of Contents



Financial information about operating and geographic segments
required to be included in this report is incorporated by
reference to Note 13 of the Notes to our Consolidated Financial
Statements set forth at page 41 of this report.

Car Audio

We offer a full line of high-performance car audio products
consisting of the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Amplifiers.Power amplifiers increase the voltage and
	current coming from the source unit, providing more power than
	possible from a source unit alone. Power amplifiers are
	essential for a high-performance car audio system and are
	typically not part of a standard factory installed system. We
	also include signal processors as part of the amplifier
	category. Signal processors accept input from a source unit,
	modify the signal to enhance performance and deliver the
	modified signal to one or more amplifiers. For specialized
	applications, we sell stand-alone signal processors that are not
	integrated into an amplifier.
|
| |  | Speakers.Speakers accept a signal from a source unit or
	amplifier and translate it into sound. There are two categories
	of speakers: those eight inches or greater in diameter are
	considered subwoofers and are designed to play lower (bass)
	frequencies; and those less than eight inches in diameter are
	considered speakers and are designed for higher frequencies.
	Aftermarket speakers and subwoofers provide dramatically
	improved sound quality compared to most factory-installed car
	audio systems and are often the single most important
	improvement consumers can make to their car audio systems.                           
|
| |  | Source Units.Source units are the control center for a
	car audio system. Typically mounted in the dash of the car,
	source units provide input signals, including AM/ FM radio and
	compact disc players. Most of our source units also have the
	ability to control a separate CD or MP3 changer.                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Accessories.Accessories include amplifier installation
	kits, interconnect and speaker cables, carpet and fabric surface
	applications, stiffening capacitors and battery clamps.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Under our Rockford Fosgate brand we currently offer the
following products:

|              |  |                                                                                                                                                                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             
|             
|             
|             
|Amplifiers:   |  |  26 models of power amplifiers under our Punch and
	Punch Power brands, with rated power from 100 to 1,100 watts,
	and minimum advertised prices from $149.95 to $1,329.95. Our
	amplifiers include 1, 2, 4 and 5 channel alternatives, giving
	consumers the ability to select an optimum configuration for
	their system;
|              |  |  Four models of stand alone signal processors, with
	minimum advertised prices from $99.95 to $719.95. The newest of
	these processors is a surround sound processor, designed by Jim
	Fosgate and able to produce surround sound in the car from any 2
	channel source;                                                   
|             
|             
|             
|             
|             
|Speakers:     |  |  88 models of speakers and subwoofers under our Punch
	brand, with minimum advertised prices from $59.95 to $549.95;                                                                                                                                                                                                       
|             
|             
|             
|             
|             
|Source Units: |  |  Five models of source units, with minimum advertised
	prices from $229.95 to $499.95. Our top of the line source unit
	offers on-board audio and video switching, allowing the consumer
	to play a video player, DVD player, video game system, or other
	component through the unit without need for an accessory switch;
|              |  |  One 8-disc CD changer, with a minimum advertised
	price of $299.95;                                                                                                                                                                                                                                                       
|             
|             
|             
|             
|             
|Accessories:  |  |  Over 420 different accessories, including amplifier
	installation kits, interconnect and speaker cables,
	carpet/fabric/surface applications and stiffening capacitors;                                                                                                                                                   
|              |  |  Various promotional materials and clothing under our
	Punch Sport brand name.                                                                                                                                                                                                                                             

5



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Under our Lightning Audio brand we currently offer the following
products:

|             |  |                                                                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|            
|            
|            
|            
|Amplifiers:  |  |  Fourteen power amplifier models, with rated power
	from 60 to 1,300 watts and minimum advertised prices from
	$149.95 to $699.99;          
|            
|            
|            
|            
|            
|Speakers:    |  |  22 speakers and subwoofers, with minimum advertised
	prices from $89.99 to $199.99;                                                        
|            
|            
|            
|            
|            
|Accessories: |  |  Over 1,000 different accessories, including
	interconnect and speaker cables, stiffening capacitors, battery
	clamps and installation kits;
|             |  |  Various promotional materials and clothing under our
	Urban Industrial Gear brand name.                                                    

Our products have won numerous consumer and industry awards,
including Autosound Grand Prix awards in every year from 1987
through 2000, EIA/ CES Innovation Awards at the Consumer
Electronics Shows in every year from 1997 through 2001 and
European Car Audio Press awards in 1997 and 1998. Our Punch
Power 1100a2 power amplifier was awarded the Car Sound 1999
Voice of the People award by vote of the readers of Car Sound
magazine.

Professional Audio

We sell professional audio amplifiers and speakers under the
Hafler brand. Recording studios, broadcast studios, movie
theaters, concert facilities, stadiums and touring bands use our
professional audio products. Due to manufacturing and technical
similarities with our car audio products, many processes and
technologies are shared and developed across our brands.

Under our Hafler brand we currently offer the following
professional audio products:

|                  |  |                                                                                                                                                      
|----------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|                 
|                 
|                 
|                 
|Amplifiers:       |  |  Six power amplifier models, with rated power from
	110 to 1,000 watts and suggested retail prices from $569 to
	$2,200; and                        
|                 
|                 
|                 
|                 
|                 
|Powered Speakers: |  |  Three powered monitors and two powered subwoofers,
	which are speakers with integrated amplifiers, with suggested
	retail prices from $625 to $795.

Our Hafler products won awards from Pro Audio Review in 1996 and
1997, and Mix Magazine in 1996 and 1998, as well as receiving
the EQ Award in 1997 and Electronic Musician Editors
Choice Award in 1999 and in 2000.

Home Theater Audio

We are developing a complete line of home theater products under
our new Fosgate Audionics brand. Our Fosgate Audionics products
are expected to include two preamp/surround processors, two
multi-channel amplifiers, four passive speakers and three
powered subwoofers. These will replace the home theater speakers
we sold over the internet under our Hafler brand during 2000 and
early 2001.

New Products

On January 3, 2001, we announced the redesign and launch of
a majority of our brand product lines for 2001. This follows the
1999 introduction of six digital technology products. Our core
Rockford Fosgate line of amplifiers and sub-woofers, our
Lightning Audio line of entry-level performance systems and our
new Fosgate Audionics brand all featured new technologies and
products. These new products were introduced at the Consumer
Electronics Show in Las Vegas in January 2001.

On January 2, 2001, we announced our agreement with Nissan
North America to develop a Rockford branded OEM system for three
new Nissan vehicles for model year 2002. These vehicles will
begin selling in the summer of 2001. Rockford Fosgate systems
will be standard in Nissans Xterra SE and optional in the
Xterra XE, the Frontier Crew Cab, Supercharged Frontier Crew Cab
and the Sentra SE-R. Rockfords OEM systems installed in
these vehicles will include a radio/ CD player, speakers and an
amplifier.

6



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On January 6, 2001, we announced our acquisition of the
brand Fosgate Audionics. We have entered into a consulting
agreement with the brands founders for engineering and
product development services. We plan to distribute home theater
speaker and electronics lines under the Fosgate Audionics brand
through conventional retail channels via a nationwide
manufacturers representative network. Our target dealers are
specialty audio and home theater stores that follow a Home
Theater Specialists of America buying group profile.

On January 6, 2001, we announced the launch of
InstallEdge.com, a division that offers installation parts to
home, mobile and marine audio dealers. InstallEdges core
business is back shop supplies that are used by car audio
install shops, custom home installers and marine outfitters.

Engineering And Development

Research and development is a primary focus of our business
because of the heavy demand by our core consumers for
leading-edge products. We focus our research and development
efforts primarily on enhancing current products and developing
new products. Our expenditures for research and development were
approximately $1.9 million, $2.3 million and $2.8 million in
1998, 1999 and 2000, respectively.

As at December 31, 2000, our research and development staff
consisted of 13 design engineers, as well as other support
staff, dedicated to product development and who coordinate their
efforts with:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our sales group to identify features consistent with market
	requirements and our brand image;                                                            
|
| |  | Our manufacturing staff to develop and build products more
	efficiently;                                                                                  
|
| |  | Our product support staff to identify weaknesses in our existing
	products and to help re-design them; and                                                
|
| |  | Our customers, both at the retailer and consumer level, to help
	us better understand their needs and preferences and incorporate
	them into our products.

As a result of these efforts, we have reduced product
development time-to-market from up to 24 months to an
average of six to nine months. By contrast, we believe that most
of our competitors average over 12 months. Our objective is
to introduce new products or re-engineer at least one-third of
our existing product line annually. In 2000, 23% of our net
sales were generated by sales of new or re-engineered products.

Part of our research and development efforts seek to create a
reserve base of technologies and innovations that are available
to our engineers for use in the product development process. As
a result, we believe we can readily respond to changing demand
and effectively execute our marketing plans by introducing new
products and by adding features to our existing products.
Examples of product innovations that have been or are being
developed from this reserve technology base include:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | Powered speakers, which are speakers that include an integrated
	amplifier;               
|
| |  | Remote bass and speaker controls;                                                         
|
| |  | Active cross-overs that allow consumers to tailor our amplifiers
	to their systems needs;
|
| |  | Digital amplifiers that incorporate a more efficient circuit
	design;                     
|
| |  | Surround sound processors for the car and home;                                           
|
| |  | Materials improvements that increase the durability and
	performance of our products; and 
|
| |  | Digital signal processing technology.                                                     

Sales, Marketing And Distribution

Our sales and marketing efforts are designed to enhance our
brands by projecting an image that appeals to consumers who
appreciate brand authenticity and value. We believe that the
combination of our hard-hitting advertising campaigns with our
rugged and durable product offerings has created worldwide
recognition

7



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Our primary sales and marketing activities are listed below:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | Making regular calls to dealers and providing them with
	demonstration products, point-of-purchase displays and other
	marketing materials;
|
| |  | Initiating targeted advertising in periodicals read by our
	potential consumers;                                                           
|
| |  | Training dealer installation personnel at our Rockford Technical
	Training Institute;                                                      
|
| |  | Participating in rule making for, and providing technical and
	product support to, auto sound competitions;                                
|
| |  | Participating in related professional and consumer trade shows;
	and                                                                       
|
| |  | Maintaining product and brand information for consumers and
	retailers on our web sites.                                                   

We consider our advertising to be hard-hitting because our
advertisements are intense, frequent and intended to excite our
core consumer. We use visual advertisements and booming sound
bites in our audio campaign to promote the power, quality and
intensity of our products.

Our corporate web site, located at www.rockfordcorp.com,and our brand sites www.rockfordfosgate.com,
www.lightningaudio.comand www.hafler.com,offer
consumers and retailers reliable and comprehensive information
about our product offerings and consumer services. Because our
core car audio consumers are among the most enthusiastic users
of the internet, we believe expanded internet-based marketing
will broaden our consumer reach, enhance our brand image and
direct potential consumers to our retailers. Consumers can
currently purchase Punch Sport promotional materials and
clothing from our corporate web site. In addition, during 2000
and early 2001 we sold our Hafler home theater speakers over the
internet both at our www.hafler.comweb site and through
authorized internet retailers.

Car Audio Distribution

We currently sell our car audio products in the U.S. to
approximately 2,300 independent retail stores through 28
independent sales representative firms who identify, recruit and
sell to dealers in their regions. Our representative firms,
supported by our three in-house U.S. regional managers, employ a
total of approximately 114 field personnel who make regular
calls on dealers in their region. We have entered into one-year
agreements with each of these firms under which we appoint them
our sales representative for a specific territory and specific
products under varying terms. We pay our independent sales
representatives in the U.S. commissions based on sales of
our products to independent retailers in their territory.
Commission amounts range from 1% to 9% of sales depending upon
product category, retailer involved in the purchase and
achievement of quarterly sales targets.

Our U.S. distribution system is composed of independent
specialty dealers, audio/video retailers, consumer electronics
chains and catalog merchants. Our dealers and distributors sign
agreements under which we appoint them to serve a specific
territory to distribute our products under varying terms. In
early 1999, we launched our distribution program with Best Buy,
one of the largest consumer electronics retailers in the U.S.
Best Buy sells a limited selection of our products in all of its
more than 400 stores nationwide. Our expansion into Best Buy is
part of our strategy to distribute through additional channels.
We believe our expansion into Best Buy will:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | Further increase recognition of our Rockford Fosgate and
	Lightning Audio brands;        
|
| |  | Distribute our products to a more diverse set of consumers;                              
|
| |  | Expand market share among our core consumers since many of them
	shop at Best Buy stores;

8



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| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand our sales into geographic markets where we currently have
	little presence; and                                                           
|
| |  | Allow our specialty dealers to grow their sales by taking
	advantage of increased product visibility created by Best
	Buys advertising programs.

Under our agreement, Best Buy provides to us (1) six-month
rolling forecasts, updated monthly, (2) commitments to
purchase products within 60 days and (3) purchase
orders 30 days in advance of shipment. The payment terms
generally require payment of invoices within 60 days. We
review sales goals and orders with Best Buy monthly to determine
whether goals are being met. The agreement is terminable at will
and does not include any term or renewal provisions.

We currently sell our car audio products in over 60 other
countries using three in-house international sales people and
independent distributors and sales representatives. Independent
distributors purchase products from us and re-sell them to
retailers in their designated territories. They assume inventory
risks and take responsibility for warranty service in their
territory.

During 1999, we initiated a program to convert selected foreign
markets to a one-step distribution system for our Rockford
Fosgate products by switching to independent sales
representatives. Independent sales representatives do not
purchase products from us, but instead sell products on our
behalf. Under this system, we remain responsible for inventory
until an independent retailer purchases it, we are responsible
for collecting accounts receivable from our dealers, and we
retain responsibility for warranty service. This system allows
us to sell directly to retailers rather than to distributors who
further mark-up our products before selling them. We expect this
transition to increase our penetration in these markets because
commissions to independent sales representatives are less than
the distributor mark-up, allowing us to reduce prices to the
consumer while providing us with a higher gross margin. Because
relatively high sales volumes are needed to justify the use of
independent sales representatives, we anticipate continuing to
distribute through distributors in smaller territories. To date,
we have successfully completed the conversion to the one-step
distribution system in Canada, Germany, Austria and Japan.

Professional Audio and Home Theater
Distribution

In the U.S., we sell professional audio products primarily
through sales representatives, who sell to small specialty
musical instrument and recording dealers and to larger retail
chains, such as Guitar Center and Sam Ash. Larger recording
studios, sports arenas and large commercial installations tend
to bypass traditional retail channels and purchase from
contractors or audio engineers responsible for the design of
systems for these large projects. Similarly, retail stores and
home contractors often sell professional audio equipment for
installation in larger home-theater applications. Our
professional products are used in these applications and we are
attempting to increase Haflers penetration in these
markets. We also sell Hafler professional audio products
internationally, through approximately 36 independent
distributors in over 36 countries.

We plan to distribute Fosgate Audionics home theater products
through conventional retail channels via a nationwide
manufacturers representative network. Our target dealers for
this brand are specialty audio and home theater dealers,
particularly those who follow a Home Theater Specialists of
America buying profile.

Competition

Our markets are very competitive, highly fragmented, rapidly
changing and characterized by price competition and, in the car
audio market, rapid product obsolescence. Rockford competes in
the car audio market on the basis of brand recognition,
innovation and technology, quality and reliability, breadth of
product line, distribution capabilities and price. Competition
comes predominantly from two categories:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Specialty audio suppliers.These companies generally
	compete in specific market niches on the basis of brand image,
	quality and technology. However, many of these companies are
	undercapitalized, lack the buying power necessary to develop
	cost efficiencies and lack the infrastructure to efficiently
	source raw materials, manufacture components and systems, and
	distribute finished products; and

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Large consumer electronics companies.These companies
	offer car audio products as part of their broad consumer
	electronics lines. They have efficient operations but are
	volume-driven and generally do not respond as quickly to
	changing consumer preferences, as do smaller specialty
	suppliers. Consumer perception of the quality of their products
	is often not as high, frequently resulting in lower brand image
	and profit margins. These companies tend to focus on the larger
	market segments, such as source units, and generally do not
	focus on the smaller market segments, such as amplifiers and
	subwoofers.

Some of our competitors have greater financial, technical and
other resources than we do and many seek to offer lower prices
on competing products. To remain competitive, we believe we must
regularly introduce new products, add performance features to
existing products and limit increases in prices or even reduce
prices. Our principal competitors within our product lines are
listed below:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | Car Audio Amplifiers:Alpine, Jensen, Kenwood, Kicker,
	MTX, Orion, Phoenix Gold, Pioneer, Precision Power and Sony;             
|
| |  | Car Audio Speakers:Blaupunkt, Boston Acoustics,
	Infinity, JBL, Jensen, JL Audio, Kenwood, Kicker, MTX, Pioneer,
	Polk and Sony;
|
| |  | Car Audio Source Units:Alpine, Blaupunkt, Clarion,
	Fujitsu Eclipse, Kenwood, Pioneer and Sony;                                 
|
| |  | Car Audio Accessories:Monster Cable, Phoenix Gold and
	Stinger; and                                                             
|
| |  | Professional Audio Amplifiers and Speakers:Crest, Crown,
	Eastern Acoustic Works, Mackie Designs, Peavy, QSC and Tannoy.        

According to NPD Intelect Market Tracking, based on U.S. dollar
sales in 2000, we rank:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | First among our competitors in car audio amplifiers; and
|
| |  | Fourth among our competitors in car audio speakers.     

We believe we have a significant share of the market for
professional amplifiers in recording studios and a small share
in the remainder of the professional audio market, but do not
have information allowing us to rank ourselves in those markets.

We also compete indirectly with automobile manufacturers, who
may improve the quality of original equipment sound systems,
reducing demand for aftermarket car audio products. They may
also change the designs of their cars to make installation of
our products more difficult or expensive.

Manufacturing

We believe our efficient production, sourcing and distribution
capabilities make us one of the preferred suppliers in the car
audio aftermarket.

We manufacture amplifiers, signal processors and various
accessories at our facilities in Tempe, Arizona, and mid-range
speakers, woofers and subwoofers at our facility in Grand
Rapids, Michigan.

In 1999, Hyundai Electronics signed a four-year joint
development agreement with us to supply all of the source units
we resell under the Rockford Fosgate brand. Hyundai manufactures
source units in accordance with our specifications. Under the
agreement, we agreed to develop jointly and then purchase source
units from Hyundai on an exclusive basis, provided that Hyundai
could demonstrate to us successful commercial production of the
units. We set development and production milestones which
Hyundai successfully met. We paid Hyundai a development fee and
agreed to provide, at Hyundais expense, personnel and
equipment to assist Hyundais development of the source
units according to our specifications. The agreement obligates
us to place monthly purchase orders with Hyundai and is subject
to cancellation charges for partially or totally cancelled
orders. The agreement commenced April 8, 1999, and expires
July 31, 2003. As at December 31, 2000, we had paid to
Hyundai approximately $5.5 million under the agreement, which
includes pre-contract development costs.

10



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Other third parties manufacture our full-range speakers and
various components according to our design specifications. Most
of our products use standard parts and components that can be
purchased from multiple sources. In a few instances, however,
components or products are sourced from one or a small number of
suppliers, as is the case with source units acquired from
Hyundai. We also relied on Avnet, Inc. for approximately 14.5%
of our inventory purchases during 2000. We believe alternative
sources are available for all of our products. While we do not
have guaranteed supply arrangements with any of our suppliers,
other than Hyundai, we have never experienced an inability to
obtain necessary components or other raw materials. We believe
that our sourcing and supply of components and other raw
materials are adequate for our needs.

We use cellular manufacturing processes and just-in-time supply
management in all our manufacturing facilities. Cellular
manufacturing provides flexibility and efficiency because any
cell can manufacture any product, depending on market demand.
Lot sizes are small and feedback from the manufacturing process
is quick. We use advanced surface mount technology in our
electronics manufacturing. Surface mount technology is accurate,
increases the density of circuits and reduces labor content. Our
flexible manufacturing and in-house engineering capabilities are
a key part of our efforts to shorten lead times from concept to
production, respond rapidly to changing demand and reduce our
parts and raw materials inventory. Both of our facilities focus
on continuous improvement, with quality control embedded in the
manufacturing process. The result has been improved flexibility,
increased efficiency and greatly improved cycle times.

Since 1998, we have shifted from purchasing parts and materials
solely in the U.S. to purchasing from the best suppliers
available to us worldwide. This global sourcing initiative was a
critical shift in our raw materials strategy, allowing us to
deliver high quality, low-cost goods that are competitive with
those offered by our U.S. and international competitors. Global
sourcing of our component parts provides us the best total cost
suppliers and introduces us to worldwide technologies and
materials. Suppliers in Korea and China build our Lightning
Audio amplifiers and speakers to our specifications.

Intellectual Property

We rely upon a combination of trade secret and trademark laws,
non-disclosure agreements and patents to protect our proprietary
rights. We have registered many trademarks and trade names both
in the U.S. and internationally and are committed to maintaining
and protecting them. We believe our trademarks and trade names
are material to our business and are well known among consumers
in our principal markets. Our principal trademarks and trade
names include:



| |                           
| | --------------------------
| |   Rockford Fosgate®      
| |   The Punch®             
| |   Connecting Punch®      
| |   Lightning Audio®       
| |   Strike                
| |   Storm                 
| |   Bolt                  
| |   InstallEdge.com®       
| |   Fosgate Audionics®     
| |   Hafler®                
| |   Practice Safe Sound®   
| |   Car Audio for Fanatics®
| |   Punch Sport®           
| |   Urban Industrial Gear 
| |   Our Diamond R logo   

Our Growth Strategy



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our goal is to design, produce and distribute the best
	engineered and most recognized and respected brands of
	high-performance car and professional audio products in the
	world. Each element of our strategy is intended to enhance and
	reinforce the global brand images of Rockford Fosgate, Lighting
	Audio, Hafler and Fosgate Audionics among consumers and
	retailers. Key elements of our growth strategy are to:                                                                                                                                                                                                                                 
|
| | Introduce New and Innovative Products.We must remain on
	the forefront of technological development because our consumers
	demand high-performance and technologically advanced features in
	their audio products. We intend to take advantage of the
	strength of our Rockford Fosgate, Lightning Audio, Hafler and
	Fosgate Audionics brands by continuing to introduce new and
	innovative products. We believe our ability to deliver
	innovative products to market, with a product design process
	that allows us to begin selling new products within six to nine
	months after initial design work begins, appeals to
	consumers desires for leading-

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| |                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | edge products and provides a significant competitive advantage.
	In recent years, this strategy has been effective both in
	launching our new products and increasing sales of our core
	products. In January 2001, at the Consumer Electronics Show, we
	announced the redesign and launch of nearly 80% of our brand
	product lines. Highlights of the new products and technology
	include:
|
| | For Rockford Fosgate:                                                                                                                                                                                                                                                                                                                                                                         



| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | Five new source units;                                                  
|
| |  | New technology or cosmetic upgrades for all amplifiers;                 
|
| |  | New Class bd amplifiers from 500 to 1500 watts;                         
|
| |  | A redesign of key subwoofer products for our Punch brand;               
|
| |  | The new Power HX2, the highest performance subwoofer we have
	ever made;
|
| |  | A relaunch of the Punch brand full-range coaxial speakers; and          
|
| |  | A re-design of the fnX component speaker systems.                      



| |                     
| | --------------------
| | For Lightning Audio:



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | Two new lines of Strike brand speakers;                                            
|
| |  | Two new high-power amplifiers for the new Storm brand;                             
|
| |  | New entry-level amplifiers and woofers for the Bolt brand;                         
|
| |  | New accessory products for the Bolt and Strike brands; and                         
|
| |  | Storm accessories, Lightnings flagship brand
	of power distribution accessories.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are developing products to add video capabilities to our
	Rockford Fosgate car audio systems, with the goal of allowing
	our consumers to watch DVD movies in their cars. For Hafler, we
	have recently introduced a new C-Series amplifier line designed
	for touring and cinema use. We are developing a new line of home
	theater products under our Fosgate Audionics brand. We expect
	this line will include initially two preamp/surround processors,
	two multi-channel amplifiers, four passive speakers and three
	powered subwoofers.                                                                                                                                                                                                                                                                                                                                   
|
| | Acquire and Develop Additional Audio Brands.We intend to
	continue to look for opportunities to add new brands through
	acquisition or internal development. We believe that the
	introduction of additional brands will enable us to take
	advantage of our distribution capabilities and our strengths in
	advanced technology design and development. We also believe that
	offering additional brands with different price points and
	target market segments will enable us to extend our product
	range, complement our existing distribution channels and broaden
	our customer base.                                                                                                                                                                                                                                                                                          
|
| | As part of this strategy, we acquired Lightning Audio in
	June 1999 and have developed new car audio products to be
	marketed under this brand at more moderate price points than our
	Rockford Fosgate products. We also acquired the Fosgate
	Audionics brand in late 2000 and are developing a new line of
	home theater products for sale under this brand. We believe that
	we have substantial opportunities to acquire car, home and
	professional audio brands that will complement our existing
	brand portfolio and continue to explore possible opportunities
	in this regard.                                                                                                                                                                                                                                                                                             
|
| | Broaden Our Distribution.We intend to broaden the
	distribution of our products by entering new distribution
	channels and increasing our penetration of our existing
	distribution channels. We have recently increased our channels
	of distribution, focusing on some of the fastest growing
	retailers in the U.S. In August 1998, we entered the
	catalog-retailing channel through Crutchfield, a catalog
	retailer of consumer electronics in the U.S. In early 1999, we
	entered the national consumer electronics-retailing channel
	through Best Buy. We intend to increase our penetration of these
	channels as well as our specialty dealer and audio/video
	retailer channels by expanding the breadth of our products that
	these retailers sell and by selectively adding new dealers
	within these channels. As we broaden the distribution of our
	products, we will

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | adhere to our strategy of selective distribution. We believe
	selective distribution fosters retailers loyalty to our
	brands, enhances retailers profit margins and encourages
	retailers to carry a broad range of our products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Capitalize on International Opportunities.We believe
	that the Rockford Fosgate brand name is as widely recognized in
	many foreign countries as it is in the U.S. We intend to
	aggressively expand Rockford Fosgate, Lightning Audio and Hafler
	in international markets. Recently, we initiated a strategy of
	moving to a one-step distribution system for Rockford Fosgate
	products in larger international markets by converting selected
	distributors into independent sales representatives, allowing us
	to sell directly to retailers. We expect these measures to
	increase our sales in these markets by allowing us to better
	compete through lower distribution costs and reduced prices to
	the consumer. We currently sell our car audio products directly
	to retailers in Canada, Germany, Austria and Japan, and through
	independent distributors in over 60 other countries.
|
| | Expand Our Professional Audio Business and Enter the Home
	Theater Market. Our Hafler professional audio products are
	designed for use in recording studios, a small but demanding
	segment of the professional audio market. We believe our
	strength in this niche market positions us well for expansion
	into other professional audio segments if we introduce new
	products that address the needs of those segments. For example,
	our new C-Series amplifiers are designed for touring and cinema
	users who need higher-powered amplifiers with lower weight. We
	believe that sales of Hafler professional products will increase
	substantially if we devote additional resources to the
	development and distribution of new products.                                                                                                                                                  
|
| | Under our new Fosgate Audionics brand we are developing a line
	of home theater products, including two preamp/surround
	processors, two multi-channel amplifiers, four passive speakers
	and three powered subwoofers. These products will replace the
	Hafler home theater speakers that we sold over the internet
	during 2000 and early 2001. We intend to sell our new Fosgate
	Audionics products through traditional retail channels.                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Significant Customers And Seasonality



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Best Buy is a significant customer of Rockford. We began selling
	a limited selection of our products to Best Buy in early 1999
	and currently sell to each of its more than 400 stores
	nationwide. Best Buy is one of the largest volume specialty
	retailers of consumer electronics and entertainment software in
	the U.S. During 2000 Rockford was Best Buys number two
	supplier of mobile audio equipment, representing over 10% of
	Best Buys mobile audio sales. Rockford was featured in
	Best Buys $15 million national mobile audio advertising
	campaign in 1999. Best Buy accounted for 19.9% of our sales for
	1999 and 16.7% of our sales for 2000. We anticipate that Best
	Buy will continue to account for a significant portion of our
	sales for the foreseeable future.                                                                    
|
| | Best Buy also generally helps us to smooth our normal sales
	seasonality. For our specialty and audio-video dealers, our peak
	selling season is in the spring and summer and our slowest
	season is typically in the fourth quarter. We believe that we
	experience this seasonality because our core 16-24 year old
	consumers tend to buy car audio products during the spring and
	summer when they are on semester breaks and when generally more
	favorable weather facilitates installation of our products. Best
	Buy sales, while strong in May and June, are not as concentrated
	among our core consumers and are also strong in the fourth
	quarter. We believe that our sales to Best Buy should smooth the
	seasonality of our car audio sales and help moderate the stress
	that highly seasonal sales place on our operations and financial
	results.
|
| | Best Buy is not obligated to any long-term purchases of our
	products and has considerable discretion to reduce, change or
	terminate its purchases of our products. The loss of Best Buy as
	a customer or significant reductions in its purchases of our
	products would reduce our sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Product Support



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To maintain and enhance our relationships with retailers, we
	provide numerous support services, including product and
	installation training, sales training and technical and customer
	service support. Our web site provides comprehensive and
	valuable information for dealers and distributors, including
	product schematics, ad layouts and logos.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Rockford Technical Training Institute, one of the first and
	most advanced of its kind in our industry, trains approximately
	2,000 retail sales and installation personnel per year on
	installation, sales and marketing techniques that help them sell
	car audio products. In addition, our instructors and
	demonstration vehicles travel worldwide hosting dealer
	instruction seminars.                                                                                                                                                                                                                                                                                                      
|
| | Our products carry standard warranties against defects in
	material and workmanship, and we will either repair or replace
	any product that fails to meet this warranty. We offer repair
	services for products that are no longer covered under the
	original warranty. For our U.S. customers, we have in-house
	customer service, repair and technical support personnel who
	provide general company information, installation support,
	troubleshooting and system design assistance. We provide a
	unique rapid factory direct repair program that repairs and
	ships products within 24 hours of receipt, reducing retailer and
	consumer inconvenience if our products fail to perform properly.
|
| | For our international customers, we provide warranty and
	customer service to consumers in the countries where we sell
	direct to retailers. These countries include Canada, Germany,
	Austria and Japan. In other countries, our distributors provide
	customer service and warranty support.                                                                                                                                                                                                                                                                                                                                                                                                          

Information Systems



| |                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have a fully integrated system based on a Novell network,
	Oracle applications and databases, Microsoft Office applications
	and a Cisco infrastructure. Our information systems are designed
	to respond quickly to inquiries from our managers, employees,
	suppliers and customers. They are designed to support our
	efforts to:



| |   |                                              
| | - | ---------------------------------------------
| |  | Produce high-quality products;               
|
| |  | Reduce working capital requirements;         
|
| |  | Decrease the time to market for new products;
|
| |  | Deliver orders faster; and                   
|
| |  | Provide accurate and timely information.     



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our information systems assist us in producing high-quality
	products quickly and affordably by providing immediate quality
	information about our business. Our advanced messaging systems
	collect feedback about product quality from our customer service
	department that we send directly to our engineering and
	manufacturing groups. This early customer feedback permits
	prompt adjustments and serves as an immediate indicator of our
	products market acceptance. Data on our servers is
	accessible to authorized employees for new product information
	and timely updates. Management has access to secured databases
	regarding the status, cost and projections for pending projects,
	enabling quick adjustments to scheduling and use of resources.
|
| | We have implemented web-based systems to provide accurate and
	timely information and allow our representatives, dealers and
	distributors to check the status of their orders at our secure
	internet site. We also have developed systems to accept orders
	from consumers over the internet for distribution of promotional
	accessories such as clothing. During 2000 and early 2001 we used
	these systems to distribute Hafler home theater speakers as well.                                                                                                                                                                                                                                                                                                      

Employees



| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As at December 31, 2000, we had 515 total employees. At
	that date, in the U.S., 335 were engaged in manufacturing, 38 in
	research and development, 53 in sales and marketing and 60 in
	administration. We also had 29 employees working outside of the
	U.S. in various functions. We have never had a work stoppage and
	none of our employees are unionized. We believe our employee
	relations are good.

14



---



##### Table of Contents



Environmental Compliance



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Whenever possible, we avoid using hazardous materials in our
	production processes. Two chemicals used in our basic processes,
	lacquer and flux, are listed as hazardous materials by the U.S.
	Environmental Protection Agency. We use them in limited
	quantities in our production facility, taking care to see that
	they are stored, used and disposed of in the proper manner. We
	believe that compliance with federal, state, local and foreign
	provisions regulating the discharge of materials into the
	environment, or otherwise relating to the protection of the
	environment, will not have a material effect upon our capital
	expenditures, earnings and competitive position. We do not
	anticipate material capital expenditures for environmental
	control facilities for the remainder of the current fiscal year
	or the succeeding fiscal year.




Item 2.  Properties



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our corporate headquarters and electronics manufacturing
	facilities are located in Tempe, Arizona. We manufacture
	speakers at our facility in Grand Rapids, Michigan. We use
	warehouses strategically located in the U.S., Japan, Singapore
	and Germany that enhance our ability to serve our markets faster
	and more cost effectively than many of our competitors. The
	following table contains information about our facilities as at
	December 31, 2000, all of which are leased:

|                                                                        |       |                        |  |                |        |                |  |                  |         |           |  |                      | 
|----------------------------------------------------------------------- | ----- | ---------------------- |  | -------------- | ------ | -------------- |  | ---------------- | ------- | --------- |  | -------------------- | 
|                                                                        |       |                        |  |                |        | Approximate    |  |                 
|                                                                        |       |                        |  | Approximate    |        | 2000 Annual    |  |                 
|Function                                                                |       | Location               |  | Square Footage |        | Rental Expense |  | Lease Expiration
|                                                                        |       |                        |  |                |        |                |  |                 
|Corporate headquarters                                                  |       | Tempe, Arizona         |  |                | 15,000 |                |  | $                | 154,000 |           |  | December 31, 2001   
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Manufacturing, research and development, and purchasing                 |       | Tempe, Arizona         |  |                | 22,000 |                |  |                  | 143,000 |           |  | December 31, 2001(1)
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Warehousing, sales and customer service                                 |       | Tempe, Arizona         |  |                | 25,000 |                |  |                  | 163,000 |           |  | December 31, 2001(1)
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Warehousing and sales                                                   |       | Gilbert, Arizona       |  |                | 54,000 |                |  |                  | 217,000 |           |  | July 31, 2003       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Manufacturing, research and development, purchasing and
	administration |       | Grand Rapids, Michigan |  |                | 81,000 |                |  |                  | 246,000 |           |  | March 31, 2001(1)   
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Warehousing and sales                                                   |       | Japan                  |  |                | 7,500  |                |  |                  | 138,000 |           |  | April 30, 2011      
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Warehousing                                                             |       | Singapore              |  |                | 9,000  |                |  |                  | 127,000 |           |  | January 31, 2002    
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Warehousing and sales                                                   |       | Germany                |  |                | 20,000 |                |  |                  | 142,500 |           |  | December 30, 2006   
|                                                                        |       |                        |  |                |        |                |  |                  |         |           |  |                     
|                                                                        | Total |                        |  |                |        | 233,500        |  |                  | $       | 1,330,500 |  |                      | 
|                                                                        |       |                        |  |                |        |                |  |                  |         |           |  |                     




|    |                                                                            
|--- | ---------------------------------------------------------------------------
|(1) | We have the right to extend these leases for one additional
	one-year term.

After December 31, 2000:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We entered into a lease for an existing building, adjacent to
	our manufacturing and warehousing facilities in Tempe, Arizona,
	to which we plan to move our corporate headquarters, research
	and development, and certain manufacturing activities. This move
	is planned for March  2001. We are leasing 30,000 square
	feet in this building for an annual rental of approximately
	$201,000 and under a lease that expires on September 30,
	2004; and
|
| |  | We entered into a lease for an existing building near our
	manufacturing and warehousing facilities in Grand Rapids,
	Michigan, to which we plan to move our Michigan warehousing
	operations. This move is planned for March 2001. We are leasing
	45,000 square feet in this building for an annual rental of
	approximately $146,000 and under a lease that expires on
	February 29, 2004.                                                              




Item 3.  Legal Proceedings

In 1998, Integrated Electronic Technologies (IET) alleged in
correspondence that our patented TOPAZ circuit design infringed
a patent of IET. The TOPAZ circuit is used in our higher-priced
Punch line of car audio amplifiers and in our Hafler
professional amplifiers. After several meetings with IET and its
counsel

15



---



##### Table of Contents





In addition to the above, we are and may continue to be a party
to various lawsuits and arbitrations from time to time. As at
December 31, 2000, we were not a party to any legal
proceedings that we believe are material.




Item 4.  Submission of Matters to a Vote of
Security Holders

We did not submit any matters to a vote of our shareholders
during the fourth quarter of Fiscal Year 2000.




PART II




Item 5.  Market for Registrants Common
Equity and Related Stockholder Matters

Our common stock has traded on The NASDAQ National Market System
under the symbol ROFO since April 20, 2000, the
date of our initial public offering. Prior to that time, there
was no public market for our common stock. The following table
sets forth the range of high and low sales prices for our common
stock for the periods indicated:

|                       |                    |      |   |          |  |  |   |         | 
|---------------------- | ------------------ | ---- | - | -------- |  |  | - | ------- | 
|                       |                    | High |   | Low     
|                       |                    |      |   |         
|For the quarter ended: |                    |      |   |          |  |  |   |        
|                      
|                      
|                      
|                      
|                       | December 31, 2000  |      | $ | 5.85938  |  |  | $ | 4.06250 | 
|                      
|                      
|                      
|                      
|                       | September 30, 2000 |      | $ | 6.75000  |  |  | $ | 4.12500 | 
|                      
|                      
|                      
|                      
|                       | June 30, 2000      |      | $ | 12.62500 |  |  | $ | 3.93800 | 

As at March 1, 2001, there were approximately 1,528 holders
of record of our common stock.

We have never declared, nor have we paid, any cash dividends on
our common stock. We currently intend to retain our earnings to
finance future growth and, therefore, do not anticipate paying
cash dividends on our common stock in the foreseeable future.

16



---



##### Table of Contents






Item 6.  Selected Financial Data

The following selected consolidated financial data should be
read in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and Item 8, Financial Statements and
Supplementary Data. The table contains selected
consolidated financial data for the year ended
September 30, 1996, and the three months ended
December 31, 1996, when we changed our fiscal year end to
December 31, derived from audited consolidated financial
statements. The selected consolidated financial data for the
years ended December 31, 1997, 1998, 1999 and 2000, are
derived from our audited consolidated financial statements. The
selected consolidated financial data for the year ended
December 31, 1996, are derived from unaudited financial
statements.

|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |        |        | 
|----------------------------------------------------- | -------------------------- | ------------------------------------- | ------ | ------------ | ------ | ----------------------- | ------ | ----- | ----- | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                      |                            |                                       |        | Three        |        |                         |        |       |       |      |        |        |        |     
|                                                      |                            | Year                                  |        | Months       |        |                        
|                                                      |                            | Ended                                 |        | Ended        |        | Year Ended December 31,
|                                                      |                            | September 30,                         |        | December 31, |        |                        
|                                                      |                            | 1996                                  |        | 1996         |        | 1996                    |        | 1997  |       | 1998 |        | 1999   |        | 2000
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |     
|                                                      |                            |                                      
|                                                      |                            | (in thousands, except per share data)
|                                                     
|                                                     
|                                                     
|                                                     
|Consolidated Statement of Operations Data:            |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                     
|                                                     
|                                                     
|                                                     
|Net sales                                             |                            | $                                     | 81,144 |              |        | $                       | 16,448 |       |       | $    | 82,937 |        |        | $    | 87,423 |        |        | $ | 87,577 |        |        | $ | 123,889 |        |        | $ | 144,640 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Cost of goods sold                                    |                            |                                       | 56,761 |              |        |                         | 11,020 |       |       |      | 57,057 |        |        |      | 57,321 |        |        |   | 55,146 |        |        |   | 75,014  |        |        |   | 92,533  |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Gross profit                                          |                            |                                       | 24,383 |              |        |                         | 5,428  |       |       |      | 25,880 |        |        |      | 30,102 |        |        |   | 32,431 |        |        |   | 48,875  |        |        |   | 52,107  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Operating expenses:                                   |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Sales and marketing        |                                       |        | 15,218       |        |                         |        | 2,814 |       |      |        | 15,627 |        |      |        | 14,530 |        |   |        | 14,821 |        |   |         | 20,602 |        |   |         | 22,709 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | General and administrative |                                       |        | 8,552        |        |                         |        | 1,983 |       |      |        | 8,156  |        |      |        | 9,350  |        |   |        | 10,211 |        |   |         | 13,465 |        |   |         | 13,036 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Research and development   |                                       |        | 1,448        |        |                         |        | 292   |       |      |        | 1,372  |        |      |        | 1,576  |        |   |        | 1,876  |        |   |         | 2,277  |        |   |         | 2,831  |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                      |                            | Total operating expenses              |        |              | 25,218 |                         |        |       | 5,089 |      |        |        | 25,155 |      |        |        | 25,456 |   |        |        | 26,908 |   |         |        | 36,344 |   |         |        | 38,576 | 
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Operating income (loss)                               |                            |                                       | (835   | )            |        |                         | 339    |       |       |      | 725    |        |        |      | 4,646  |        |        |   | 5,523  |        |        |   | 12,531  |        |        |   | 13,531  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Interest and other expense, net                       |                            |                                       | 2,193  |              |        |                         | 377    |       |       |      | 2,064  |        |        |      | 2,055  |        |        |   | 1,501  |        |        |   | 1,946   |        |        |   | 807     |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Income (loss) before tax                              |                            |                                       | (3,028 | )            |        |                         | (38    | )     |       |      | (1,339 | )      |        |      | 2,591  |        |        |   | 4,022  |        |        |   | 10,585  |        |        |   | 12,724  |       
|                                                     
|                                                     
|                                                     
|                                                     
|Income tax expense (benefit)                          |                            |                                       | (1,025 | )            |        |                         | (19    | )     |       |      | (407   | )      |        |      | 959    |        |        |   | 1,717  |        |        |   | 4,088   |        |        |   | 4,714   |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Net income (loss)                                     |                            | $                                     | (2,003 | )            |        | $                       | (19    | )     |       | $    | (932   | )      |        | $    | 1,632  |        |        | $ | 2,305  |        |        | $ | 6,497   |        |        | $ | 8,010   |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Net income (loss) per share:                          |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Basic                      |                                       | $      | (0.50        | )      |                         | $      | (0.01 | )     |      | $      | (0.23  | )      |      | $      | 0.37   |        |   | $      | 0.52   |        |   | $       | 1.40   |        |   | $       | 1.17   |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                      | Diluted                    |                                       | $      | (0.50        | )      |                         | $      | (0.01 | )     |      | $      | (0.23  | )      |      | $      | 0.31   |        |   | $      | 0.41   |        |   | $       | 1.04   |        |   | $       | 1.00   |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Shares used to calculate net income (loss) per share: |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Basic                      |                                       |        | 4,040        |        |                         |        | 4,394 |       |      |        | 4,114  |        |      |        | 4,401  |        |   |        | 4,412  |        |   |         | 4,641  |        |   |         | 6,864  |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                                                      | Diluted                    |                                       |        | 4,040        |        |                         |        | 4,394 |       |      |        | 4,114  |        |      |        | 5,688  |        |   |        | 5,951  |        |   |         | 6,289  |        |   |         | 8,009  |       
|                                                      |                            |                                       |        |              |        |                         |        |       |       |      |        |        |        |      |        |        |        |   |        |        |        |   |         |        |        |   |         |       

17



---



##### Table of Contents



|                                             |  |                |        |              |  |      |        |      |  |      |        |      |  |   |        |  |  |   |        |  |  |   |        | 
|-------------------------------------------- |  | -------------- | ------ | ------------ |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                             |  |                |        |             
|                                             |  |                |        | December 31,
|                                             |  | September 30,  |        |             
|                                             |  | 1996           |        | 1996         |  | 1997 |        | 1998 |  | 1999 |        | 2000
|                                             |  |                |        |              |  |      |        |      |  |      |        |     
|                                             |  |               
|                                             |  | (in thousands)
|                                            
|                                            
|                                            
|                                            
|Consolidated Balance Sheet Data:             |  |                |        |              |  |      |        |      |  |      |        |      |  |   |        |  |  |   |        |  |  |   |        | 
|                                            
|                                            
|                                            
|                                            
|Working capital                              |  | $              | 11,063 |              |  | $    | 12,369 |      |  | $    | 9,592  |      |  | $ | 13,488 |  |  | $ | 21,219 |  |  | $ | 37,179 | 
|                                            
|                                            
|                                            
|                                            
|Total assets                                 |  |                | 34,423 |              |  |      | 31,420 |      |  |      | 29,234 |      |  |   | 37,307 |  |  |   | 52,147 |  |  |   | 66,918 | 
|                                            
|                                            
|                                            
|                                            
|Long-term debt and capital lease obligations |  |                | 16,033 |              |  |      | 16,720 |      |  |      | 12,230 |      |  |   | 14,292 |  |  |   | 17,342 |  |  |   | 434    | 
|                                            
|                                            
|                                            
|                                            
|Total liabilities                            |  |                | 33,644 |              |  |      | 30,629 |      |  |      | 26,766 |      |  |   | 32,369 |  |  |   | 39,390 |  |  |   | 20,586 | 
|                                            
|                                            
|                                            
|                                            
|Shareholders equity                         |  |                | 779    |              |  |      | 791    |      |  |      | 2,463  |      |  |   | 4,907  |  |  |   | 12,757 |  |  |   | 46,332 | 




Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations

Overview

History

Rockford was incorporated in 1980 to continue a high-performance
car audio business founded in 1973 by car audio enthusiast Jim
Fosgate. While Rockford developed a reputation for technical
excellence, in the early 1990s Rockfords financial
performance deteriorated for a variety of reasons. Inefficient
management and manufacturing resulted in high and volatile
costs, excessive inventory, obsolete materials and finished
goods and significant delays in new product development and
delivery.

Beginning in 1992, Rockford recruited a new management team,
including Gary Suttle, our President and Chief Executive
Officer. Mr. Suttle and his new management team:



| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hired a number of experienced senior executives and mid-level
	managers;                                                                                                       
|
| |  | Focused on profitability by establishing and implementing
	specific financial objectives through improved business
	processes and sophisticated management information systems;
|
| |  | Increased the number of new product introductions from seven in
	1991 to 65 in 2000 while keeping the number of design engineers
	relatively constant;                         
|
| |  | Implemented new sourcing and manufacturing strategies, reducing
	product development time-to-market from up to 24 months to
	approximately six to nine months;                 
|
| |  | Implemented a more focused advertising and marketing strategy to
	further enhance the Rockford Fosgate, Lightning Audio, Hafler
	and Fosgate Audionics brand images; and       
|
| |  | Discontinued or redesigned a number of unprofitable and
	marginally profitable product lines.                                                                                  

Beginning in 1997, we began to realize the benefits of these
management and operational changes and other investment in our
infrastructure, resulting in increases in both operating and net
income. We believe that we have the people, processes and
systems in place to enable us to continue to grow profitably.

Business

We generated over 98% of our sales in 2000 from our car audio
products.

In the U.S., we sell our car 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 (starting in 2001) and Germany
(since 1999), we sell through wholly owned subsidiaries using
commissioned independent sales representatives. In Canada (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 to Best Buy. Best Buy
accounted for 16.7% of our sales for 2000 and 19.9% for 1999
including its $4.4 million initial purchase of our products to
stock its distribution channel in

18



---



##### Table of Contents





In June 1999, we acquired Lightning Audio, a manufacturer
and distributor of car audio accessories. In addition to
continuing to market accessories under this brand, we acquired
Lightning Audio with a view toward marketing a complementary
line of car audio products under the Lightning Audio brand. In
January 2000, at the Consumer Electronics Show, we
introduced amplifiers and subwoofers under the new Lightning
Audio brand, Strike. In January 2001, at the Consumer
Electronics Show, we expanded the product offering under the
Strike brand by introducing a new line of full-range speakers.
Additionally, we introduced new lines of amplifiers and
subwoofers under two new Lightning Audio brands, Bolt and Storm.
The products under these three Lighting Audio brands are more
moderately priced than our Rockford Fosgate products.

Results of Operations

The following table shows, for the periods indicated, selected
consolidated statements of operations data expressed as a
percentage of net sales:

|                                |                            |                          |       |      |      |      |       |      |      |  |       |      |      | 
|------------------------------- | -------------------------- | ------------------------ | ----- | ---- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                |                            |                         
|                                |                            | Year Ended December 31, 
|                                |                            |                         
|                                |                            | 1998                     |       | 1999 |      | 2000
|                                |                            |                          |       |      |      |     
|Net sales                       |                            |                          | 100.0 | %    |      |      | 100.0 | %    |      |  | 100.0 | %   
|                               
|                               
|                               
|                               
|Cost of goods sold              |                            |                          | 63.0  |      |      |      | 60.5  |      |      |  | 64.0  |     
|                                |                            |                          |       |      |      |      |       |      |      |  |       |     
|Gross profit                    |                            |                          | 37.0  |      |      |      | 39.5  |      |      |  | 36.0  |     
|                               
|                               
|                               
|                               
|Operating expenses:             |                            |                          |       |      |      |      |       |      |      |  |       |     
|                               
|                               
|                               
|                               
|                                | Sales and marketing        |                          |       | 16.9 |      |      |       | 16.6 |      |  |       | 15.7 |     
|                               
|                               
|                               
|                               
|                                | General and administrative |                          |       | 11.7 |      |      |       | 10.9 |      |  |       | 9.0  |     
|                               
|                               
|                               
|                               
|                                | Research and development   |                          |       | 2.1  |      |      |       | 1.9  |      |  |       | 2.0  |     
|                                |                            |                          |       |      |      |      |       |      |      |  |       |     
|                                |                            | Total operating expenses |       |      | 30.7 |      |       |      | 29.4 |  |       |      | 26.7 | 
|                                |                            |                          |       |      |      |      |       |      |      |  |       |     
|Operating income                |                            |                          | 6.3   |      |      |      | 10.1  |      |      |  | 9.3   |     
|                               
|                               
|                               
|                               
|Interest and other expense, net |                            |                          | 1.7   |      |      |      | 1.5   |      |      |  | 0.5   |     
|                                |                            |                          |       |      |      |      |       |      |      |  |       |     
|Income before tax               |                            |                          | 4.6   |      |      |      | 8.6   |      |      |  | 8.8   |     
|                               
|                               
|                               
|                               
|Income tax expense              |                            |                          | 2.0   |      |      |      | 3.4   |      |      |  | 3.3   |     
|                                |                            |                          |       |      |      |      |       |      |      |  |       |     
|Net income                      |                            |                          | 2.6   | %    |      |      | 5.2   | %    |      |  | 5.5   | %   
|                                |                            |                          |       |      |      |      |       |      |      |  |       |     

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 and marketing expenses primarily consist of salaries,
sales commissions and costs of advertising, trade shows,
distributor and sales representative conferences and freight.

General and administrative expenses primarily consist of
salaries, 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 primarily consist of salaries
associated with our research and development personnel.

19



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##### Table of Contents



Geographic Distribution of Sales

Since 1998, our sales by geographic region were as follows:

|               |             |                         |        |        |  |      |         |         |  |   |         |         |  |  |      |       |  
|-------------- | ----------- | ----------------------- | ------ | ------ |  | ---- | ------- | ------- |  | - | ------- | ------- |  |  | ---- | ----- | -
|               |             |                         |        |       
|               |             | Year Ended December 31, |        |       
|               |             |                         |        | %     
|Region(1)      |             | 1998                    |        | 1999   |  | 2000 |         | 2000   
|               |             |                         |        |        |  |      |         |        
|               |             |                         |        |       
|               |             | (in thousands)          |        |       
|              
|              
|              
|              
|United States  |             | $                       | 70,016 |        |  | $    | 105,482 |         |  | $ | 121,375 |         |  |  | 84.0 | %    
|              
|              
|              
|              
|Other Americas |             |                         | 4,905  |        |  |      | 5,294   |         |  |   | 7,289   |         |  |  | 5.0  |      
|              
|              
|              
|              
|Europe         |             |                         | 6,599  |        |  |      | 7,337   |         |  |   | 7,687   |         |  |  | 5.3  |      
|              
|              
|              
|              
|Asia           |             |                         | 6,057  |        |  |      | 5,776   |         |  |   | 8,289   |         |  |  | 5.7  |      
|               |             |                         |        |        |  |      |         |         |  |   |         |         |  |  |      |      
|               | Total sales |                         | $      | 87,577 |  |      | $       | 123,889 |  |   | $       | 144,640 |  |  |      | 100.0 | %
|               |             |                         |        |        |  |      |         |         |  |   |         |         |  |  |      |      




|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

Year Ended December 31, 2000 Compared to Year Ended
December 31, 1999

Net Sales.Sales increased by $20.7 million, or 16.7%, to
$144.6 million for 2000 from $123.9 million for 1999. The
increase in sales primarily was attributable to having a full
year of sales for Lightning Audio, which we acquired in
June 1999 and an increase in sales to car audio specialty
dealers. Sales to car audio specialty dealers increased by $9.5
million, or 11.8%, to $90.2 million for 2000 from $80.7 million
for 1999. This increase primarily was due to improved market
conditions in the first half of 2000, enhanced incentive
programs and the launch of a competitively priced line of
amplifiers and speakers. Best Buy accounted for $24.2 million,
or 16.7%, of our sales for 2000, compared to $24.7 million or
19.9% of our sales for 1999.

U.S. sales increased by $15.9 million, or 15.1%, to $121.4
million for 2000 from $105.5 million for 1999. U.S. sales of
Lightning Audio products increased by $7.4 million, or 264.3%,
to $10.2 million in 2000 from $2.8 million in 1999, reflecting a
full year of accessory sales in 2000 and the addition of
Lightning Audio speakers and amplifiers beginning in the second
quarter of 2000. Additionally, U.S. sales to car audio specialty
dealers increased by $6.9 million, or 10.9%, to $70.1 million
for 2000 from $63.2 million for 1999. International sales
increased by $4.8 million, or 26.1%, to $23.2 million for 2000
from $18.4 million for 1999. Sales in all international regions
increased, however they were led by increased sales in Asia and
Latin America as a result of these regions improving
economic conditions during the first half of 2000.

Cost of Goods Sold.Cost of goods sold increased by $17.5
million, or 23.3%, to $92.5 million for 2000 from $75.0 million
for 1999. This increase was primarily due to increased sales.
However, as a percent of sales, cost of goods sold also
increased to 64.0% for 2000 from 60.5% for 1999. The reason for
the increase as a percent of sales was primarily due to
end-of-life discounting resulting in lower margin sales and
product mix as the market shifted to lower priced and lower
margined products during the second half of 2000.

Sales and Marketing Expenses.Sales and marketing
expenses increased by $2.1 million, or 10.2%, to $22.7 million
for 2000 from $20.6 million for 1999. The increase was related
to increased sales commissions as a direct result of higher U.S.
sales. U.S. sales are direct to dealers and require commissions
to be paid to our independent sales representatives.
International sales have a higher portion of sales through
independent distributors and, while those sales generally have a
lower gross margin, they do not require commission payments.
This increase is also due to increased headcount in our sales
and marketing departments. As a percent of sales, sales and
marketing expenses decreased to 15.7% for 2000 from 16.6% for
1999. The decrease as a percent of sales primarily was because
some expenses in this category are fixed and do not fluctuate
with sales.

General and Administrative Expenses.General and
administrative expenses decreased by $0.5 million, or 3.7%, to
$13.0 million for 2000 from $13.5 million for 1999. The primary
reasons for the decrease were a decrease in our financial
performance-based employee incentive program and controlled
operational spending.

20



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##### Table of Contents





Research and Development Expenses.Research and
development expenses increased by $0.5 million, or 21.7%, to
$2.8 million for 2000 from $2.3 million for 1999. This increase
was primarily due to increased personnel and product development
costs. As a percent of sales, these expenses increased to 2.0%
for 2000 from 1.9% for 1999.

Operating Income.Operating income increased by $1.0
million, or 8.0%, to $13.5 million for 2000 from $12.5 million
for 1999. This increase primarily was attributable to our
increase in Lightning Audio sales. The primary reasons for this
increase are mentioned above. As a percent of sales, operating
income decreased to 9.3% for 2000 from 10.1% for 1999. The
primary reasons for this decrease are also mentioned above.

Interest and Other Expense, Net.Interest and other
expense, net, primarily consists of interest expense. Interest
and other expense, net, decreased by $1.1 million, or 57.9%, to
$0.8 million for 2000 from $1.9 million for 1999. Interest
expense decreased in 2000 due to the repayment of our line of
credit with proceeds from our initial public offering on
April 20, 2000.

Income Tax Expense.Income tax expense increased by $0.6
million to $4.7 million for 2000 from $4.1 million for 1999. The
effective income tax rates were 37.0% for 2000 and 38.6% for
1999. The primary reason for this decrease in the effective tax
rate was a decrease in foreign tax expense and a permanent
lowering of state income tax rates.

Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998

Net Sales. Sales increased by $36.3 million, or 41.5%, to
$123.9 million for 1999 from $87.6 million for 1998. The
increase in sales primarily was attributable to our sales to
Best Buy. Including Best Buys $4.4 million initial
purchase of our products to stock its distribution channel, Best
Buy accounted for $24.7 million, or 19.9%, of our sales for
1999. In addition, total net sales to car audio specialty
dealers increased by $7.4 million, or 10.1%, to $80.7 million
for 1999 from $73.3 million for 1998. This increase primarily
was due to improved market conditions, enhanced incentive
programs and the launch of a competitively priced line of
amplifiers and speakers.

U.S. sales increased by $35.5 million, or 50.7%, to $105.5
million for 1999 from $70.0 million for 1998. Domestic sales to
car audio specialty dealers increased by $7.1 million, or 12.7%,
to $63.2 million for 1999 from $56.1 million for 1998.
International sales increased by $0.8 million, or 4.5%, to $18.4
million for 1999 from $17.6 million for 1998. A decrease in
sales in Asia and in Latin America as a result of these
regions deteriorating economic conditions was offset by
increased sales in Europe and Canada.

Cost of Goods Sold.Cost of goods sold increased by $19.9
million, or 36.0%, to $75.0 million for 1999 from $55.1 million
for 1998. Substantially all of the increase was due to increased
sales. As a percent of sales, cost of goods sold decreased to
60.5% for 1999 from 63.0% for 1998. The primary reasons for the
decrease as a percent of sales included improvement in global
sourcing of raw materials and leveraging of fixed overhead due
to increased production volume.

Sales and Marketing Expenses.Sales and marketing
expenses increased by $5.8 million, or 39.0%, to $20.6 million
for 1999 from $14.8 million for 1998. The increase primarily was
related to increased sales commissions as a direct result of
higher U.S. sales. U.S. sales are direct to dealers and require
commissions to be paid to our independent sales representatives.
International sales have a higher portion of sales through
independent distributors and, while those sales generally have a
lower gross margin, they do not require commission payments. As
a percent of sales, sales and marketing expenses decreased to
16.6% for 1999 from 16.9% for 1998. The decrease as a percent of
sales primarily was because some expenses in this category are
fixed and do not fluctuate with sales.

General and Administrative Expenses.General and
administrative expenses increased by $3.3 million, or 31.9%, to
$13.5 million for 1999 from $10.2 million for 1998. The primary
reasons for the increase were an increase in our financial
performance-based employee incentive program, additional
expenses from Lightning

21



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##### Table of Contents





Research and Development Expenses.Research and
development expenses increased by $0.4 million, or 21.4%, to
$2.3 million for 1999 from $1.9 million for 1998. As a percent
of sales, these expenses decreased to 1.9% for 1999 from 2.1%
for 1998.

Operating Income.Operating income increased by $7.0
million, or 126.9%, to $12.5 million for 1999 from $5.5 million
for 1998. This increase primarily was attributable to our sales
to Best Buy. As a percent of sales, operating income increased
to 10.1% for 1999 from 6.3% for 1998. The primary reasons for
this increase are mentioned above.

Interest and Other Expense, Net.Interest and other
expense, net, primarily consists of interest expense. Interest
and other expense, net, increased by $0.4 million, or 29.7%, to
$1.9 million for 1999 from $1.5 million for 1998. Interest
expense increased in 1999 due to slightly higher levels of debt
and interest rates.

Income Tax Expense.Income tax expense increased by $2.4
million to $4.1 million for 1999 from $1.7 million for 1998. The
effective income tax rates were 38.6% for 1999 and 42.7% for
1998. The lower effective tax rate for 1999 primarily was
attributable to the lower effective tax rate in Michigan, where
we experienced significant increased operating income without a
corresponding increase in tax expense.

Quarterly Results of Operations

Our sales on a quarterly basis reflect the seasonality of the
car audio aftermarket business. Sales are generally greater
during the second and third quarters of each calendar year and
lower during the first and fourth quarters, with our lowest
sales typically occurring during the fourth quarter. During the
first quarter of 1999, we launched our distribution program with
Best Buy. Including Best Buys $4.4 million initial
purchase of our products to stock its distribution channel, Best
Buy accounted for 26.6% of our sales in the three months ended
March 31, 1999, 19.3% in the three months ended
June 30, 1999, 12.3% in the three months ended
September 30, 1999, and 21.8% in the three months ended
December 31, 1999. For 2000, Best Buy accounted for 18.2%
of our sales in the three months ended March 31, 2000,
13.9% in the three months ended June 30, 2000, 18.1% in the
three months ended September 30, 2000, and 17.5% in the
three months ended December 31, 2000.

The following tables show selected consolidated quarterly
statements of operations data that were derived from unaudited
financial statements for each of the eight quarters ended
December 31, 2000, and also show that data expressed as a
percent of sales for the periods indicated. We believe these
unaudited financial results were prepared on a basis consistent
with our audited financial statements and include all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of our consolidated results of
operations for those periods. The results of operations for any
quarter are not necessarily indicative of the results of any
future period.

22



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##### Table of Contents



Consolidated Statement of Operations Data

|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |       |       | 
|---------------------------------------------- | -------------------------- | ------------------------------------- | ------ | -------- | ----- | -------- | ------ | -------- | ----- | -------- | ------ | -------- | ----- | -------- | ------ | -------- | ----- | - | ------ | ----- | ----- | - | ------ | ----- | ------ | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                               |                            |                                      
|                                               |                            | Three Months Ended                   
|                                               |                            |                                      
|                                               |                            | Mar. 31,                              |        | Jun. 30, |       | Sep. 30, |        | Dec. 31, |       | Mar. 31, |        | Jun. 30, |       | Sep. 30, |        | Dec. 31,
|                                               |                            | 1999                                  |        | 1999     |       | 1999     |        | 1999     |       | 2000     |        | 2000     |       | 2000     |        | 2000    
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |         
|                                               |                            |                                      
|                                               |                            | (In thousands, except per share data)
|                                              
|                                              
|                                              
|                                              
|Net sales                                      |                            | $                                     | 31,798 |          |       | $        | 34,113 |          |       | $        | 31,205 |          |       | $        | 26,773 |          |       | $ | 34,588 |       |       | $ | 45,137 |       |        | $ | 36,370 |       |       | $ | 28,545 |      
|                                              
|                                              
|                                              
|                                              
|Cost of goods sold                             |                            |                                       | 19,567 |          |       |          | 20,654 |          |       |          | 19,030 |          |       |          | 15,763 |          |       |   | 21,113 |       |       |   | 27,561 |       |        |   | 24,491 |       |       |   | 19,368 |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|Gross profit                                   |                            |                                       | 12,231 |          |       |          | 13,459 |          |       |          | 12,175 |          |       |          | 11,010 |          |       |   | 13,475 |       |       |   | 17,576 |       |        |   | 11,879 |       |       |   | 9,177  |      
|                                              
|                                              
|                                              
|                                              
|Operating expenses:                            |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|                                              
|                                              
|                                              
|                                              
|                                               | Sales and marketing        |                                       |        | 5,388    |       |          |        | 5,583    |       |          |        | 5,312    |       |          |        | 4,319    |       |   |        | 5,716 |       |   |        | 7,080 |        |   |        | 5,000 |       |   |        | 4,913 |      
|                                              
|                                              
|                                              
|                                              
|                                               | General and administrative |                                       |        | 3,018    |       |          |        | 3,657    |       |          |        | 3,242    |       |          |        | 3,548    |       |   |        | 3,465 |       |   |        | 4,121 |        |   |        | 3,501 |       |   |        | 1,949 |      
|                                              
|                                              
|                                              
|                                              
|                                               | Research and development   |                                       |        | 501      |       |          |        | 472      |       |          |        | 580      |       |          |        | 724      |       |   |        | 711   |       |   |        | 646   |        |   |        | 722   |       |   |        | 752   |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|                                               |                            | Total operating expenses              |        |          | 8,907 |          |        |          | 9,712 |          |        |          | 9,134 |          |        |          | 8,591 |   |        |       | 9,892 |   |        |       | 11,847 |   |        |       | 9,223 |   |        |       | 7,614 | 
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|Operating income                               |                            |                                       | 3,324  |          |       |          | 3,747  |          |       |          | 3,041  |          |       |          | 2,419  |          |       |   | 3,583  |       |       |   | 5,729  |       |        |   | 2,656  |       |       |   | 1,563  |      
|                                              
|                                              
|                                              
|                                              
|Interest and other expense, net                |                            |                                       | 431    |          |       |          | 414    |          |       |          | 485    |          |       |          | 616    |          |       |   | 461    |       |       |   | 273    |       |        |   | 79     |       |       |   | (6     | )    
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|Income before tax                              |                            |                                       | 2,893  |          |       |          | 3,333  |          |       |          | 2,556  |          |       |          | 1,803  |          |       |   | 3,122  |       |       |   | 5,456  |       |        |   | 2,577  |       |       |   | 1,569  |      
|                                              
|                                              
|                                              
|                                              
|Income tax expense                             |                            |                                       | 1,091  |          |       |          | 1,315  |          |       |          | 1,000  |          |       |          | 682    |          |       |   | 1,195  |       |       |   | 2,040  |       |        |   | 925    |       |       |   | 554    |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|Net income                                     |                            | $                                     | 1,802  |          |       | $        | 2,018  |          |       | $        | 1,556  |          |       | $        | 1,121  |          |       | $ | 1,927  |       |       | $ | 3,416  |       |        | $ | 1,652  |       |       | $ | 1,015  |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|Net income per share:                          |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|                                              
|                                              
|                                              
|                                              
|                                               | Basic                      |                                       | $      | 0.41     |       |          | $      | 0.44     |       |          | $      | 0.33     |       |          | $      | 0.24     |       |   | $      | 0.40  |       |   | $      | 0.50  |        |   | $      | 0.21  |       |   | $      | 0.13  |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|                                               | Diluted                    |                                       | $      | 0.29     |       |          | $      | 0.32     |       |          | $      | 0.25     |       |          | $      | 0.18     |       |   | $      | 0.31  |       |   | $      | 0.41  |        |   | $      | 0.19  |       |   | $      | 0.12  |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|Shares used to calculate net income per share: |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|                                              
|                                              
|                                              
|                                              
|                                               | Basic                      |                                       |        | 4,412    |       |          |        | 4,602    |       |          |        | 4,749    |       |          |        | 4,753    |       |   |        | 4,798 |       |   |        | 6,899 |        |   |        | 7,810 |       |   |        | 7,923 |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      
|                                               | Diluted                    |                                       |        | 6,275    |       |          |        | 6,270    |       |          |        | 6,280    |       |          |        | 6,287    |       |   |        | 6,283 |       |   |        | 8,431 |        |   |        | 8,643 |       |   |        | 8,631 |      
|                                               |                            |                                       |        |          |       |          |        |          |       |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |       |   |        |      

|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |      |      | 
|------------------------------- | -------------------------- | ------------------------------------------- | ----- | -------- | ---- | -------- | ----- | -------- | ---- | -------- | ----- | -------- | ---- | -------- | ----- | -------- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                |                            |                                            
|                                |                            | Percent of Sales for the Three Months Ended
|                                |                            |                                            
|                                |                            | Mar. 31,                                    |       | Jun. 30, |      | Sep. 30, |       | Dec. 31, |      | Mar. 31, |       | Jun. 30, |      | Sep. 30, |       | Dec. 31,
|                                |                            | 1999                                        |       | 1999     |      | 1999     |       | 1999     |      | 2000     |       | 2000     |      | 2000     |       | 2000    
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |         
|Net sales                       |                            |                                             | 100.0 | %        |      |          | 100.0 | %        |      |          | 100.0 | %        |      |          | 100.0 | %        |      |  | 100.0 | %    |      |  | 100.0 | %    |      |  | 100.0 | %    |      |  | 100.0 | %   
|                               
|                               
|                               
|                               
|Cost of goods sold              |                            |                                             | 61.5  |          |      |          | 60.5  |          |      |          | 61.0  |          |      |          | 58.9  |          |      |  | 61.0  |      |      |  | 61.1  |      |      |  | 67.3  |      |      |  | 67.9  |     
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Gross profit                    |                            |                                             | 38.5  |          |      |          | 39.5  |          |      |          | 39.0  |          |      |          | 41.1  |          |      |  | 39.0  |      |      |  | 38.9  |      |      |  | 32.7  |      |      |  | 32.1  |     
|                               
|                               
|                               
|                               
|Operating expenses:             |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|                               
|                               
|                               
|                               
|                                | Sales and marketing        |                                             |       | 16.9     |      |          |       | 16.4     |      |          |       | 17.0     |      |          |       | 16.1     |      |  |       | 16.5 |      |  |       | 15.7 |      |  |       | 13.8 |      |  |       | 17.2 |     
|                               
|                               
|                               
|                               
|                                | General and administrative |                                             |       | 9.5      |      |          |       | 10.7     |      |          |       | 10.4     |      |          |       | 13.3     |      |  |       | 10.0 |      |  |       | 9.1  |      |  |       | 9.6  |      |  |       | 6.8  |     
|                               
|                               
|                               
|                               
|                                | Research and development   |                                             |       | 1.6      |      |          |       | 1.4      |      |          |       | 1.9      |      |          |       | 2.7      |      |  |       | 2.1  |      |  |       | 1.4  |      |  |       | 2.0  |      |  |       | 2.6  |     
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|                                |                            | Total operating expenses                    |       |          | 28.0 |          |       |          | 28.5 |          |       |          | 29.3 |          |       |          | 32.1 |  |       |      | 28.6 |  |       |      | 26.2 |  |       |      | 25.4 |  |       |      | 26.7 | 
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Operating income                |                            |                                             | 10.5  |          |      |          | 11.0  |          |      |          | 9.7   |          |      |          | 9.0   |          |      |  | 10.4  |      |      |  | 12.7  |      |      |  | 7.3   |      |      |  | 5.4   |     
|                               
|                               
|                               
|                               
|Interest and other expense, net |                            |                                             | 1.4   |          |      |          | 1.2   |          |      |          | 1.5   |          |      |          | 2.3   |          |      |  | 1.3   |      |      |  | 0.6   |      |      |  | 0.2   |      |      |  | 0.0   |     
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Income before tax               |                            |                                             | 9.1   |          |      |          | 9.8   |          |      |          | 8.2   |          |      |          | 6.7   |          |      |  | 9.1   |      |      |  | 12.1  |      |      |  | 7.1   |      |      |  | 5.4   |     
|                               
|                               
|                               
|                               
|Income tax expense              |                            |                                             | 3.4   |          |      |          | 3.9   |          |      |          | 3.2   |          |      |          | 2.5   |          |      |  | 3.5   |      |      |  | 4.5   |      |      |  | 2.5   |      |      |  | 1.9   |     
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Net income                      |                            |                                             | 5.7   | %        |      |          | 5.9   | %        |      |          | 5.0   | %        |      |          | 4.2   | %        |      |  | 5.6   | %    |      |  | 7.6   | %    |      |  | 4.6   | %    |      |  | 3.5   | %   
|                                |                            |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     

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 $37.3 million at December 31, 2000,
compared to $21.2

23



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##### Table of Contents





As at December 31, 2000, we had a balance of less than $1.0
thousand 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 on
April 26, 2000, using the proceeds from our April 20, 2000,
initial public offering. 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 at December 31, 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
September 19, 2001. The bank credit facility contains
provisions that, among other things, require Rockford to
maintain certain minimum levels of EBITDA and debt service
coverage and also limit the amount of debt incurred and capital
expenditures annually.

As at December 31, 2000, we had $1.2 million invested in a
Dreyfus money market investment account with an interest rate of
6.27%. This account is an overnight investment, allowing us to
invest according to our daily cash flow needs.

We also have a $5.0 million capital lease credit facility under
which we can fund leases until June 1, 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 at December 31, 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.

Net cash used in operating activities was $2.5 million for the
twelve months ended December 31, 2000, and net cash
provided by operating activities was $2.8 million for the twelve
months ended December 31, 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 and corresponding increases in our accounts receivable
and inventory levels.

Net cash used in investing activities was $4.1 million for the
twelve months ended December 31, 2000, and $4.4 million for
the twelve months ended December 31, 1999. Net cash used in
investing activities was primarily related to purchases of
property and equipment. Also, in 1999, net cash used in
investing activities included $1.5 million used for the
acquisition of Lighting Audio.

Net cash provided by financing activities was $8.7 million for
the twelve months ended December 31, 2000, and $2.0 million
for the twelve months ended December 31, 1999. Net cash
provided by financing activities for 2000 was primarily a result
of the net proceeds received from our initial public offering on
April 20, 2000, of $24.1 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. However, should we pursue an acquisition larger than our
existing resources can support, we may need to pursue additional
debt or equity resources.

24



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##### Table of Contents



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. Computer experts have warned
that there may still be residual consequences of the change in
centuries and any such difficulties could result in a decrease
in sales of our products, an increase in allocation of resources
to address Year 2000 problems of our customers, or an increase
in litigation costs relating to losses suffered by our customers
due to such Year 2000 problems. 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 7A.  Quantitative and Qualitative
Disclosures About Market Risk

Our primary market risk exposures are in the areas of interest
rate risk and foreign currency exchange rate risk. Our
investment portfolio of cash equivalents is subject to interest
rate fluctuations, but we believe this risk is immaterial due to
the short-term nature of these investments.

Historically, our exposure to currency exchange rate
fluctuations was modest due to the fact that we sold our
products primarily in United States dollars. During 1999 and
2000 we have moved to billing in local currencies in Japan,
Canada and Europe. During 2000, 9.3% of our sales were
denominated in a currency other than U.S. dollars. At
December 31, 2000, we had not engaged in any foreign
currency hedging activities and we do not presently have any
plans to do so.




Item 8.  Financial Statements and Supplementary
Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                       |  |  |    | 
|------------------------------------------------------------------------------------------------------ |  |  | -- | 
|Consolidated Financial Statements of Rockford Corporation and
	Subsidiaries                            |  |  |    | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Report of Ernst & Young LLP, Independent Auditors                                                      |  |  | 26 | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Consolidated Balance Sheets as at December 31, 1999 and
	2000.                                         |  |  | 27 | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Consolidated Statements of Income for the years ended
	December 31, 1998, 1999 and 2000.               |  |  | 28 | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Consolidated Statements of Shareholders Equity for the
	years ended December 31, 1998, 1999 and 2000. |  |  | 29 | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Consolidated Statements of Cash Flows for the years ended
	December 31, 1998, 1999 and 2000.           |  |  | 30 | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Notes to Consolidated Financial Statements                                                             |  |  | 31 | 

25



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders



We have audited the accompanying consolidated balance sheets of
Rockford Corporation and subsidiaries (Rockford) as at
December 31, 1999 and 2000, and the related consolidated
statements of income, shareholders equity and cash flows
for the years ended December 31, 1998, 1999 and 2000. Our
audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and
schedule are the responsibility of Rockfords management.
Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Rockford Corporation and
subsidiaries at December 31, 1999 and 2000, and the
consolidated results of their operations and their cash flows
for the years ended December 31, 1998, 1999 and 2000, in
conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
materials respects the information set forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Phoenix, Arizona



26



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                       |                                                                                                                |                    |        |        |  |   |        |        | 
|------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | ------ |  | - | ------ | ------ | 
|                                                       |                                                                                                                |                   
|                                                       |                                                                                                                | December 31,      
|                                                       |                                                                                                                |                   
|                                                       |                                                                                                                | 1999               |        | 2000  
|                                                       |                                                                                                                |                    |        |       
|                                                       |                                                                                                                |                   
|                                                       |                                                                                                                | (In thousands,    
|                                                       |                                                                                                                | except share data)
|                                                      
|                                                      
|                                                      
|                                                      
|Assets                                                 |                                                                                                                |                    |        |        |  |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|Current assets:                                        |                                                                                                                |                    |        |        |  |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cash                                                                                                           |                    | $      | 917    |  |   | $      | 2,750  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accounts receivable, less allowances of $1,830,000 and
	$1,427,000 at December 31, 1999 and 2000, respectively |                    |        | 21,081 |  |   |        | 28,488 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Inventories, net                                                                                               |                    |        | 14,926 |  |   |        | 20,406 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred income taxes                                                                                          |                    |        | 3,661  |  |   |        | 3,596  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Prepaid expenses and other                                                                                     |                    |        | 2,682  |  |   |        | 2,091  | 
|                                                       |                                                                                                                |                    |        |        |  |   |        |       
|Total current assets                                   |                                                                                                                |                    | 43,267 |        |  |   | 57,331 |       
|                                                      
|                                                      
|                                                      
|                                                      
|Property and equipment, net                            |                                                                                                                |                    | 5,541  |        |  |   | 5,996  |       
|                                                      
|                                                      
|                                                      
|                                                      
|Deferred income taxes                                  |                                                                                                                |                    | 289    |        |  |   | 605    |       
|                                                      
|                                                      
|                                                      
|                                                      
|Goodwill, net                                          |                                                                                                                |                    | 2,108  |        |  |   | 2,275  |       
|                                                      
|                                                      
|                                                      
|                                                      
|Other assets                                           |                                                                                                                |                    | 942    |        |  |   | 711    |       
|                                                       |                                                                                                                |                    |        |        |  |   |        |       
|Total assets                                           |                                                                                                                | $                  | 52,147 |        |  | $ | 66,918 |       
|                                                       |                                                                                                                |                    |        |        |  |   |        |       
|Liabilities and shareholders equity                   |                                                                                                                |                    |        |        |  |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|Current liabilities:                                   |                                                                                                                |                    |        |        |  |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accounts payable                                                                                               |                    | $      | 7,442  |  |   | $      | 7,118  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accrued salaries and incentives                                                                                |                    |        | 5,068  |  |   |        | 2,561  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accrued warranty                                                                                               |                    |        | 3,512  |  |   |        | 4,621  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Income taxes payable                                                                                           |                    |        | 319    |  |   |        | 449    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other accrued expenses                                                                                         |                    |        | 4,287  |  |   |        | 4,468  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Current portion of notes payable, long-term debt and capital
	lease obligations                                |                    |        | 1,420  |  |   |        | 935    | 
|                                                       |                                                                                                                |                    |        |        |  |   |        |       
|Total current liabilities                              |                                                                                                                |                    | 22,048 |        |  |   | 20,152 |       
|                                                      
|                                                      
|                                                      
|                                                      
|Notes payable and long-term debt, less current portion |                                                                                                                |                    | 16,565 |        |  |   |       |       
|                                                      
|                                                      
|                                                      
|                                                      
|Capital lease obligations, less current portion        |                                                                                                                |                    | 777    |        |  |   | 434    |       
|                                                      
|                                                      
|                                                      
|                                                      
|Shareholders equity                                   |                                                                                                                |                    |        |        |  |   |        |       
|                                                       | Common stock, $.01 par value Authorized shares 
	40,000,000                                                   |                    |        |        |  |   |        |        | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued shares  4,753,146 shares at December 31, 1999,
	and 7,997,529 at December 31, 2000.                    |                    |        | 48     |  |   |        | 80     | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Additional paid-in capital                                                                                     |                    |        | 3,686  |  |   |        | 29,504 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Retained earnings                                                                                              |                    |        | 8,685  |  |   |        | 16,695 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accumulated other comprehensive income                                                                         |                    |        | 338    |  |   |        | 53     | 
|                                                       |                                                                                                                |                    |        |        |  |   |        |       
|Total shareholders equity                             |                                                                                                                |                    | 12,757 |        |  |   | 46,332 |       
|                                                       |                                                                                                                |                    |        |        |  |   |        |       
|Total liabilities and shareholders equity             |                                                                                                                | $                  | 52,147 |        |  | $ | 66,918 |       
|                                                       |                                                                                                                |                    |        |        |  |   |        |       

See accompanying notes.

27



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ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                |                            |                                       |        |        |   |      |         |        |   |   |         |        |  
|------------------------------- | -------------------------- | ------------------------------------- | ------ | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                |                            |                                      
|                                |                            | Year Ended December 31,              
|                                |                            |                                      
|                                |                            | 1998                                  |        | 1999   |   | 2000
|                                |                            |                                       |        |        |   |     
|                                |                            |                                      
|                                |                            | (In thousands, except per share data)
|                               
|                               
|                               
|                               
|Net sales                       |                            | $                                     | 87,577 |        |   | $    | 123,889 |        |   | $ | 144,640 |       
|                               
|                               
|                               
|                               
|Cost of goods sold              |                            |                                       | 55,146 |        |   |      | 75,014  |        |   |   | 92,533  |       
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Gross profit                    |                            |                                       | 32,431 |        |   |      | 48,875  |        |   |   | 52,107  |       
|                               
|                               
|                               
|                               
|Operating expenses:             |                            |                                       |        |        |   |      |         |        |   |   |         |       
|                               
|                               
|                               
|                               
|                                | Sales and marketing        |                                       |        | 14,821 |   |      |         | 20,602 |   |   |         | 22,709 |  
|                               
|                               
|                               
|                               
|                                | General and administrative |                                       |        | 10,211 |   |      |         | 13,465 |   |   |         | 13,036 |  
|                               
|                               
|                               
|                               
|                                | Research and development   |                                       |        | 1,876  |   |      |         | 2,277  |   |   |         | 2,831  |  
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Total operating expenses        |                            |                                       | 26,908 |        |   |      | 36,344  |        |   |   | 38,576  |       
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Operating income                |                            |                                       | 5,523  |        |   |      | 12,531  |        |   |   | 13,531  |       
|                               
|                               
|                               
|                               
|Other expense:                  |                            |                                       |        |        |   |      |         |        |   |   |         |       
|                               
|                               
|                               
|                               
|                                | Interest                   |                                       |        | (1,434 | ) |      |         | (1,671 | ) |   |         | (793   | )
|                               
|                               
|                               
|                               
|                                | Other                      |                                       |        | (49    | ) |      |         | (282   | ) |   |         | (14    | )
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Income before income taxes      |                            |                                       | 4,040  |        |   |      | 10,578  |        |   |   | 12,724  |       
|                               
|                               
|                               
|                               
|Income tax expense              |                            |                                       | 1,717  |        |   |      | 4,088   |        |   |   | 4,714   |       
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Income before minority interest |                            |                                       | 2,323  |        |   |      | 6,490   |        |   |   | 8,010   |       
|                               
|                               
|                               
|                               
|Minority interest               |                            |                                       | (18    | )      |   |      | 7       |        |   |   |        |       
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Net income                      |                            | $                                     | 2,305  |        |   | $    | 6,497   |        |   | $ | 8,010   |       
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Net income per common share:    |                            |                                       |        |        |   |      |         |        |   |   |         |       
|                               
|                               
|                               
|                               
|                                | Basic                      |                                       | $      | 0.52   |   |      | $       | 1.40   |   |   | $       | 1.17   |  
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|                                | Diluted                    |                                       | $      | 0.41   |   |      | $       | 1.04   |   |   | $       | 1.00   |  
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|Weighted average shares:        |                            |                                       |        |        |   |      |         |        |   |   |         |       
|                               
|                               
|                               
|                               
|                                | Basic                      |                                       |        | 4,412  |   |      |         | 4,641  |   |   |         | 6,864  |  
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       
|                                | Diluted                    |                                       |        | 5,951  |   |      |         | 6,289  |   |   |         | 8,009  |  
|                                |                            |                                       |        |        |   |      |         |        |   |   |         |       

See accompanying notes.

28



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |        |  
|----------------------------- | ---------------------------------------------------------- | -------------- | ----- | ---------- |  | -------- | -- | ------------- |  | -------- | ------ | ------ |  | ----- | ------ | ----- |  | - | --- | ---- | - | - | --- | -- |  | - | ------ | ------ | -
|                              |                                                            |                |       |            |  |          |    | Accumulated   |  |          |        |       
|                              |                                                            | Common Stock   |       | Additional |  | Retained |    | Other         |  |          |        |       
|                              |                                                            |                |       | Paid-In    |  | Earnings |    | Comprehensive |  | Treasury |        |       
|                              |                                                            | Shares         |       | Amount     |  | Capital  |    | (Deficit)     |  | Income   |        | Stock  |  | Total
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |      
|                              |                                                            |               
|                              |                                                            | (In thousands)
|                             
|                             
|                             
|                             
|Balance at December 31, 1997. |                                                            |                | 4,433 |            |  | $        | 44 |               |  | $        | 2,489  |        |  | $     | (117   | )     |  | $ | 99  |      |   | $ | (52 | )  |  | $ | 2,463  |       
|                             
|                             
|                             
|                             
|                              | Currency translation                                       |                |       |           |  |          |    |              |  |          |        |       |  |       |        |      |  |   |     | 139  |   |   |     |   |  |   |        | 139    |  
|                             
|                             
|                             
|                             
|                              | Net income                                                 |                |       |           |  |          |    |              |  |          |        |       |  |       |        | 2,305 |  |   |     |     |   |   |     |   |  |   |        | 2,305  |  
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       
|                              | Comprehensive income                                       |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        | 2,444  |  
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       
|Balance at December 31, 1998. |                                                            |                | 4,433 |            |  |          | 44 |               |  |          | 2,489  |        |  |       | 2,188  |       |  |   | 238 |      |   |   | (52 | )  |  |   | 4,907  |       
|                             
|                             
|                             
|                             
|                              | Currency translation                                       |                |       |           |  |          |    |              |  |          |        |       |  |       |        |      |  |   |     | 100  |   |   |     |   |  |   |        | 100    |  
|                             
|                             
|                             
|                             
|                              | Net income                                                 |                |       |           |  |          |    |              |  |          |        |       |  |       |        | 6,497 |  |   |     |     |   |   |     |   |  |   |        | 6,497  |  
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       
|                              | Comprehensive income                                       |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        | 6,597  |  
|                             
|                             
|                             
|                             
|                              | Conversion of subordinated promissory note to common stock |                |       | 289        |  |          |    | 3             |  |          |        | 997    |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 1,000  |  
|                             
|                             
|                             
|                             
|                              | Exercise of stock options                                  |                |       | 21         |  |          |    | 1             |  |          |        | 78     |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 79     |  
|                             
|                             
|                             
|                             
|                              | Issuance of treasury stock to acquire minority interest    |                |       |           |  |          |    |              |  |          |        | 113    |  |       |        |      |  |   |     |     |   |   |     | 52 |  |   |        | 165    |  
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                                       |                |       | 10         |  |          |    |              |  |          |        | 9      |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 9      |  
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       
|Balance at December 31, 1999. |                                                            |                | 4,753 |            |  |          | 48 |               |  |          | 3,686  |        |  |       | 8,685  |       |  |   | 338 |      |   |   |    |    |  |   | 12,757 |       
|                             
|                             
|                             
|                             
|                              | Currency translation                                       |                |       |           |  |          |    |              |  |          |        |       |  |       |        |      |  |   |     | (285 | ) |   |     |   |  |   |        | (285   | )
|                             
|                             
|                             
|                             
|                              | Net income                                                 |                |       |           |  |          |    |              |  |          |        |       |  |       |        | 8,010 |  |   |     |     |   |   |     |   |  |   |        | 8,010  |  
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       
|                              | Comprehensive income                                       |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        | 7,725  |  
|                             
|                             
|                             
|                             
|                              | Issuance of shares from Initial Public Offering            |                |       | 2,543      |  |          |    | 25            |  |          |        | 24,077 |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 24,102 |  
|                             
|                             
|                             
|                             
|                              | Conversion of subordinated Debt to common stock            |                |       | 400        |  |          |    | 4             |  |          |        | 972    |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 976    |  
|                             
|                             
|                             
|                             
|                              | Exercise of stock options                                  |                |       | 190        |  |          |    | 2             |  |          |        | 535    |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 537    |  
|                             
|                             
|                             
|                             
|                              | Issuance of shares for employee Stock purchase plan        |                |       | 33         |  |          |    |              |  |          |        | 135    |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 135    |  
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                                       |                |       | 78         |  |          |    | 1             |  |          |        | 99     |  |       |        |      |  |   |     |     |   |   |     |   |  |   |        | 100    |  
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       
|Balance at December 31, 2000. |                                                            |                | 7,997 |            |  | $        | 80 |               |  | $        | 29,504 |        |  | $     | 16,695 |       |  | $ | 53  |      |   | $ |    |    |  | $ | 46,332 |       
|                              |                                                            |                |       |            |  |          |    |               |  |          |        |        |  |       |        |       |  |   |     |      |   |   |     |    |  |   |        |       

See accompanying notes.

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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |       |        |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------- | ------ | ----- | ------ | ---- | ------ | ----- | ------ | - | ------- | ----- | ------ | -
|                                                                                             |                                              |                                
|                                                                                             |                                              | Year Ended December 31,        
|                                                                                             |                                              |                                
|                                                                                             |                                              | 1998                            |        | 1999  |        | 2000
|                                                                                             |                                              |                                 |        |       |        |     
|                                                                                             |                                              |                                
|                                                                                             |                                              | (In thousands)                 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Operating activities                                                                         |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Net income                                                                                   |                                              | $                               | 2,305  |       |        | $    | 6,497  |       |        | $ | 8,010   |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Adjustments to reconcile net income to net cash provided by
	(used in) operating activities: |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Depreciation and amortization                |                                 |        | 2,274 |        |      |        | 2,386 |        |   |         | 3,396 |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Loss (gain) on sale of fixed assets          |                                 |        | (12   | )      |      |        | 92    |        |   |         | (3    | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Deferred income tax expense (benefit)        |                                 |        | (686  | )      |      |        | (866  | )      |   |         | (251  | )     
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Provision for doubtful accounts              |                                 |        | 561   |        |      |        | 991   |        |   |         | 249   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Provision for inventory allowances           |                                 |        | 787   |        |      |        | 2,269 |        |   |         | 616   |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Minority interest                            |                                 |        | 18    |        |      |        | (7    | )      |   |         |      |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             | Changes in operating assets and liabilities: |                                 |        |       |        |      |        |       |        |   |         |       |       
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Accounts receivable             |        |       | (4,569 | )    |        |       | (5,974 | ) |         |       | (7,656 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Inventories                     |        |       | (3,410 | )    |        |       | (4,137 | ) |         |       | (6,096 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Prepaid expenses and other      |        |       | 5      |      |        |       | (1,967 | ) |         |       | 657    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Income taxes receivable         |        |       | 85     |      |        |       |       |   |         |       |       |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Accounts payable                |        |       | 1,083  |      |        |       | 98     |   |         |       | (324   | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Accrued salaries and incentives |        |       | 279    |      |        |       | 1,555  |   |         |       | (2,507 | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Accrued warranty                |        |       | 714    |      |        |       | (113   | ) |         |       | 1,109  |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Income taxes payable            |        |       | 30     |      |        |       | 289    |   |         |       | 130    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                             |                                              | Other accrued expenses          |        |       | 775    |      |        |       | 1,707  |   |         |       | 181    |  
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Net cash provided by (used in) operating activities                                          |                                              |                                 | 239    |       |        |      | 2,820  |       |        |   | (2,489  | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Investing activities                                                                         |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Purchases of property and equipment                                                          |                                              |                                 | (1,728 | )     |        |      | (2,781 | )     |        |   | (3,851  | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Proceeds from sale of property and equipment                                                 |                                              |                                 | 38     |       |        |      | 46     |       |        |   | 3       |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Acquisitions of business, net of cash acquired                                               |                                              |                                 |       |       |        |      | (1,508 | )     |        |   |        |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Decrease (increase) in other assets                                                          |                                              |                                 | 194    |       |        |      | (186   | )     |        |   | (252    | )    
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Net cash used in investing activities                                                        |                                              |                                 | (1,496 | )     |        |      | (4,429 | )     |        |   | (4,100  | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Financing activities                                                                         |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Net proceeds from notes payable, long-term debt                                              |                                              |                                 | 1,791  |       |        |      | 3,064  |       |        |   | 249     |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Payments on notes payable and long-term debt                                                 |                                              |                                 | (142   | )     |        |      | (665   | )     |        |   | (15,719 | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Payments on capital lease obligations                                                        |                                              |                                 | (321   | )     |        |      | (531   | )     |        |   | (697    | )    
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Proceeds from initial public offering                                                        |                                              |                                 |       |       |        |      |       |       |        |   | 24,102  |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Proceeds from employee stock purchase plan                                                   |                                              |                                 |       |       |        |      |       |       |        |   | 135     |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Proceeds from exercise of stock options and warrants                                         |                                              |                                 |       |       |        |      | 88     |       |        |   | 637     |      
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Net cash provided by (used in) financing activities                                          |                                              |                                 | 1,328  |       |        |      | 1,956  |       |        |   | 8,707   |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Effect of exchange rate changes on cash                                                      |                                              |                                 | 139    |       |        |      | 100    |       |        |   | (285    | )    
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Net increase in cash                                                                         |                                              |                                 | 210    |       |        |      | 447    |       |        |   | 1,833   |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash at beginning of year                                                                    |                                              |                                 | 260    |       |        |      | 470    |       |        |   | 917     |      
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Cash at end of year                                                                          |                                              | $                               | 470    |       |        | $    | 917    |       |        | $ | 2,750   |      
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Supplemental disclosures of cash flow information                                            |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Conversion of subordinated debt to common stock                                              |                                              | $                               |       |       |        | $    | 1,000  |       |        | $ | 976     |      
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      
|Exchange of stock for minority interest                                                      |                                              | $                               |       |       |        | $    | 165    |       |        | $ |        |      
|                                                                                             |                                              |                                 |        |       |        |      |        |       |        |   |         |      

See accompanying notes.

30



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Accounting Policies

Organization and Description of
Business

Rockford Corporation and subsidiaries (Rockford) is a designer,
manufacturer and distributor of high performance car audio
systems under the Rockford Fosgate and Lightning Audio brand
names for the worldwide car audio aftermarket. Rockford also
sells professional audio products under the Hafler brand name.
Rockford was organized and incorporated under the laws of the
State of Arizona on July 22, 1980. Corporate headquarters
are located in Tempe, Arizona. Manufacturing facilities are
located in Tempe, Arizona, and Grand Rapids, Michigan. Rockford
uses warehouses located in the United States, Germany,
Singapore, Japan and Canada.

During April 1999, the Board of Directors authorized
Rockford to file a registration statement for an initial public
offering of shares of its common stock. On June 28, 1999,
the shareholders approved an increase in the number of
authorized common shares to 40,000,000. Effective August 2,
1999, Rockford executed a 4.3-for-1 common stock split. All
share information in the financial statements has been restated
to reflect the effect of the stock split. On April 20,
2000, the Company completed its initial public offering.

Principles of Consolidation

The consolidated financial statements include the accounts of
Rockford and its wholly owned subsidiaries in Germany, Singapore
and Japan. Significant intercompany accounts and transactions
have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid
investments with remaining maturities of three months or less
when acquired. Rockfords investments have consisted of
commercial paper, certificates of deposit with original
maturities of three months or less and money market accounts.

Fair Value of Financial Instruments

At December 31, 2000, Rockford has the following financial
instruments: cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and capital lease
obligations. The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses
approximates their fair value based on the liquidity of these
financial instruments or based on their short-term nature. The
carrying value of capital lease obligations, notes payable and
long-term debt approximates fair value based on the market
interest rates available to Rockford for debt of similar risk
and maturities.

Net Sales

Sales are recorded at the time of shipment net of related
discounts.

Accounts Receivable

Rockford sells its products principally to car audio and
professional audio dealers primarily in North America, South
America, Europe and Asia. Rockford also sells certain portions
of its product line to a large retail reseller of consumer
electronics in the United States. At December 31, 1999 and
2000, net accounts receivable includes approximately $3,582,000
and $5,658,000, respectively, due from overseas businesses.

In most cases, Rockford also offers a prompt pay discount for
invoices paid under 40 to 60 days of issuance and has
included in its allowance for accounts receivable at
December 31, 1999 and 2000, approximately $415,000 and
$263,000, respectively, with respect to accounts expected to
utilize such discounts after year-end.

31



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Inventories

Inventories consist principally of raw materials of electronic
and mechanical components used in the manufacturing of amplifier
and speaker systems and finished goods. Inventories are carried
at the lower of cost or market using standard costing, which is
reset annually.

Property and Equipment

Property and equipment is stated at cost. Depreciation and
amortization are computed principally on the straight-line
method for financial reporting purposes over a three to five
year life. Leasehold improvements are amortized on the
straight-line method over the shorter period of the lease term
or the estimated useful life of the asset.

Impairment of Long-Lived Assets

In accordance with the Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, Rockford records impairment losses on long-lived
assets used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash
flows estimated to be generated by those assets are less than
the carrying amounts of those assets. This methodology includes
intangible assets acquired. Goodwill relating to specific
intangible assets is included in the related impairment
measurements to the extent it is identified with such assets.

Intangible Assets

Rockford amortizes goodwill over the useful life of the
underlying asset, not to exceed 15 years. As at
December 31, 2000, Rockford had gross goodwill of
$2,508,000 and accumulated amortization of $233,000. For the
year ended December 31, 2000, Rockford recognized $163,000
of amortization expense.

Advertising

Rockford expenses advertising as incurred. Advertising expense
for the years ended December 31, 1998, 1999 and 2000 was
approximately $1,201,000, $1,245,000 and $1,948,000,
respectively.

Income Taxes

Rockford accounts for income taxes under the provisions of SFAS
No. 109, Accounting for Income Taxes. Under
this method, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes.

Net Income per Common Share

Rockford reports net income per common share in accordance with
FASB Statement No. 128, Earnings Per Share.
Diluted net income per share includes the dilutive effects of
options, warrants and convertible securities. Rockford uses
independent valuations and third party transactions in
Rockfords stock to determine fair value of the underlying
shares.

Significant Customer

Rockford has sales to one customer representing
19.9 percent and 16.7 percent of net sales for the years
ended December 31, 1999 and 2000.

32



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Foreign Currency Translation

The financial statements of foreign subsidiaries have been
translated into U.S. dollars in accordance with FASB Statement
No. 52. All balance sheet accounts have been translated
using the current exchange rates at the balance sheet date.
Income statement amounts have been translated using the average
exchange rate for the year. The gains and losses resulting from
the change in exchange rates from year-to-year have been
reported separately as a component of stockholders equity.
The effect on the statement of income of transaction gains and
losses is insignificant.

Stock Based Compensation

Rockford grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the
shares at date of grant. Fair value of the underlying shares is
determined by the market price at the date of the grant.
Rockford has adopted the disclosure-only provisions of SFAS
No. 123 Accounting for Stock-Based
Compensation, and accordingly, recognizes no compensation
expense for the employee stock option grants. Stock option
grants to non-employees are charged to expense based upon the
fair value of the options granted.

Use of Estimates

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
from those estimates.

Reclassifications

Certain reclassifications have been made to the 1998 and 1999
consolidated financial statements to conform them to the 2000
presentation.

New Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, which establishes revised accounting and
reporting standards for derivative instruments and for hedging
activities. It requires that an entity measure all derivative
instruments at fair value and recognize such instruments as
either assets or liabilities in the consolidated statements of
financial condition. The accounting for changes in the fair
value of a derivative instrument will depend on the intended use
of the derivative as either a fair value hedge, a cash flow
hedge or a foreign currency hedge. The effect of the changes in
fair value of the derivatives and, in certain cases, the hedged
items are to be reflected in either the consolidated statements
of income or as a component of other comprehensive income, based
upon the resulting designation. As issued, SFAS No. 133 was
effective for fiscal years beginning after June 15, 1999.
In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging
activities  Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 defers the
effective date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000. Rockford does not expect any
material impact on its results of operations or financial
position as a result of this standard.

2.  Acquisitions

On June 30, 1999, Rockford completed an acquisition of all
of the common stock of Lightning Audio. Under the terms of the
acquisition, Rockford paid $1,550,000 in cash and recorded an
additional $50,000 of purchase consideration obligations for a
total purchase price of $1.6 million. Under the terms of the
acquisition, Rockford could pay up to $600,000 of additional
consideration over the next two years based upon the subsequent
performance of Lightning Audio. Through December 31, 1999,
the former owners of

33



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Lightning Audio had earned $274,000 in additional consideration.
The remaining $326,000 was earned in the year ending
December 31, 2000. Rockford recorded approximately
$2,027,000 of goodwill with respect to the initial purchase and
the additional consideration paid during 1999 and 2000, which is
being amortized over 15 years. The acquisition has been
accounted for under the purchase method of accounting and,
accordingly, the results of operations of Lightning Audio have
been included in Rockfords consolidated results of
operation beginning on July 1, 1999. The acquisition was
not significant under the requirements of the Securities and
Exchange Commission.

On June 14, 1999, Rockford issued 21,500 shares of its
treasury stock in exchange for the 10 percent interest in
its Japanese subsidiaries not already held by Rockford. Rockford
accounted for the acquired interest using the estimated fair
value of the common stock issued of $7.67 per share, which
resulted in the elimination of minority interest and the
recording of approximately $155,000 of goodwill. This goodwill
is also being amortized over a period of 15 years.

3.  Inventories

Inventories consisted of the following:

|                 |  |                |        |      |  |   |        |  
|---------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                 |  |               
|                 |  | December 31,  
|                 |  |               
|                 |  | 1999           |        | 2000
|                 |  |                |        |     
|                 |  |               
|                 |  | (In thousands)
|                
|                
|                
|                
|Raw materials    |  | $              | 5,578  |      |  | $ | 7,330  |  
|                
|                
|                
|                
|Work in progress |  |                | 647    |      |  |   | 863    |  
|                
|                
|                
|                
|Finished goods   |  |                | 10,350 |      |  |   | 13,659 |  
|                 |  |                |        |      |  |   |        |  
|                 |  |                | 16,575 |      |  |   | 21,852 |  
|                
|                
|                
|                
|Less allowances  |  |                | (1,649 | )    |  |   | (1,446 | )
|                 |  |                |        |      |  |   |        |  
|                 |  | $              | 14,926 |      |  | $ | 20,406 |  
|                 |  |                |        |      |  |   |        |  

4.  Property and Equipment

Property and equipment consisted of the following:

|                                               |  |                |         |      |  |   |         |  
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                               |  |               
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 1999           |         | 2000
|                                               |  |                |         |     
|                                               |  |               
|                                               |  | (In thousands)
|                                              
|                                              
|                                              
|                                              
|Machinery and equipment                        |  | $              | 12,228  |      |  | $ | 13,610  |  
|                                              
|                                              
|                                              
|                                              
|Tooling equipment                              |  |                | 4,449   |      |  |   | 5,898   |  
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |                | 1,801   |      |  |   | 2,093   |  
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  |                | 1,185   |      |  |   | 1,256   |  
|                                              
|                                              
|                                              
|                                              
|Construction in process                        |  |                | 574     |      |  |   | 907     |  
|                                               |  |                |         |      |  |   |         |  
|                                               |  |                | 20,237  |      |  |   | 23,764  |  
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |                | (14,696 | )    |  |   | (17,768 | )
|                                               |  |                |         |      |  |   |         |  
|                                               |  | $              | 5,541   |      |  | $ | 5,996   |  
|                                               |  |                |         |      |  |   |         |  

34



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.  Notes Payable and Long-Term Debt

Notes payable and long-term debt consisted of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                |        |      |  |   |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ---- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | December 31,  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 1999           |        | 2000
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                |        |     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | (In thousands)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|$17,000,000 revolving line of credit with a lender
	collateralized by substantially all assets, interest payments at
	prime plus .75 percent (approximately 9.25 percent at
	December 31, 1999) until June 2001 when all remaining
	principal and interest is due and payable. Borrowings under this
	line of credit are limited to a borrowing base defined
	substantially as a percentage of inventory and accounts
	receivable, as defined and adjusted in the agreement |  | $              | 15,000 |      |  | $ | 1    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|$2,000,000 term note payable to a lender collateralized by
	substantially all assets, monthly principal payments of $33,333
	plus interest fixed at 10.67 percent until June 2001 when
	all principal and interest is due and payable                                                                                                                                                                                                                                       |  |                | 970    |      |  |   |     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|8.5 percent subordinated, convertible debentures to related
	parties, unsecured, interest payable quarterly until May 2002
	when all remaining principal and interest is due and payable,
	convertible into common shares at $2.44 per share. These
	debentures were converted into common stock during July 2000.                                                                                                                                                          |  |                | 995    |      |  |   |     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                | 243    |      |  |   | 152  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                |        |      |  |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                | 17,208 |      |  |   | 153  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                | (643   | )    |  |   | (153 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                |        |      |  |   |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | $              | 16,565 |      |  | $ | 0    |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                |        |      |  |   |      |  

Annual maturities of notes payable and long-term debt for the
five years succeeding December 31, 2000 are $1,000 in 2001.
Interest payments were approximately $1,520,000, $1,671,000 and
$794,000 for the years ended December 31, 1998, 1999 and
2000, respectively.

At December 31, 2000, Rockford had a balance of under
$1,000 on its $20,000,000 bank credit facility. This credit
facility contains covenants that place various restrictions on
financial ratios, levels of indebtedness and capital
expenditures, among other things. Rockford was in compliance
with all debt covenants at December 31, 2000.

6.  Leases

Rockford leases equipment under capital leases. Rockford also
leases certain manufacturing, warehouse and office facilities,
and computer hardware and software under noncancelable operating
leases that expire in various years through September 2006.

Property and equipment includes the following amounts for leases
that have been capitalized:

|                              |  |                |        |      |  |   |        |  
|----------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                              |  |               
|                              |  | December 31,  
|                              |  |               
|                              |  | 1999           |        | 2000
|                              |  |                |        |     
|                              |  |               
|                              |  | (In thousands)
|                             
|                             
|                             
|                             
|Equipment                     |  | $              | 3,244  |      |  | $ | 4,295  |  
|                             
|                             
|                             
|                             
|Less accumulated amortization |  |                | (1,631 | )    |  |   | (2,627 | )
|                              |  |                |        |      |  |   |        |  
|                              |  | $              | 1,613  |      |  | $ | 1,668  |  
|                              |  |                |        |      |  |   |        |  

Amortization of leased assets is included in depreciation and
amortization expense.

35



---



##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During the years ended December 31, 1999 and 2000, Rockford
acquired approximately $180,000 and $389,000 of equipment under
capital leases, respectively.

Future minimum payments under capital leases and noncancelable
operating leases with initial terms of one year or more
consisted of the following at December 31, 2000:

|                                   |  |                |       |                  |  |   |       | 
|---------------------------------- |  | -------------- | ----- | ---------------- |  | - | ----- | 
|                                   |  | Capital Leases |       | Operating Leases
|                                   |  |                |       |                 
|                                   |  |               
|                                   |  | (In thousands)
|                                  
|                                  
|                                  
|                                  
|2001                               |  | $              | 854   |                  |  | $ | 1,658 | 
|                                  
|                                  
|                                  
|                                  
|2002                               |  |                | 367   |                  |  |   | 783   | 
|                                  
|                                  
|                                  
|                                  
|2003                               |  |                | 98    |                  |  |   | 472   | 
|                                  
|                                  
|                                  
|                                  
|2004                               |  |                |      |                  |  |   | 281   | 
|                                  
|                                  
|                                  
|                                  
|2005                               |  |                |      |                  |  |   | 142   | 
|                                  
|                                  
|                                  
|                                  
|Thereafter                         |  |                |      |                  |  |   | 898   | 
|                                   |  |                |       |                  |  |   |       | 
|Total minimum lease payments       |  |                | 1,319 |                  |  | $ | 4,234 | 
|                                   |  |                |       |                  |  |   |       | 
|Less amounts representing interest |  |                | (103  | )                |  |   |       | 
|                                   |  |                |       |                  |  |   |       | 
|Present value of net minimum lease |  |                | 1,216 |                  |  |   |       | 
|                                  
|                                  
|                                  
|                                  
|Less current portion               |  |                | (782  | )                |  |   |       | 
|                                   |  |                |       |                  |  |   |       | 
|                                   |  | $              | 434   |                  |  |   |       | 
|                                   |  |                |       |                  |  |   |       | 

Total rental expense for all operating leases was approximately
$1,957,000, $1,719,000 and $2,032,000 for the years ended
December 31, 1998, 1999 and 2000, respectively.

7.  Income Taxes

Significant components of Rockfords deferred tax assets
are:

|                          |                               |                |       |       |  |   |       |       | 
|------------------------- | ----------------------------- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                          |                               |               
|                          |                               | December 31,  
|                          |                               |               
|                          |                               | 1999           |       | 2000 
|                          |                               |                |       |      
|                          |                               |               
|                          |                               | (In thousands)
|                         
|                         
|                         
|                         
|Deferred tax assets:      |                               |                |       |       |  |   |       |      
|                         
|                         
|                         
|                         
|                          | Inventory basis               |                | $     | 756   |  |   | $     | 576   | 
|                         
|                         
|                         
|                         
|                          | Basis in receivables          |                |       | 987   |  |   |       | 828   | 
|                         
|                         
|                         
|                         
|                          | Book over tax depreciation    |                |       | 289   |  |   |       | 606   | 
|                         
|                         
|                         
|                         
|                          | Accrued warranty              |                |       | 1,295 |  |   |       | 1,690 | 
|                         
|                         
|                         
|                         
|                          | Accrued liabilities and other |                |       | 623   |  |   |       | 501   | 
|                          |                               |                |       |       |  |   |       |      
|Total deferred tax assets |                               | $              | 3,950 |       |  | $ | 4,201 |      
|                          |                               |                |       |       |  |   |       |      

36



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Significant components of the federal and state income tax
expense (benefit) are:

|                                 |                           |                         |       |       |   |      |       |       |   |   |       |       |  
|-------------------------------- | ------------------------- | ----------------------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | -
|                                 |                           |                        
|                                 |                           | Year Ended December 31,
|                                 |                           |                        
|                                 |                           | 1998                    |       | 1999  |   | 2000
|                                 |                           |                         |       |       |   |     
|                                 |                           |                        
|                                 |                           | (In thousands)         
|                                
|                                
|                                
|                                
|Current:                         |                           |                         |       |       |   |      |       |       |   |   |       |      
|                                
|                                
|                                
|                                
|                                 | Federal expense           |                         | $     | 1,883 |   |      | $     | 3,994 |   |   | $     | 4,472 |  
|                                
|                                
|                                
|                                
|                                 | State expense             |                         |       | 384   |   |      |       | 942   |   |   |       | 423   |  
|                                
|                                
|                                
|                                
|                                 | Foreign expense           |                         |       | 136   |   |      |       | 18    |   |   |       | 70    |  
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      
|Total current expense            |                           |                         | 2,403 |       |   |      | 4,954 |       |   |   | 4,965 |      
|                                
|                                
|                                
|                                
|Deferred:                        |                           |                         |       |       |   |      |       |       |   |   |       |      
|                                
|                                
|                                
|                                
|                                 | Federal expense (benefit) |                         |       | (719  | ) |      |       | (796  | ) |   |       | (233  | )
|                                
|                                
|                                
|                                
|                                 | State expense (benefit)   |                         |       | 33    |   |      |       | (70   | ) |   |       | (18   | )
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      
|Total deferred expense (benefit) |                           |                         | (686  | )     |   |      | (866  | )     |   |   | (251  | )    
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      
|                                 |                           | $                       | 1,717 |       |   | $    | 4,088 |       |   | $ | 4,714 |      
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      

A reconciliation of Rockfords effective income tax rate to
the federal statutory rate follows:

|                                  |  |                         |       |      |  |      |       |   |  |   |       |  
|--------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                  |  |                        
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 1998                    |       | 1999 |  | 2000
|                                  |  |                         |       |      |  |     
|                                  |  |                        
|                                  |  | (In thousands)         
|                                 
|                                 
|                                 
|                                 
|Federal statutory rate            |  | $                       | 1,374 |      |  | $    | 3,597 |   |  | $ | 4,453 |  
|                                 
|                                 
|                                 
|                                 
|State tax net of federal benefit  |  |                         | 275   |      |  |      | 575   |   |  |   | 273   |  
|                                 
|                                 
|                                 
|                                 
|Nondeductible items               |  |                         | 45    |      |  |      | 98    |   |  |   | 231   |  
|                                 
|                                 
|                                 
|                                 
|Higher (lower) foreign tax rates  |  |                         | 17    |      |  |      | (34   | ) |  |   | (99   | )
|                                 
|                                 
|                                 
|                                 
|Foreign sales corporation benefit |  |                         | (65   | )    |  |      | (145  | ) |  |   | (107  | )
|                                 
|                                 
|                                 
|                                 
|Other, net                        |  |                         | 71    |      |  |      | (3    | ) |  |   | (37   | )
|                                  |  |                         |       |      |  |      |       |   |  |   |       |  
|                                  |  | $                       | 1,717 |      |  | $    | 4,088 |   |  | $ | 4,714 |  
|                                  |  |                         |       |      |  |      |       |   |  |   |       |  

Rockfords income attributable to foreign operations
amounted to approximately $350,000, $150,000 and $285,000 for
the years ended December 31, 1998, 1999 and 2000.

For the years ended December 31, 1998, 1999 and 2000,
Rockford made tax payments of $2,082,000, $4,631,000 (net of
$29,000 in refunds) and $5,305,000 (net of $524,000 in refunds),
respectively.

8.  Common Stock Grants and Options

The Board of Directors of Rockford prior to 1995 granted a
consulting firm, which provided executive and other consulting
services to Rockford, options to purchase 215,000 shares of its
authorized but unissued common stock at a price of $1.51 per
share, protected against dilution, as defined, and expiring in
August 2002. Rockford determined that the $1.51 price per
share was equal to or more than the fair value at the date of
the grant. The stock options were fully vested at
December 31, 1999.

Rockford has elected to follow APB 25 and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires
use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, when the
exercise price of Rockfords employee stock options equals
the market price of the underlying stock on the date of grant,
no compensation expense is recognized.

37



---



##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Rockford has provided a stock option plan for certain employees
and directors. Under the plan, options to purchase common stock
of Rockford will be granted to certain employees and directors
at the fair value of the underlying common stock. The options
generally have a term of ten years and become exercisable over
three years commencing on the date of the grant. Options granted
prior to December 31, 1996, vested 100 percent upon
completion of Rockfords initial public offering on
April 20, 2000. Up to 2,150,000 shares are reserved and may
be offered under this plan. Under certain circumstances,
Rockford has the right to repurchase common stock acquired under
the options at the fair value price.

Proforma information regarding net income and earnings per share
is required by FASB Statement No. 123, which also requires
that the information be determined as if Rockford has accounted
for its employee stock options granted subsequent to
December 31, 1994, under the fair value method of that
Statement. The fair value for these options was estimated at the
date of grant using a minimum value-pricing model with the
following weighted-average assumptions:

|                           |  |      |           |      |  |      |           |  |  |  |           | 
|-------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                           |  | 1998 |           | 1999 |  | 2000
|                           |  |      |           |      |  |     
|Expected life of the award |  |      | 5 years   |      |  |      | 5 years   |  |  |  | 5 years   | 
|                          
|                          
|                          
|                          
|Dividend yield             |  |      | 0 percent |      |  |      | 0 percent |  |  |  | 0 percent | 
|                          
|                          
|                          
|                          
|Risk-free interest rate    |  |      | 6 percent |      |  |      | 6 percent |  |  |  | 6 percent | 
|                          
|                          
|                          
|                          
|Expected volatility        |  |      | 0         |      |  |      | 0         |  |  |  | .97       | 

For purposes of proforma disclosures, the estimated fair value
of the options is amortized to expense over the options
vesting period. Rockfords proforma information follows:

|                                 |         |                           |       |      |  |      |       |      |  |   |       |      | 
|-------------------------------- | ------- | ------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | ---- | 
|                                 |         |                          
|                                 |         | Year Ended December 31,  
|                                 |         |                          
|                                 |         | 1998                      |       | 1999 |  | 2000
|                                 |         |                           |       |      |  |     
|                                 |         |                          
|                                 |         | (In thousands, except per
|                                 |         | share data)              
|                                
|                                
|                                
|                                
|Net income as reported           |         | $                         | 2,305 |      |  | $    | 6,497 |      |  | $ | 8,010 |     
|                                
|                                
|                                
|                                
|Proforma Statement 123 expense   |         |                           | (110  | )    |  |      | (262  | )    |  |   | (248  | )   
|                                 |         |                           |       |      |  |      |       |      |  |   |       |     
|Proforma net income              |         | $                         | 2,195 |      |  | $    | 6,235 |      |  | $ | 7,762 |     
|                                 |         |                           |       |      |  |      |       |      |  |   |       |     
|Proforma income per common share |         |                           |       |      |  |      |       |      |  |   |       |     
|                                
|                                
|                                
|                                
|                                 | Basic   |                           | $     | 0.50 |  |      | $     | 1.35 |  |   | $     | 1.13 | 
|                                 |         |                           |       |      |  |      |       |      |  |   |       |     
|                                 | Diluted |                           | $     | 0.39 |  |      | $     | 1.00 |  |   | $     | .97  | 
|                                 |         |                           |       |      |  |      |       |      |  |   |       |     

Option activity under the stock option plan during the years
ended December 31, 1998, 1999 and 2000 is as follows:

|                                 |  |                  |          |                     |  |                  |           |   |  |  |       | 
|-------------------------------- |  | ---------------- | -------- | ------------------- |  | ---------------- | --------- | - |  |  | ----- | 
|                                 |  |                  |          |                    
|                                 |  |                  |          | Outstanding Options
|                                 |  |                  |          |                    
|                                 |  | Shares Available |          |                     |  | Weighted-Average
|                                 |  | Under Option     |          | Shares              |  | Exercise Price  
|                                 |  |                  |          |                     |  |                 
|Outstanding at December 31, 1997 |  |                  | 627,233  |                     |  |                  | 1,502,880 |   |  |  | 2.89  | 
|                                
|                                
|                                
|                                
|Granted                          |  |                  | (158,025 | )                   |  |                  | 158,025   |   |  |  | 5.38  | 
|                                 |  |                  |          |                     |  |                  |           |   |  |  |       | 
|Outstanding at December 31, 1998 |  |                  | 469,208  |                     |  |                  | 1,660,905 |   |  |  | 3.12  | 
|                                
|                                
|                                
|                                
|Granted                          |  |                  | (172,000 | )                   |  |                  | 172,000   |   |  |  | 7.67  | 
|                                
|                                
|                                
|                                
|Exercised                        |  |                  |         |                     |  |                  | (20,747   | ) |  |  | 3.76  | 
|                                
|                                
|                                
|                                
|Expired or cancelled             |  |                  | 39,777   |                     |  |                  | (39,777   | ) |  |  | 3.05  | 
|                                 |  |                  |          |                     |  |                  |           |   |  |  |       | 
|Outstanding at December 31, 1999 |  |                  | 336,985  |                     |  |                  | 1,772,381 |   |  |  | 3.56  | 
|                                
|                                
|                                
|                                
|Granted                          |  |                  | (79,500  | )                   |  |                  | 79,500    |   |  |  | 11.00 | 

38



---



##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                 |  |                  |         |                     |  |                  |           |   |  |   |      | 
|-------------------------------- |  | ---------------- | ------- | ------------------- |  | ---------------- | --------- | - |  | - | ---- | 
|                                 |  |                  |         |                    
|                                 |  |                  |         | Outstanding Options
|                                 |  |                  |         |                    
|                                 |  | Shares Available |         |                     |  | Weighted-Average
|                                 |  | Under Option     |         | Shares              |  | Exercise Price  
|                                 |  |                  |         |                     |  |                 
|Exercised                        |  |                  |        |                     |  |                  | (190,000  | ) |  |   | 2.42 | 
|                                
|                                
|                                
|                                
|Expired or cancelled             |  |                  | 43,163  |                     |  |                  | (45,515   | ) |  |   | 4.96 | 
|                                 |  |                  |         |                     |  |                  |           |   |  |   |      | 
|Outstanding at December 31, 2000 |  |                  | 300,648 |                     |  |                  | 1,616,366 |   |  | $ | 3.68 | 
|                                 |  |                  |         |                     |  |                  |           |   |  |   |      | 

The weighted-average fair value of options granted during the
years ended December 31, 1998, 1999 and 2000, was $1.08,
$1.99 and $2.85, respectively.

The following table summarizes information about stock options
under the plan outstanding at December 31, 2000:

|                         |  |                     |           |                     |  |           |           |                   |  |           |      |  |  |  |         |  |  |   |      | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | --------- | --------- | ----------------- |  | --------- | ---- |  |  |  | ------- |  |  | - | ---- | 
|                         |  |                     |           |                     |  |          
|                         |  | Options Outstanding |           |                    
|                         |  |                     |           | Options Exercisable
|                         |  |                     |           | Weighted-           |  |           |           |                  
|                         |  |                     |           | Average             |  | Weighted- |           |                   |  | Weighted-
|                         |  | Number              |           | Remaining           |  | Average   |           | Number            |  | Average  
|                         |  | Outstanding at      |           | Contractual         |  | Exercise  |           | Outstanding at    |  | Exercise 
|Range of Exercise Prices |  | December 31, 2000   |           | Life                |  | Price     |           | December 31, 2000 |  | Price    
|                         |  |                     |           |                     |  |           |           |                   |  |          
|$1.51                    |  |                     | 374,739   |                     |  |           | 5.0 years |                   |  | $         | 1.51 |  |  |  | 374,739 |  |  | $ | 1.51 | 
|                        
|                        
|                        
|                        
|$2.44  $3.45            |  |                     | 426,452   |                     |  |           | 5.4 years |                   |  |           | 2.64 |  |  |  | 426,452 |  |  |   | 2.64 | 
|                        
|                        
|                        
|                        
|$4.19  $5.81            |  |                     | 568,675   |                     |  |           | 7.1 years |                   |  |           | 4.52 |  |  |  | 531,318 |  |  |   | 4.45 | 
|                        
|                        
|                        
|                        
|$7.67  $11.00           |  |                     | 246,500   |                     |  |           | 8.4 years |                   |  |           | 8.68 |  |  |  | 104,625 |  |  |   | 8.27 | 
|                         |  |                     |           |                     |  |           |           |                   |  |           |      |  |  |  |         |  |  |   |      | 
|                         |  |                     | 1,616,366 |                     |  |           |           |                   |  |           |      |  |  |  |         |  |  |   |      | 

9.  Earnings Per Share

|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |       | 
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                                                                               |                                                                          |                          
|                                                                                                               |                                                                          | Year Ended December 31,  
|                                                                                                               |                                                                          |                          
|                                                                                                               |                                                                          | 1998                      |       | 1999  |  | 2000
|                                                                                                               |                                                                          |                           |       |       |  |     
|                                                                                                               |                                                                          |                          
|                                                                                                               |                                                                          | (In thousands, except per
|                                                                                                               |                                                                          | share data)              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Numerator:                                                                                                     |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Net income                                                               |                           | $     | 2,305 |  |      | $     | 6,497 |  |   | $     | 8,010 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Effect of dilutive securities interest impact of convertible
	debentures |                           |       | 110   |  |      |       | 72    |  |   |       | 18    | 
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|Numerator for diluted net income per share, income available to
	common stockholders after assumed conversions |                                                                          | $                         | 2,415 |       |  | $    | 6,569 |       |  | $ | 8,028 |      
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|Denominator:                                                                                                   |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Denominator for basic net income per share, weighted, average
	shares    |                           |       | 4,412 |  |      |       | 4,641 |  |   |       | 6,864 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Effect of dilutive securities:                                           |                           |       |       |  |      |       |       |  |   |       |       | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Employee stock options                                                   |                           |       | 772   |  |      |       | 1,075 |  |   |       | 948   | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Warrants                                                                 |                           |       | 70    |  |      |       | 71    |  |   |       | 11    | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                               | Convertible debentures                                                   |                           |       | 697   |  |      |       | 503   |  |   |       | 185   | 
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|                                                                                                               | Dilutive potential common shares                                         |                           |       | 1,539 |  |      |       | 1,648 |  |   |       | 1,144 | 
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|Denominator for diluted net income per share, adjusted weighted
	average shares and assumed conversions        |                                                                          |                           | 5,951 |       |  |      | 6,289 |       |  |   | 8,009 |      
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|Basic net income per share                                                                                     |                                                                          | $                         | 0.52  |       |  | $    | 1.40  |       |  | $ | 1.17  |      
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      
|Diluted net income per share                                                                                   |                                                                          | $                         | 0.41  |       |  | $    | 1.04  |       |  | $ | 1.00  |      
|                                                                                                               |                                                                          |                           |       |       |  |      |       |       |  |   |       |      

39



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.  Contingencies

Rockford is a party to legal proceedings, which arise in the
ordinary course of business. Based upon advice from outside
legal counsel, management is of the opinion that these matters
will have no material effect on Rockfords consolidated
financial position, results of operations or cash funds.

11.  Benefit Plan

Rockford has a 401(k) Retirement Savings Plan (Plan) covering
substantially all employees who have completed six consecutive
months of service without regard to hours of service. Under the
terms of the Plan, employees may make voluntary contributions,
subject to Internal Revenue Service limitations. Rockford will
match employee contributions up to three percent of the
employees annual compensation. Additional contributions to
the Plan can be made at the discretion of the Board of
Directors. Contributions to the Plan during the year ended
December 31, 1998, 1999 and 2000, were approximately
$296,000, $369,000 and $388,000, respectively.

12.  Stock Purchase Plan

On May 17, 1999, the shareholders of Rockford approved the
Employee Stock Purchase Plan. A total of 361,200 shares of
Rockfords common stock are reserved for issuance under the
plan, which became effective September 1, 1999. Employees
will be eligible to participate if they are employed by Rockford
or a participating subsidiary for at least 20 hours per
week and more than five months in any calendar year. Each
employee will be able to purchase up to $25,000 worth of shares,
up to a maximum of 1,000 shares in each calendar year. The price
per share purchased under the plan will generally be
85 percent of the fair market value of the shares.

13.  Segment Information

Rockford operates its business under the car audio, professional
audio and OEM product lines. For each of the periods ended
December 31, 1998, 1999 and 2000, the professional audio
and OEM product lines were not significant and, accordingly, no
additional disclosures of revenue information about products are
required. Below is geographic information for revenues of
Rockford:

|                                    |  |                |        |      |  |      |         |  |  |   |         | 
|----------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------- |  |  | - | ------- | 
|Region(1)                           |  | 1998           |        | 1999 |  | 2000
|                                    |  |                |        |      |  |     
|                                    |  |               
|                                    |  | (In thousands)
|                                   
|                                   
|                                   
|                                   
|United States                       |  | $              | 70,016 |      |  | $    | 105,482 |  |  | $ | 121,375 | 
|                                   
|                                   
|                                   
|                                   
|Other Americas                      |  |                | 4,905  |      |  |      | 5,294   |  |  |   | 7,289   | 
|                                   
|                                   
|                                   
|                                   
|Europe                              |  |                | 6,599  |      |  |      | 7,337   |  |  |   | 7,687   | 
|                                   
|                                   
|                                   
|                                   
|Asia                                |  |                | 6,057  |      |  |      | 5,776   |  |  |   | 8,289   | 
|                                    |  |                |        |      |  |      |         |  |  |   |         | 
|Total sales from external customers |  | $              | 87,577 |      |  | $    | 123,889 |  |  | $ | 144,640 | 
|                                    |  |                |        |      |  |      |         |  |  |   |         | 




|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | Revenues are attributed to geographic regions based on the
	location of customers.

Rockford had no customers who accounted for more than
10 percent of net sales for the year ended
December 31, 1998. For the years ended December 31,
1999 and 2000, sales to one customer accounted for
19.9 percent and 16.7 percent of those periods
net sales, respectively. Rockfords long-lived assets
outside of the United States are not significant.

14.  Interim Financial Results (Unaudited)

The following tables set forth certain unaudited consolidated
financial information for each of the four quarters in the years
ended December 31, 1999 and 2000. In managements
opinion, this unaudited quarterly

40



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

information has been prepared on the same basis as the audited
consolidated financial statements and include all necessary
adjustments, consisting only of normal recurring adjustments
that management considers necessary for a fair presentation of
the unaudited quarterly results when read in conjunction with
the consolidated financial statements and notes. The Company
believes that quarter-to-quarter comparisons of its financial
results are not necessarily meaningful and should not be relied
upon as an indicate of future performance.

|                         |  |                                       |        |         |  |              |        |             |  |       |        |  |  |   |        |  |  |   |         | 
|------------------------ |  | ------------------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                         |  |                                      
|                         |  | Year Ended December 31, 2000         
|                         |  |                                      
|                         |  | March 31                              |        | June 30 |  | September 30 |        | December 31 |  | Total
|                         |  |                                       |        |         |  |              |        |             |  |      
|                         |  |                                      
|                         |  | (In thousands, except per share data)
|                        
|                        
|                        
|                        
|Net Sales                |  | $                                     | 34,588 |         |  | $            | 45,137 |             |  | $     | 36,370 |  |  | $ | 28,545 |  |  | $ | 144,640 | 
|                        
|                        
|                        
|                        
|Gross Profit             |  |                                       | 13,475 |         |  |              | 17,576 |             |  |       | 11,879 |  |  |   | 9,177  |  |  |   | 52,107  | 
|                        
|                        
|                        
|                        
|Operating Income         |  |                                       | 3,583  |         |  |              | 5,729  |             |  |       | 2,656  |  |  |   | 1,563  |  |  |   | 13,531  | 
|                        
|                        
|                        
|                        
|Net Income               |  |                                       | 1,927  |         |  |              | 3,416  |             |  |       | 1,652  |  |  |   | 1,015  |  |  |   | 8,010   | 
|                        
|                        
|                        
|                        
|Basic Income Per Share   |  |                                       | 0.40   |         |  |              | 0.50   |             |  |       | 0.21   |  |  |   | 0.13   |  |  |   | 1.17    | 
|                        
|                        
|                        
|                        
|Diluted Income Per Share |  |                                       | 0.31   |         |  |              | 0.41   |             |  |       | 0.19   |  |  |   | 0.12   |  |  |   | 1.00    | 

|                         |  |                                       |        |         |  |              |        |             |  |       |        |  |  |   |        |  |  |   |         | 
|------------------------ |  | ------------------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                         |  |                                      
|                         |  | Year Ended December 31, 1999         
|                         |  |                                      
|                         |  | March 31                              |        | June 30 |  | September 30 |        | December 31 |  | Total
|                         |  |                                       |        |         |  |              |        |             |  |      
|                         |  |                                      
|                         |  | (In thousands, except per share data)
|                        
|                        
|                        
|                        
|Net Sales                |  | $                                     | 31,798 |         |  | $            | 34,113 |             |  | $     | 31,205 |  |  | $ | 26,773 |  |  | $ | 123,889 | 
|                        
|                        
|                        
|                        
|Gross Profit             |  |                                       | 12,231 |         |  |              | 13,459 |             |  |       | 12,175 |  |  |   | 11,010 |  |  |   | 48,875  | 
|                        
|                        
|                        
|                        
|Operating Income         |  |                                       | 3,324  |         |  |              | 3,747  |             |  |       | 3,041  |  |  |   | 2,419  |  |  |   | 12,531  | 
|                        
|                        
|                        
|                        
|Net Income               |  |                                       | 1,802  |         |  |              | 2,018  |             |  |       | 1,556  |  |  |   | 1,121  |  |  |   | 6,497   | 
|                        
|                        
|                        
|                        
|Basic Income Per Share   |  |                                       | 0.41   |         |  |              | 0.44   |             |  |       | 0.33   |  |  |   | 0.24   |  |  |   | 1.40    | 
|                        
|                        
|                        
|                        
|Diluted Income Per Share |  |                                       | 0.29   |         |  |              | 0.32   |             |  |       | 0.25   |  |  |   | 0.18   |  |  |   | 1.04    | 

41



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##### Table of Contents








|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with Accountants on
	Accounting and Financial Disclosure

None.




PART III




Item 10.  Directors and Executive Officers of
the Registrant

The information required by this item is incorporated by
reference to the sections entitled Executive Officers and
Board of Directors and Section 16(A) Beneficial
Ownership Reporting Compliance in our definitive Proxy
Statement for our Annual Meeting of Stockholders to be held
April 25, 2001.




Item 11.  Executive Compensation

The information required by this item is incorporated by
reference to the sections entitled Executive
Compensation, Executive Officers and Board of
Directors  About the Board and Its
Committees  Director Compensation,
Related Party Transactions  Suttle Employment
Agreement, and Stock Price Performance Graph
in our definitive Proxy Statement for our Annual Meeting of
Stockholders to be held April 25, 2001.




Item 12.  Security Ownership of Certain
Beneficial Owners and Management

The information required by this item is incorporated by
reference to the section entitled Principal Shareholders
and Shareholdings of Officers and Directors in our
definitive Proxy Statement for our Annual Meeting of
Stockholders to be held April 25, 2001.




Item 13.  Certain Relationships and Related
Transactions

The information required by this item is incorporated by
reference to the section entitled Related Party
Transactions in our definitive Proxy Statement for our
Annual Meeting of Stockholders to be held April 25, 2001.

42



---



##### Table of Contents






PART IV






|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedules and Reports on
	Form 8-K

Consolidated Financial Statements

See Index to Consolidated Financial Statements on page 25
of this report.

Financial Statement Schedule

SCHEDULE II    VALUATION AND QUALIFYING
ACCOUNTS

ROCKFORD CORPORATION

|                  |                       |                |   |            |  |                |   |            |  |               |   |       |     |  |   |         |   |  |   |       | 
|----------------- | --------------------- | -------------- | - | ---------- |  | -------------- | - | ---------- |  | ------------- | - | ----- | --- |  | - | ------- | - |  | - | ----- | 
|                  |                       |                |   |            |  |                |   |           
|Column A          |                       | Column B       |   | Column C   |  | Column D       |   | Column E  
|                  |                       |                |   |            |  |                |   |           
|                  |                       | Balance at     |   | Charged to |  |                |   |            |  |              
|                  |                       | Beginning of   |   | Costs and  |  | Charged to     |   |            |  | Balance at   
|Description       |                       | Period         |   | Expenses   |  | Other Accounts |   | Deductions |  | End of Period
|                  |                       |                |   |            |  |                |   |            |  |              
|                  |                       |               
|                  |                       | (In thousands)
|December 31, 2000 |                       |                |   |            |  |                |   |            |  |               |   |       |     |  |   |         |   |  |   |      
|                 
|                 
|                 
|                 
|                  | Receivable allowances |                | $ | 1,830      |  |                | $ | 249        |  |               | $ | 3,010 | (3) |  | $ | 3,662(1 | ) |  | $ | 1,427 | 
|                 
|                 
|                 
|                 
|                  | Inventory reserve     |                |   | 1,649      |  |                |   | 616        |  |               |   |       |     |  |   | 819(2   | ) |  |   | 1,446 | 
|December 31, 1999 |                       |                |   |            |  |                |   |            |  |               |   |       |     |  |   |         |   |  |   |      
|                 
|                 
|                 
|                 
|                  | Receivable allowances |                |   | 1,043      |  |                |   | 991        |  |               |   | 4,377 | (3) |  |   | 4,581(1 | ) |  |   | 1,830 | 
|                 
|                 
|                 
|                 
|                  | Inventory reserve     |                |   | 1,904      |  |                |   | 2,269      |  |               |   |      |     |  |   | 2,524(2 | ) |  |   | 1,649 | 
|December 31, 1998 |                       |                |   |            |  |                |   |            |  |               |   |       |     |  |   |         |   |  |   |      
|                 
|                 
|                 
|                 
|                  | Receivable allowances |                |   | 918        |  |                |   | 561        |  |               |   |      |     |  |   | 436(1   | ) |  |   | 1,043 | 
|                 
|                 
|                 
|                 
|                  | Inventory reserve     |                |   | 1,423      |  |                |   | 787        |  |               |   |      |     |  |   | 306(2   | ) |  |   | 1,904 | 




|    |                                                    
|--- | ---------------------------------------------------
|(1) | Accounts written off net of recoveries and returns.
|   
|(2) | Reserved inventory sold or scrapped.               
|   
|(3) | Amounts netted against sales.                      

Other financial statement schedules have not been presented, as
they are not applicable.

Exhibits

|        |      |                         |  |                                                                                                                                                                                                                               
|------- | ---- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                        
|Number  |      | Description of Document
|        |      |                        
|        | 3.1  |                         |  | Articles of Incorporation+                                                                                                                                                                                                    
|        | 3.2  |                         |  | Restated Bylaws as amended through 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,
	3.3, 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+                                                                                                                                                                                                       

43



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##### Table of Contents



|        |         |                         |  |                                                                                                                                                                                                                 
|------- | ------- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Document
|        |         |                        
|        | 10.3    |                         |  | 1999 Employee Stock Purchase Plan as amended and restated+                                                                                                                                                      
|        | 10.4    |                         |  | Employment Agreement of W. Gary Suttle+                                                                                                                                                                         
|        | 10.5    |                         |  | Indemnity Agreement of 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+                                                                                                                                               

44



---



##### Table of Contents



|        |         |                         |  |                                                                                                                                                                                                                                                                             
|------- | ------- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Document
|        |         |                        
|        | 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+                                                                                                                                                              
|        | 10.40   |                         |  | Sublease Agreement by and between Cerprobe Corporation and
	Rockford Corporation                                                                                                                                                                                            
|        | 10.41   |                         |  | Sublease Agreement by and between Vans Delivery Service,
	Inc. and Rockford Acoustic Designs, Inc.                                                                                                                                                                         
|        | 10.42   |                         |  | Asset Purchase Agreement among James and Norma Fosgate and
	Rockford Corporation**                                                                                                                                                                                          
|        | 21      |                         |  | List of Subsidiaries of Rockford Corporation+                                                                                                                                                                                                                               
|        | 23.1    |                         |  | Consent of Independent Auditors                                                                                                                                                                                                                                             
|        | 99.1    |                         |  | Risk Factors That May Affect Rockfords Operating
	Results, Business Prospects and Stock Price                                                                                                                                                                              




|   |                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------
|** | Portions of the document have been omitted and filed separately
	with the Commission under a request for confidential treatment.
|  
|+  | Previously filed with registration statement effective
	April 19, 2000 and/or amendments                                        
|  
|++ | Previously filed on August 11, 2000 with our Quarterly
	Report on Form 10-Q for the quarter ended June 30,
	2000.               

45



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d), as
amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Phoenix, State of Arizona, on March 13, 2001.



| |                     
| | --------------------
| | ROCKFORD CORPORATION



| |     |                   
| | --- | ------------------
| | By: | /s/ W. GARY SUTTLE

| |                                      
| | -------------------------------------
| |                                      
| | W. Gary Suttle                       
| | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Report has been signed by the following
persons in the capacities and on the dates indicated:

|                                         |  |                                                                                                 |  |               
|---------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | --------------
|Name                                     |  | Title                                                                                           |  | Date          
|                                         |  |                                                                                                 |  |               
|/s/ W. GARY SUTTLEW. Gary Suttle         |  | President, Chief Executive Officer and Director (Principal
	Executive Officer)                  |  | March 13, 2001
|                                        
|/s/ JAMES M. THOMSONJames M. Thomson     |  | Vice President of Finance and Chief Financial Officer, Secretary
	(Principal Financial Officer) |  | March 13, 2001
|                                        
|/s/ D. LYNN THROWERD. Lynn Thrower       |  | Corporate Controller (Principal Accounting Officer)                                             |  | March 13, 2001
|                                        
|/s/ JERRY E. GOLDRESSJerry E. Goldress   |  | Director                                                                                        |  | March 13, 2001
|                                        
|/s/ TIMOTHY C. BARTOLTimothy C. Bartol   |  | Director                                                                                        |  | March 13, 2001
|                                        
|/s/ NICHOLAS G. BARTOLNicholas G. Bartol |  | Director                                                                                        |  | March 13, 2001
|                                        
|/s/ RALPH B. GODFREYRalph B. Godfrey     |  | Director                                                                                        |  | March 13, 2001
|                                        
|/s/ JOHN P. LLOYDJohn P. Lloyd           |  | Director                                                                                        |  | March 13, 2001

46



---



##### Table of Contents



Index to Exhibits

|        |         |                         |  |                                                                                                                                                                                                                               
|------- | ------- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Document
|        |         |                        
|        | 3.1     |                         |  | Articles of Incorporation+                                                                                                                                                                                                    
|        | 3.2     |                         |  | Restated Bylaws as amended through 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,
	3.3, 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 of W. Gary Suttle+                                                                                                                                                                                       
|        | 10.5    |                         |  | Indemnity Agreement of 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+                                                                                                           



---



##### Table of Contents



|        |         |                         |  |                                                                                                                                                                                                                                                                             
|------- | ------- | ----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Document
|        |         |                        
|        | 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+                                                                                                                                                                                                                           



---



##### Table of Contents



|        |       |                         |  |                                                                                                               
|------- | ----- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 10.39 |                         |  | Financing Lease Schedule No. 1000100950 by and between
	Banc One Leasing Corporation and Rockford Corporation+
|        | 10.40 |                         |  | Sublease Agreement by and between Cerprobe Corporation and
	Rockford Corporation                              
|        | 10.41 |                         |  | Sublease Agreement by and between Vans Delivery Service,
	Inc. and Rockford Acoustic Designs, Inc.           
|        | 10.42 |                         |  | Asset Purchase Agreement among James and Norma Fosgate and
	Rockford Corporation**                            
|        | 21    |                         |  | List of Subsidiaries of Rockford Corporation+                                                                 
|        | 23.1  |                         |  | Consent of Independent Auditors                                                                               
|        | 99.1  |                         |  | Risk Factors That May Affect Rockfords Operating
	Results, Business Prospects and Stock Price                




|   |                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------
|** | Portions of the document have been omitted and filed separately
	with the Commission under a request for confidential treatment.
|  
|+  | Previously filed with registration statement effective
	April 19, 2000 and/or amendments                                        
|  
|++ | Previously filed on August 11, 2000 with our Quarterly
	Report on Form 10-Q for the quarter ended June 30,
	2000.