##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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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, 2001

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.)

600 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  x                    No  o | 

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.  o

The aggregate market value of the voting stock
held by non-affiliates of the registrant was $41,089,584 as of
March 15, 2002.

There were 8,378,619 shares of Common Stock
issued and outstanding as of March 15, 2002.

Documents Incorporated by Reference: Portions of
the registrants definitive Proxy Statement relating to the
2002 Annual Meeting of Stockholders to be held on May 8,
2002, 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                                                    
|CONSOLIDATED BALANCE SHEETS      
|CONSOLIDATED STATEMENTS OF INCOME
|                                  | 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 and Related Stockholder Matters
|                                  | Item 13. Certain Relationships and Related Transactions                                                
|PART IV                          
|                                  | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                       
|EX-10.48                         
|EX-10.49                         
|EX-21                            
|EX-23.1                          
|EX-99.1                          



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##### Table of Contents



ROCKFORD CORPORATION

FORM 10-K


DECEMBER 31, 2001


TABLE OF CONTENTS

|                                   |          |                                                                                                |                                                                                                 |  |    |    | 
|---------------------------------- | -------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  | -- | -- | 
|                                   |          |                                                                                                |                                                                                                 | 
|                                   |          |                                                                                               
|Securities and Exchange Commission |          |                                                                                               
|Item Number and Description        |          |                                                                                               
|                                   |          |                                                                                               
|                                   |          | Page                                                                                          
|                                   |          |                                                                                               
|PART I                             |          |                                                                                                |                                                                                                 |  |    |   
|                                   | Item 1.  |                                                                                                | Business                                                                                        |  |    | 2  | 
|                                   | Item 2.  |                                                                                                | Properties                                                                                      |  |    | 16 | 
|                                   | Item 3.  |                                                                                                | Legal Proceedings                                                                               |  |    | 17 | 
|                                   | Item 4.  |                                                                                                | Submission of Matters to a Vote of Security
	Holders                                            |  |    | 18 | 
|                                  
|PART II                            |          |                                                                                                |                                                                                                 |  |    |   
|                                   | Item 5.  |                                                                                                | Market for Registrants Common Equity and
	Related Stockholder Matters                          |  |    | 18 | 
|                                   | Item 6.  |                                                                                                | Selected Financial Data                                                                         |  |    | 18 | 
|                                   | Item 7.  |                                                                                                | Managements Discussion and Analysis of
	Financial Condition and Results of Operations          |  |    | 19 | 
|                                   | Item 7A. |                                                                                                | Quantitative and Qualitative Disclosures About
	Market Risk                                     |  |    | 27 | 
|                                   | Item 8.  |                                                                                                | Financial Statements and Supplementary Data                                                     |  |    | 29 | 
|                                   | Item 9.  |                                                                                                | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure           |  |    | 49 | 
|                                  
|PART III                           |          |                                                                                                |                                                                                                 |  |    |   
|                                   | Item 10. |                                                                                                | Directors and Executive Officers of the Registrant                                              |  |    | 49 | 
|                                   | Item 11. |                                                                                                | Executive Compensation                                                                          |  |    | 49 | 
|                                   | Item 12. |                                                                                                | Security Ownership of Certain Beneficial Owners
	and Management and Related Stockholder Matters |  |    | 49 | 
|                                   | Item 13. |                                                                                                | Certain Relationships and Related Transactions                                                  |  |    | 49 | 
|                                  
|PART IV                            |          |                                                                                                |                                                                                                 |  |    |   
|                                   | Item 14. |                                                                                                | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                                |  |    | 50 | 
|Signatures                         |          |                                                                                                | 53                                                                                              | 
|Exhibit 99.1                       |          | Risk Factors That May Affect Rockfords
	Operating Results, Business Prospects and Stock Price |                                                                                                 |  | 54 |   

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; and                                                         
|
| |  | $8.80 per share, the price at which our shares
	were last sold on March 15, 2002, as reported by The NASDAQ
	Stock Market.

Our calculation of the number of shares held by
affiliates is a good faith estimate for this Annual Report.
Shares held by affiliates include all 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.

1



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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. Our statements 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
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 designs, manufactures and distributes
high-performance audio systems for the mobile, professional and
home theater audio markets. Our mobile audio products are sold
primarily in the worldwide mobile audio aftermarket to consumers
who want to improve the audio systems in their cars, trucks,
boats and airplanes. We market our mobile audio products under
the Rockford Fosgate, Lightning Audio, Q-Logic and MB Quart
brand names, selling products that include digital and analog
amplifiers, speakers, source units, CD changers and accessories.
Based on dollar sales in 2001 of all our brands, we rank first
in U.S. market share for mobile audio amplifiers and second for
mobile audio speakers. We sell professional audio products under
the Hafler and MB Quart brands. We also sell home theater
products under the MB Quart and Fosgate Audionics brands. We
acquired the Q-Logic and MB Quart brands as a result of
acquisitions during the third quarter of 2001.

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, Q-Logic, MB Quart 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 mobile audio brands. We believe our core
	consumers, 16-24 year old males, view Rockford Fosgate as the
	coolest mobile audio brand. Many of these consumers
	devote a significant portion of their time and disposable income
	to their mobile audio systems. We target these consumers by
	offering distinctive, leading-edge products and powerful,
	high-quality sound supported by aggressive grass roots
	marketing. As a result of our consumers loyalty, we
	believe Rockford Fosgate has generated loyalty

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | among the retailers who use our brand, products
	and distinctive marketing programs as a pull brand
	to attract these consumers. Our Rockford Fosgate mobile audio
	products are marketed under three primary brand names:
	(1) Punch  the brand for the majority of our
	amplifiers, subwoofers, speakers and source units;
	(2) Power  the brand for our higher performing
	amplifiers, subwoofers, and speakers; and (3) Type
	RF  our highest performing mobile audio amplifiers,
	introduced at the 2002 Consumer Electronics Show. We sell
	Rockford Fosgate products to Nissan for installation as part of
	the factory installed audio system for three models of Nissan
	vehicles, the Sentra, Xterra and Frontier Crew Cab. We also sell
	Rockford Fosgate products under the Connecting Punch brand (for
	a full line of mobile audio installation accessories) and the
	Punch Sport brand (for promotional items and clothing);
|
| |  | Lightning Audio.When we acquired Lightning Audio in
	1999 it was a manufacturer and distributor of mobile audio
	accessories. We acquired Lightning Audio with a view toward
	marketing a complementary line of mobile audio products under
	the Lightning Audio brand. In addition to accessories, we now
	sell amplifiers and subwoofers under the Storm brand and
	amplifiers, a full line of speakers and subwoofers under the
	Bolt and Strike 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 mobile 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 plan to distribute home theater
	speakers and electronics under the Fosgate Audionics brand
	through conventional retail channels. 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. Our
	target dealers for this brand are specialty audio and home
	theater stores;                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Q-Logic.Our
	recently acquired subsidiary, Audio Innovations, develops and
	markets Q-Logic speaker enclosures, Q-Forms kick panels and
	Q-Customs enclosures. Each of these products is designed to hold
	mobile audio speakers, providing an effective and convenient
	method for installing improved speakers in cars, trucks and
	SUVs. These products complement our existing Rockford Fosgate,
	Lightning Audio and MB Quart products, since many consumers will
	purchase an Audio Innovations product as the box to
	hold Rockford Fosgate, Lightning Audio or MB Quart speakers; and                                                                                                                                                                                                                                                                                                                                                 
|
| |  | MB Quart.We
	recently acquired the MB Quart business and assets. MB Quart is
	located in Obrigheim, Germany, where it develops, engineers and
	manufactures speaker products. We sell MB Quart speakers
	primarily for the mobile audio market, with strength in tweeter,
	coaxial and component speakers, the speakers used to reproduce
	mid-range and higher frequency sounds. The MB Quart mid-range
	and tweeter products are priced even higher than our Rockford
	Fosgate brand speakers, and offer German engineered precision to
	our customers. Our MB Quart brand appeals to consumers who are
	willing to pay a premium price for some of the best mobile audio
	speakers on the market. In addition to mobile audio speakers, we
	also manufacture and distribute home audio speakers and
	professional headphones under our MB Quart brand.                                                                                       

Growth of Our Brands

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

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and reinforce the global brand images of Rockford
Fosgate, Lightning Audio, Hafler, Fosgate Audionics, Q-Logic and
MB Quart among consumers and retailers. Key elements of our
growth strategy are to:




| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to introduce new and technologically
	innovative products;                                                               
|
| |  | Acquire, develop and expand 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 and
	presence in Germany 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 mobile,
professional and home theater audio markets.

Our Products

Percent
of Sales by Product Class

Our sales since 1999 were divided among our
principal product classes as shown in the following table:

|               |       |                         |      |       |   |      |      |       |   |  |      |       |  
|-------------- | ----- | ----------------------- | ---- | ----- | - | ---- | ---- | ----- | - |  | ---- | ----- | -
|               |       |                        
|               |       | Year Ended December 31,
|               |       |                        
|               |       | 1999                    |      | 2000  |   | 2001
|               |       |                         |      |       |   |     
|Product Class: |       |                         |      |       |   |      |      |       |   |  |      |      
|Amplifiers     |       |                         | 45.5 | %     |   |      | 43.9 | %     |   |  | 41.9 | %    
|Speakers       |       |                         | 33.1 |       |   |      | 35.1 |       |   |  | 32.5 |      
|Accessories    |       |                         | 11.8 |       |   |      | 14.2 |       |   |  | 15.3 |      
|Others(1)      |       |                         | 9.6  |       |   |      | 6.8  |       |   |  | 10.3 |      
|               |       |                         |      |       |   |      |      |       |   |  |      |      
|               | 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.

Financial information about operating and
geographic segments may be found at Note 13 of the Notes to our
Consolidated Financial Statements, set forth at page 47 of this
report.

Mobile
Audio

We offer a full line of high-performance mobile
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 mobile 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 mobile audio systems                                                                                                                               

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| |   |                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | and are often the single most important
	improvement consumers can make to their mobile audio systems;                                                                                                                                                                                                
|
| |  | Source Units.Source
	units are the control center for a mobile 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; and                                                                                                                
|
| |  | Enclosures.Enclosures are used to enhance the bass sound of subwoofers and
	to position higher frequency speakers in locations that produce
	better sound. Enclosures include boxes for subwoofers,
	installation adapters and replacement kick panels for improved
	speaker placement.               

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

|              |  |                                                                                                                                                                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amplifiers:   |  |  28 power amplifier models under our
	Punch, Power and Type RF brands, with rated power from 75 to
	1,500 watts, and minimum advertised prices from $149.99 to
	$1,199.99. Our amplifiers include 1, 2 and 4 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 $149.99 to
	$399.99. 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 and Power brands, with minimum advertised prices
	from $59.99 to $799.99;                                                                                                                                                                                      
|             
|Source Units: |  |  Five models of source units with MP3
	playback compatibility, with minimum advertised prices from
	$299.99 to $499.99;                                                                                                                                                                                               
|             
|Accessories:  |  |  Over 400 different accessories,
	including amplifier installation kits, interconnect and speaker
	cables, carpet/fabric/surface applications and stiffening
	capacitors under our Connecting Punch brand name; and                                                                                                   
|              |  |  Various promotional materials and
	clothing under our Punch Sport brand.                                                                                                                                                                                                                                             

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

|             |  |                                                                                                                                                                                          
|------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amplifiers:  |  |  17 power amplifier models under our
	Bolt, Strike and Storm brands, with rated power from 60 to 2,000
	watts and minimum advertised prices from $99.95 to $999.95;                     
|            
|Speakers:    |  |  45 speakers and subwoofers under our
	Bolt, Strike and Storm brands, with minimum advertised prices
	from $29.95 to $749.95;                                                           
|            
|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; and                                                                                                 
|             |  |  Various back shop supplies, including
	vehicle harnesses, power distribution adapters, batteries, RCA
	connectors, wire, wiring accessories and fuses under our
	InstallEdge.com brand.

Under our Q-Logic brand we currently offer 76
speaker enclosure models (in a variety of colors to match
standard factory colors) in our Q-Logic, Q-Forms and Q-Customs
product lines. These models have suggested retail prices from
$29.95 to $319.95 for each enclosure.

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Under our MB Quart brand in the U.S. we sell five
mobile speaker lines, including:



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | 11 models of Q-Series speakers, with suggested
	retail prices from $649.00 to $1,499.00 per pair;                                           
|
| |  | 10 models of Premium Series speakers, with
	suggested retail prices from $479.00 to $829.00 per pair;                                       
|
| |  | 19 models of Reference Series speakers, with
	suggested retail prices from $249.00 to $449.00 per pair;                                     
|
| |  | 20 models of Discus Series speakers, with
	suggested retail prices from $109.00 to $399.00 per pair; and                                    
|
| |  | 2 models of Nautic Series speakers, specifically
	designed for use in boats, with suggested retail prices from
	$249.00 to $449.00 per pair.

Our branded products have won numerous consumer
and industry awards, including Autosound Grand Prix awards in
every year from 1987 through 2002, EIA/ CES Innovation Awards at
the Consumer Electronics Shows in every year from 1997 through
2002 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. At the 2002 Consumer Electronics Show, Rockford
Fosgate won three Innovations Design and Engineering Awards and
Lightning Audio won two Innovations Design and Engineering
Awards.

Our custom demonstration vehicles were named
best of show at each of the 2001 and 2002 Consumer
Electronics Shows.

OEM
Products

Nissan North America offers a Rockford Fosgate
branded OEM system for three Nissan vehicles for model year
2002. Rockford Fosgate systems are 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 include
a radio/ CD player, speakers and an amplifier. For the 2003
model year Nissan has agreed to add a Rockford Fosgate enclosure
to the Rockford Fosgate systems available in the Xterra.

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 mobile 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:       |  |  11 power amplifier models, with rated
	power from 110 to 1,000 watts and suggested retail prices from
	$249.00 to $2,200.00; and                         
|Powered Speakers: |  |  Three powered monitors and two
	powered subwoofers, which are speakers with integrated
	amplifiers, with suggested retail prices from $625.00 to $845.00.

Pro Audio Review Magazine declared our Hafler
9505 professional amplifier Best Amplifier of the
1990s during 2001. Hafler products also won awards
from Pro Audio Review Magazine in 1996 and 1997, Mix Magazine in
1996 and 1998 and Electronic Musician Magazine Editors
Choice Award in 1999, 2000 and 2001.

MB Quart sells headphones for professional use,
with suggested retail prices ranging from $150.00 to $1,944.00
per pair.

Home
Theater

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

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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. We plan to distribute 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 Home Theater
Specialists of America buying group profile.


MB Quart sells bookshelf, tower and in-wall
speakers, with suggested retail prices ranging from $99.00 to
$1,799.00 per pair.

New
Products and New Businesses

On January 7, 2002, at the annual Consumer
Electronics Show, we announced the redesign and launch of a
majority of our product lines for 2002. Our core Rockford
Fosgate line of amplifiers and sub-woofers, our Lightning Audio
line of entry-level performance systems, our Q-Logic enclosures
and our Fosgate Audionics brand all featured new technologies
and products.

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.coms
core business is back shop supplies that are used by mobile
audio install shops, custom home installers and marine
outfitters.

On August 1, 2001, we acquired the Audio
Innovations business and its Q-Logic brand by purchasing all of
the outstanding shares of common stock of Audio Innovations,
Inc., an Oklahoma corporation. Audio Innovations develops and
markets branded mobile audio products including Q-Logic speaker
enclosures, Q-Forms kick panels and Q-Customs enclosures. Each
of these products are designed to hold mobile audio speakers,
providing an effective and convenient method for installing
improved speakers in cars, trucks and SUVs. These products
complement our existing Rockford Fosgate, Lightning Audio and
MB Quart products, since many consumers will purchase a
Q-Logic product as the box to hold Rockford Fosgate,
Lightning Audio or MB Quart speakers. Audio Innovations has
an additional business, GSC, which sells garage storage cabinets
for home use.

On September 1, 2001, we acquired the assets
of MB Quart Akustik GmbH including all of the stock of its U.S.
subsidiary, M.B. Quart Electronics (USA), Inc.
MB Quart Akustik GmbH had been placed into receivership
under German bankruptcy law in May 2001 when its principal
banks refused to provide additional funding because of defaults
under their loan agreements with MB Quart Akustik GmbH.
MB Quart Akustik GmbH had been the subject of a leveraged
buyout in 1998 and, in our view, failed principally because of
inadequate capitalization after the buyout, unstable management
and poor marketing decisions in its European home audio
business. We believe that we will be able to correct these
issues and complete a turnaround that new management began just
before the receivership.

MB Quart, located in Obrigheim, Germany,
develops, engineers and manufactures speaker products and
technologies, primarily for the mobile audio market. Its
strength in the mobile audio market is in tweeter, coaxial and
component speakers, the speakers used to reproduce mid-range and
higher frequency sounds for quality audio systems. In this
market, it is a highly respected premium brand. In
addition to mobile audio speakers, MB Quart also
manufactures and distributes home speakers and professional
headphones. MB Quarts U.S. headquarters, warehousing
and marketing facility was located in Walpole, Massachusetts. We
closed this facility in December 2001 and relocated the
U.S. operations to our existing facilities.

During 2001 we also licensed the use of our
Rockford Fosgate brand and our proprietary Punch
bass equalization circuit to Milwaukee Electric Tool
Corporation. Milwaukee is one of the leading sellers in the U.S.
of professional power tools. Our license agreement authorizes
Milwaukee to produce a portable radio boom box, capable of being
powered by the battery packs that also power Milwaukees
professional tools. The product will carry both the Milwaukee
and the Rockford Fosgate brands. Milwaukee will distribute the
product through its distribution network, which sells portable
electric tools and accessories through retail stores that sell
tools to professional and non-professional users. We will not
bear any of the costs of manufacture or distribution, but will
receive a small royalty for each unit sold. We do not expect the
revenues from this agreement to be significant, but believe it
will offer another avenue to enhance the value of our

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brand. We believe this product will offer
professional users, especially construction workers, a higher
quality mobile audio experience even in environments where they
are limited to a simple boom box.


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 $2.3 million, $2.8 million and $3.3 million in
1999, 2000 and 2001, respectively.

As at December 31, 2001, our research and
development staff (including Q-Logic and MB Quart)
consisted of 20 design engineers, as well as other support
staff, dedicated to product development. They 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 2001,
approximately 80% 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 crossovers 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;    
|
| |  | Digital signal processing technology;                                                    
|
| |  | Speaker enclosures; and                                                                  
|
| |  | Innovative speaker component materials.                                                  

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 high quality and value. We believe that
the combination of our hard-hitting advertising campaigns with
our rugged and durable product offerings has created worldwide
recognition and loyalty among our core consumers. Our products
are promoted with advertisements in mobile audio magazines,
newspapers and other publications as well as on television,
radio and the Internet. We participate

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in trade and consumer shows, support users of our
products in auto sound competitions and supply promotional
prizes and giveaways.


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 sales and installation personnel
	at our Rockford Technical Training Institute;                                            
|
| |  | 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.com,
www.hafler.com, www.installedge.com, www.fosgateaudionics.com,
www.airesearch.com, and www.mbquart.comoffer
consumers and retailers reliable and comprehensive information
about our product offerings and consumer services. Because our
core mobile 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.

Mobile
Audio Distribution

Domestic
Distribution.We currently sell our
mobile audio products in the U.S. to approximately 2,450
independent retail stores. These 2,450 stores include
independent specialty dealers and audio/video retailers, who we
may appoint to sell some or all of our mobile audio brands.
These stores also include consumer electronics chains and
catalog merchants, who we may appoint to sell some or all of our
mobile audio brands other than MB Quart. We sell MB Quart
products only in independent specialty dealers and audio/video
retailers.

We sell directly to most of our authorized retail
dealers using 43 independent sales representative firms who
identify, recruit and sell to retailers in their regions. Our
representative firms employ approximately 400 field
personnel who make regular calls on dealers in their region. We
have entered into one-year agreements with each of these sales
representative 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 commissions based on sales of our products to
independent retailers in their territory. Commission amounts
range from 1% to 9% of sales depending upon (1) product
category, (2) the retailer involved in the purchase and
(3) achievement of quarterly sales targets.

We also permit some of our Rockford Fosgate brand
sales representatives to stock a small quantity of our Rockford
Fosgate products for resale to smaller dealers. These smaller
dealers are generally located in rural areas, or otherwise have
very small volume potential, so that it is not economical for us
to appoint them as direct retailers. They nevertheless provide a
useful extension of our distribution system into more remote
regions. Our stocking representative program allows us to serve
these dealers efficiently. In a few instances where a sales
representative is not available, we have appointed independent
distributors to handle smaller dealers in a particular territory.

We support our independent sales representative
firms using an in-house staff of 11 U.S. regional managers and
eight sales support staff members.

International
Distribution.We currently sell our
mobile audio products in 59 other countries using independent
distributors and sales representatives. Independent distributors
purchase products from us and

9



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resell them to retailers in their designated
territories. They assume inventory risk and take responsibility
for warranty service in their territory.


In Canada, Germany, Austria, Switzerland and
Japan we sell our Rockford Fosgate products through independent
sales representatives. Independent sales representatives do not
purchase products from us, but instead sell products on our
behalf. We remain responsible for inventory until an independent
retailer purchases it, we are responsible for collecting
accounts receivable from our retailers and we retain
responsibility for warranty service. We are generally able to
increase our penetration in these markets, compared to an
independent distribution model, because commissions to
independent sales representatives are less than the distributor
mark-up, allowing us to reduce prices to the consumer while we
keep 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.

We support our international distributors and
sales representatives using an in-house staff of five
international sales managers.

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. 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 37 independent distributors in over 37 countries.

We distribute MB Quart home theater
speakers, and plan to distribute Fosgate Audionics home theater
products, through conventional retail channels via a network of
manufacturers representatives. Our target dealers for the
Fosgate Audionics 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 mobile audio market, rapid product
obsolescence. We compete in the mobile 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                                                                                                                                                                                                                          
|
| |  | Large consumer electronics suppliers.These companies offer mobile 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

10



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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:




| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | Mobile Audio Amplifiers:Alpine, Jensen, Kenwood, Kicker, MTX,
	Pioneer and Sony;                                                 
|
| |  | Mobile Audio Speakers:Boston Acoustics, Infinity, Jensen, JL
	Audio, Kenwood, Kicker, MTX, Pioneer and Sony;                     
|
| |  | Mobile Audio Source Units:Alpine, Fujitsu Eclipse, Kenwood,
	Pioneer and Sony;                                                   
|
| |  | Mobile Audio Accessories:Monster Cable, Phoenix Gold and
	Stinger;                                                               
|
| |  | Professional Audio Amplifiers and Speakers:Crest, Crown, Eastern Acoustic Works,
	Mackie Designs, Peavy, QSC, KRK and Tannoy; and
|
| |  | Home Theater:Adcom,
	Bose, Boston Acoustics, Denon, Harman Kardon, Infinity, JBL,
	Klipsh, Polk Audio, Rotel, Sony and Yamaha.   

According to NPD Intelect Market Tracking, based
on U.S. dollar sales in 2001 of all our brands, we rank:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | First among our competitors in mobile audio
	amplifiers; and
|
| |  | Second among our competitors in mobile 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 have a very small share of the market for home
theater audio products.

We also compete indirectly with automobile
manufacturers, who may improve the quality of original equipment
sound systems, reducing demand for aftermarket mobile 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 mobile 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. Audio Innovations manufactures its
products at our facilities in Stillwater, Oklahoma. MB Quart
manufactures its products at our facility in Obrigheim, Germany.

Hyundai Electronics supplies all of the source
units we resell under the Rockford Fosgate brand. Hyundai
manufactures source units in accordance with our specifications.
We develop these units jointly with Hyundai and then purchase
them from Hyundai on an exclusive basis. Our agreement with
Hyundai obligates us to place monthly purchase orders with
Hyundai and is subject to cancellation charges for partially or
totally cancelled orders. Our agreement with Hyundai commenced
April 8, 1999, and expires July 31, 2003. For the year
ended December 31, 2001, we paid Hyundai approximately
$9.6 million under the agreement.

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 10.3% of our inventory purchases during 2001. 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 U.S. speaker and
electronic manufacturing facilities. Cellular manufacturing
provides flexibility and efficiency because any cell

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can manufacture any product, depending on market
demand. Lot sizes are small and feedback from the manufacturing
process is quick. MB Quart in Germany uses cellular
manufacturing processes similar to those used in our U.S.
manufacturing facilities.


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. Each 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.

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® | 

| |                           | 
| | ------------------------- | 
| |  Our Diamond R logo    | 
| |  The Punch®              | 
| |  Connecting Punch®       | 
| |  Fanatic X              | 
| |  Fanatic P              | 
| |  Car Audio for Fanatics® | 
| |  Type RF                 | 
| |  Practice Safe Sound®    | 
| |  RF Arrow Design        | 
| |  RF Punch & Design      | 
| |  RF Arrow with Oval     | 
| |  Punch Sport®            | 
| |  RTTI Interactive       | 
| |  TOPAZ                  | 

| |   |                  | 
| | - | ---------------- | 
| |  | Lightning Audio® | 

| |                          | 
| | ------------------------ | 
| |  Strike                | 
| |  Storm                 | 
| |  Bolt                  | 
| |  InstallEdge.com®       | 
| |  Dead Skin Fanatic      | 
| |  Urban Industrial Gear | 



| |   |                    | 
| | - | ------------------ | 
| |  | Audio Innovations | 

| |              | 
| | ------------ | 
| |  Q         | 
| |  Q-Logic   | 
| |  Q-Forms   | 
| |  Q-Customs | 

| |   |           | 
| | - | --------- | 
| |  | MB Quart® | 

| |                      | 
| | -------------------- | 
| |  Q-Series           | 
| |  Discus             | 
| |  Nautic             | 
| |  Fosgate Audionics® | 

| |   |         | 
| | - | ------- | 
| |  | Hafler® | 

| |                | 
| | -------------- | 
| |  The Standard | 

Our Growth Strategy

Our goal is to design, produce and distribute the
best engineered and most recognized and respected brands of
high-performance mobile, professional and home theater 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, Q-Logic, MB Quart, 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 enhance the strength of our 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-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.

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In January 2002, 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:



| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | Type RF amplifiers;                                            
|
| |  | Five new source units;                                         
|
| |  | New technology or cosmetic upgrades for all
	amplifiers;       
|
| |  | A redesign of key subwoofer products for our
	Punch brand;     
|
| |  | A relaunch of the Punch brand full-range coaxial
	speakers; and
|
| |  | A redesign of the fnX component speaker
	systems.             

For Lightning Audio:



| |   |                                                                 
| | - | ----------------------------------------------------------------
| |  | A redesign of Strike and Storm amplifiers;                      
|
| |  | A redesign of all Strike woofers;                               
|
| |  | New Bolt amplifier model and a new Bolt full
	range speaker; and
|
| |  | New accessory products for the Storm brands.                    

We are developing products to add video
capabilities to our Rockford Fosgate mobile audio systems, with
the goal of allowing our consumers to watch DVD movies in their
cars. 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. For our recently acquired brands, we are
continuing to develop new speaker enclosure products for Q-Logic
and are working on significant further improvement to our MB
Quart product lines.

Acquire, Develop and Expand Additional Audio
Brands.We continue to look for
opportunities to add new brands through acquisition or internal
development. We believe that we have substantial opportunities
to acquire car, home and professional audio brands that will
complement our existing brand portfolio. We believe that the
introduction or acquisition 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.

We have acquired a number of brands as part of
this strategy, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lightning Audio, acquired in June 1999, was
	the first brand in our acquisition strategy. For this brand we
	developed new mobile audio products marketed at more moderate
	price points than our Rockford Fosgate products;                                                                                                                                                                                                                                                                                                                                
|
| |  | We acquired the Fosgate Audionics brand in late
	2000 and are developing a new line of home theater products;                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | We acquired the Audio Innovations business and
	its Q-Logic brand in 2001, providing products that complement
	our existing Rockford Fosgate, Lightning Audio and MB Quart
	products. Many consumers will purchase an Audio Innovations
	product as the box to hold Rockford Fosgate,
	Lightning Audio or MB Quart speakers; and                                                                                                                                                                                                                          
|
| |  | We acquired MB Quart in 2001.
	MB Quarts strength in the mobile speaker market is in
	tweeter, coaxial and component speakers, the speakers used to
	reproduce mid-range and higher frequency sounds for quality
	audio systems. In this market, it is a highly respected
	premium brand and we expect it to add to our
	distribution strength by providing a super premium
	alternative to our Rockford Fosgate products. Its home audio
	speakers and professional headphones should also complement our
	Hafler and Fosgate Audionics product lines.

13



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Broaden Our Distribution.We intend to broaden the distribution
of our products by entering new distribution channels and
increasing penetration of our existing distribution channels. We
intend to increase our penetration of specialty dealer,
audio/video retailer, consumer electronics retailer and catalog
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 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
and MB Quart brand names are as widely recognized in many
foreign countries as they are in the U.S. We intend to
aggressively expand Rockford Fosgate, Lightning Audio, Q-Logic,
MB Quart, Fosgate Audionics and Hafler in international
markets.

In 2000 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 Rockford Fosgate mobile audio products
directly to retailers in Canada, Germany, Austria, Switzerland
and Japan, and through independent distributors in 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.

We sell home theater products under our MB Quart
brand and we are developing a line of home theater products
under our new Fosgate Audionics brand, 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
MB Quart and Fosgate Audionics home theater audio products
through traditional retail channels.

Significant Customer and Seasonality

Best Buy is a significant customer. We began
selling a limited selection of our products to Best Buy in early
1999 and currently sell to each of its more than 450 stores
nationwide. Best Buy is one of the largest volume specialty
retailers of consumer electronics and entertainment software in
the U.S. During 2001 Rockford was Best Buys second largest
supplier of mobile audio equipment, representing over 10% of
Best Buys mobile audio sales. Best Buy accounted for 16.7%
of our sales for 2000 and 16.3% of our sales for 2001.

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 out
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 mobile 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.

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 materially reduce our sales.

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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.

Our Rockford Technical Training Institute, one of
the first and most advanced of its kind in our industry, trains
approximately 3,000 retail sales and installation personnel per
year on installation, sales and marketing techniques that help
them sell mobile 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, Switzerland 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;                       
|
| |  | Provide accurate and timely information; and 
|
| |  | Facilitate integration of new acquisitions.  

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 Internet 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.

We have also implemented Internet systems to
provide accurate and timely information to our suppliers in
support of just-in-time delivery of components to our
manufacturing floor. These systems help us reduce cost by
reducing our inventory requirements and providing better
information about our suppliers. For 2001,

15



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the Inside Track Supplier Loyalty Test survey
found that our Rockford Fosgate brand has the best Internet
support for its dealers. This was the second year in a row for
the first place result in this survey.


Employees

As at December 31, 2001, we had 802 total
employees. At that date, in the U.S., 427 were engaged in
manufacturing, 49 in research and development, 47 in sales and
marketing and 88 in administration. We also had 191 employees
working outside of the U.S. in various functions. We have never
had a work stoppage and none of our U.S. employees are
unionized. The employees at MB Quart in Obrigheim, Germany, are
unionized and, in accordance with German law and custom, are
subject to an industry wide collective bargaining agreement. We
believe our employee relations are good.

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
substances 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. In the
U.S. we manufacture speakers at our facility in Grand Rapids,
Michigan. We use warehouses strategically located in the U.S.,
Germany, Singapore and Japan that enhance our ability to serve
our markets faster and more cost effectively than many of our
competitors. MB Quart operates and manufactures product in owned
facilities in Obrigheim, Germany.

16



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The following table contains information about
our facilities as at December 31, 2001, all of which are
leased except for the MB Quart facilities that we own:

|                                                                                                              |       |                        |  |                |        |                |  |                  |         |           |  |                      | 
|------------------------------------------------------------------------------------------------------------- | ----- | ---------------------- |  | -------------- | ------ | -------------- |  | ---------------- | ------- | --------- |  | -------------------- | 
|                                                                                                              |       |                        |  |                |        | Approximate    |  |                 
|                                                                                                              |       |                        |  | Approximate    |        | 2001 Annual    |  |                 
|Function                                                                                                      |       | Location               |  | Square Footage |        | Rental Expense |  | Lease Expiration
|                                                                                                              |       |                        |  |                |        |                |  |                 
|Corporate headquarters                                                                                        |       | Tempe, Arizona         |  |                | 30,000 |                |  | $                | 261,000 |           |  | September 30, 2004  
|Information systems and RTTI                                                                                  |       | Tempe, Arizona         |  |                | 15,000 |                |  |                  | 160,000 |           |  | September 30, 2004  
|Manufacturing, research and development and
	purchasing                                                       |       | Tempe, Arizona         |  |                | 22,000 |                |  |                  | 152,000 |           |  | December 31, 2004(1)
|Warehousing, sales and customer service                                                                       |       | Tempe, Arizona         |  |                | 25,000 |                |  |                  | 172,000 |           |  | December 31, 2004(1)
|Warehousing and sales                                                                                         |       | Gilbert, Arizona       |  |                | 54,000 |                |  |                  | 368,000 |           |  | July 31, 2003       
|Manufacturing, research and development,
	purchasing and administration                                       |       | Grand Rapids, Michigan |  |                | 81,000 |                |  |                  | 246,000 |           |  | March 31, 2002(2)   
|Warehousing                                                                                                   |       | Grand Rapids, Michigan |  |                | 45,000 |                |  |                  | 127,000 |           |  | November 30, 2002   
|Manufacturing, research and development,
	warehousing and administration                                      |       | Stillwater, Oklahoma   |  |                | 69,000 |                |  |                  | 59,000  |           |  | June 30, 2006       
|Warehousing, sales, customer service and
	administration                                                      |       | Walpole, Massachusetts |  |                | 19,500 |                |  |                  | 38,000  |           |  | December 31, 2001(3)
|Warehousing and sales                                                                                         |       | Mishima, Japan         |  |                | 7,500  |                |  |                  | 143,000 |           |  | April 30, 2011      
|Warehousing                                                                                                   |       | Singapore              |  |                | 9,000  |                |  |                  | 127,000 |           |  | January 31, 2004    
|Warehousing and sales                                                                                         |       | Bremen, Germany        |  |                | 20,000 |                |  |                  | 103,000 |           |  | December 30, 2006   
|Manufacturing, research and development, sales,
	warehousing, customer service, purchasing and administration |       | Obrigheim, Germany     |  |                | 70,500 |                |  |                  |        |           |  | Owned               
|                                                                                                              |       |                        |  |                |        |                |  |                  |         |           |  |                     
|                                                                                                              | Total |                        |  |                |        | 467,500        |  |                  | $       | 1,956,000 |  |                      | 
|                                                                                                              |       |                        |  |                |        |                |  |                  |         |           |  |                     




|    |                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have the right to extend each of these leases
	for two additional one-year terms.                                                                                                                                                                                                    
|   
|(2) | We have the right to extend this lease for one
	additional one-year term.                                                                                                                                                                                                               
|   
|(3) | We completed the closure of the Walpole,
	Massachusetts, facility on December 31, 2001. The finished
	goods inventory was relocated to our existing warehouse
	facilities in Grand Rapids, Michigan. Sales and administration
	functions were relocated to our Tempe, Arizona, location.

Subsequent to December 31, 2001, we entered
into a one-year lease for an existing building in Stillwater,
Oklahoma, near our current manufacturing and warehousing
facilities. The new lease is for approximately
21,200 square feet with an annual rental of approximately
$72,000. We will use the new space to meet additional
warehousing needs.




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 mobile audio
amplifiers and in our Hafler professional amplifiers. After
several meetings with IET and its counsel during the spring and
summer of 2000, we reiterated to IET our position that our TOPAZ
circuit does not infringe on any of IETs patents. IET did
not communicate with us after the summer of 2000 until our
counsel received a demand letter from IETs new
litigation counsel on March 1, 2001, stating
that IET had filed a complaint relating to this claim but was
seeking to settle the matter before serving the complaint upon
us. IET served the complaint on us on June 26, 2001, and we
filed an answer on July 16, 2001. Our answer denied all
liability, asserted various defenses, and requested a finding
that our products do not infringe on any

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of the patents in question. We continue to
believe that these claims are without merit and are defending
this matter vigorously.


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, 2001, 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 2001.




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, 2001  |      | $ | 8.58  |  |  | $ | 6.31 | 
|                       | September 30, 2001 |      | $ | 7.48  |  |  | $ | 6.26 | 
|                       | June 30, 2001      |      | $ | 8.35  |  |  | $ | 5.90 | 
|                       | March 31, 2001     |      | $ | 7.75  |  |  | $ | 4.75 | 
|                       | December 31, 2000  |      | $ | 5.86  |  |  | $ | 4.06 | 
|                       | September 30, 2000 |      | $ | 6.75  |  |  | $ | 4.13 | 
|                       | June 30, 2000      |      | $ | 12.63 |  |  | $ | 3.94 | 

As at March 1, 2002, there were
approximately 1,565 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.

We have not made any sales of unregistered
securities during the past three years, except for
(1) sales of our common stock to employees exercising their
stock options during the period prior to the effectiveness of a
registration statement on form S-8 relating to such sales
and (2) the sale during March 2002 of 215,000 shares
to Grisanti, Galef & Goldress, Inc. pursuant to the stock
options we granted to that firm in 1992.




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 years

18



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ended December 31, 1997, 1998, 1999, 2000
and 2001, derived from our audited consolidated financial
statements.


|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |        |        | 
|---------------------------------------------- | ------------------------------ | ------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                               |                                |                                      
|                                               |                                | Year Ended December 31,              
|                                               |                                |                                      
|                                               |                                | 1997                                  |        | 1998   |        | 1999 |        | 2000   |        | 2001
|                                               |                                |                                       |        |        |        |      |        |        |        |     
|                                               |                                |                                      
|                                               |                                | (In thousands, except per share data)
|Consolidated Statement of Income:              |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net sales                                      |                                | $                                     | 87,423 |        |        | $    | 87,577 |        |        | $    | 123,889 |        |        | $ | 144,640 |        |        | $ | 157,752 |       
|Cost of goods sold                             |                                |                                       | 57,321 |        |        |      | 55,146 |        |        |      | 75,014  |        |        |   | 92,533  |        |        |   | 103,904 |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Gross profit                                   |                                |                                       | 30,102 |        |        |      | 32,431 |        |        |      | 48,875  |        |        |   | 52,107  |        |        |   | 53,848  |       
|Operating expenses:                            |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                               | Sales and marketing            |                                       |        | 14,530 |        |      |        | 14,821 |        |      |         | 20,602 |        |   |         | 22,709 |        |   |         | 24,228 |       
|                                               | General and administrative (1) |                                       |        | 9,350  |        |      |        | 10,211 |        |      |         | 13,465 |        |   |         | 13,036 |        |   |         | 15,220 |       
|                                               | Research and development       |                                       |        | 1,576  |        |      |        | 1,876  |        |      |         | 2,277  |        |   |         | 2,831  |        |   |         | 3,322  |       
|                                               | Abandoned acquisition costs    |                                       |        |       |        |      |        |       |        |      |         |       |        |   |         |       |        |   |         | 551    |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                               |                                | Total operating expenses              |        |        | 25,456 |      |        |        | 26,908 |      |         |        | 36,344 |   |         |        | 38,576 |   |         |        | 43,321 | 
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Operating income                               |                                |                                       | 4,646  |        |        |      | 5,523  |        |        |      | 12,531  |        |        |   | 13,531  |        |        |   | 10,527  |       
|Interest and other expense, net                |                                |                                       | 2,055  |        |        |      | 1,501  |        |        |      | 1,946   |        |        |   | 807     |        |        |   | 548     |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Income before tax                              |                                |                                       | 2,591  |        |        |      | 4,022  |        |        |      | 10,585  |        |        |   | 12,724  |        |        |   | 9,979   |       
|Income tax expense                             |                                |                                       | 959    |        |        |      | 1,717  |        |        |      | 4,088   |        |        |   | 4,714   |        |        |   | 3,756   |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net income                                     |                                | $                                     | 1,632  |        |        | $    | 2,305  |        |        | $    | 6,497   |        |        | $ | 8,010   |        |        | $ | 6,223   |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Net income per share:                          |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                               | Basic                          |                                       | $      | 0.37   |        |      | $      | 0.52   |        |      | $       | 1.40   |        |   | $       | 1.17   |        |   | $       | 0.77   |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                               | Diluted                        |                                       | $      | 0.31   |        |      | $      | 0.41   |        |      | $       | 1.04   |        |   | $       | 1.00   |        |   | $       | 0.70   |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|Shares used to calculate net income per share: |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                               | Basic                          |                                       |        | 4,401  |        |      |        | 4,412  |        |      |         | 4,641  |        |   |         | 6,864  |        |   |         | 8,109  |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       
|                                               | Diluted                        |                                       |        | 5,688  |        |      |        | 5,951  |        |      |         | 6,289  |        |   |         | 8,009  |        |   |         | 8,913  |       
|                                               |                                |                                       |        |        |        |      |        |        |        |      |         |        |        |   |         |        |        |   |         |       

|                                             |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                             |  |               
|                                             |  | December 31,  
|                                             |  |               
|                                             |  | 1997           |        | 1998 |  | 1999 |        | 2000 |  | 2001
|                                             |  |                |        |      |  |      |        |      |  |     
|                                             |  |               
|                                             |  | (In thousands)
|Consolidated Balance Sheet Data:             |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Working capital                              |  | $              | 9,592  |      |  | $    | 13,488 |      |  | $    | 21,219 |  |  | $ | 37,179 |  |  | $ | 45,913 | 
|Total assets                                 |  |                | 29,234 |      |  |      | 37,307 |      |  |      | 52,147 |  |  |   | 66,918 |  |  |   | 85,954 | 
|Long-term debt and capital lease obligations |  |                | 12,230 |      |  |      | 14,292 |      |  |      | 17,342 |  |  |   | 434    |  |  |   | 10,553 | 
|Total liabilities                            |  |                | 26,766 |      |  |      | 32,369 |      |  |      | 39,390 |  |  |   | 20,586 |  |  |   | 32,997 | 
|Shareholders equity                         |  |                | 2,463  |      |  |      | 4,907  |      |  |      | 12,757 |  |  |   | 46,332 |  |  |   | 52,957 | 




|    |                                      
|--- | -------------------------------------
|(1) | Excludes abandoned acquisition costs.




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 mobile audio business founded in 1973 by mobile
audio enthusiast Jim Fosgate. Rockford developed and has
consistently maintained a reputation for technical excellence.

19



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##### Table of Contents



Rockfords management team, led by Gary
Suttle, our President and Chief Executive Officer:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Is focused on profitability, having established
	and implemented specific financial objectives through improved
	business processes and sophisticated management information
	systems;
|
| |  | Has increased the number of new product
	introductions while keeping the number of design engineers
	relatively constant;                                                             
|
| |  | Implemented new sourcing and manufacturing
	strategies, increasing product reliability, reducing product
	development time and reducing product costs; and                            
|
| |  | Implemented a more focused advertising and
	marketing strategy to enhance Rockfords brand images.                                                                                    

We believe that we have the people, processes and
systems in place to enable us to continue to grow profitably.

Business

We generated over 97% of our sales in 2001 from
our mobile audio products.

In the U.S., we sell our mobile audio products
using commissioned independent sales representative firms who
are supported by our employee regional managers.
Internationally, we sell products in 59 countries. In Japan
and Germany we sell through wholly owned subsidiaries using
commissioned independent sales representatives. In Canada,
Austria and Switzerland we sell through commissioned independent
sales representatives. In other countries, we sell our products
to independent distributors who resell them to retailers.

Best Buy is a significant customer and accounted
for 19.9% of our sales in 1999 (including its $4.4 million
initial purchase of our products to stock its distribution
channel), 16.7% in 2000 and 16.3% in 2001. Our growth plan
contemplates that Best Buy will continue to account for a
significant portion of our sales for the foreseeable future. No
other single customer accounts for more than 10% of our sales.

20



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##### Table of Contents



Results of Operations

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

|                                |                               |                          |       |      |      |      |       |      |      |  |       |      |      | 
|------------------------------- | ----------------------------- | ------------------------ | ----- | ---- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                |                               |                         
|                                |                               | Year Ended December 31, 
|                                |                               |                         
|                                |                               | 1999                     |       | 2000 |      | 2001
|                                |                               |                          |       |      |      |     
|Net sales                       |                               |                          | 100.0 | %    |      |      | 100.0 | %    |      |  | 100.0 | %   
|Cost of goods sold              |                               |                          | 60.5  |      |      |      | 64.0  |      |      |  | 65.9  |     
|                                |                               |                          |       |      |      |      |       |      |      |  |       |     
|Gross profit                    |                               |                          | 39.5  |      |      |      | 36.0  |      |      |  | 34.1  |     
|Operating expenses:             |                               |                          |       |      |      |      |       |      |      |  |       |     
|                                | Sales and marketing           |                          |       | 16.6 |      |      |       | 15.7 |      |  |       | 15.4 |     
|                                | General and administrative(1) |                          |       | 10.9 |      |      |       | 9.0  |      |  |       | 9.6  |     
|                                | Research and development      |                          |       | 1.9  |      |      |       | 2.0  |      |  |       | 2.1  |     
|                                | Abandoned acquisition costs   |                          |       | 0.0  |      |      |       | 0.0  |      |  |       | 0.4  |     
|                                |                               |                          |       |      |      |      |       |      |      |  |       |     
|                                |                               | Total operating expenses |       |      | 29.4 |      |       |      | 26.7 |  |       |      | 27.5 | 
|                                |                               |                          |       |      |      |      |       |      |      |  |       |     
|Operating income                |                               |                          | 10.1  |      |      |      | 9.3   |      |      |  | 6.6   |     
|Interest and other expense, net |                               |                          | 1.5   |      |      |      | 0.5   |      |      |  | 0.3   |     
|                                |                               |                          |       |      |      |      |       |      |      |  |       |     
|Income before tax               |                               |                          | 8.6   |      |      |      | 8.8   |      |      |  | 6.3   |     
|Income tax expense              |                               |                          | 3.4   |      |      |      | 3.3   |      |      |  | 2.4   |     
|                                |                               |                          |       |      |      |      |       |      |      |  |       |     
|Net income                      |                               |                          | 5.2   | %    |      |      | 5.5   | %    |      |  | 3.9   | %   
|                                |                               |                          |       |      |      |      |       |      |      |  |       |     




|    |                                      
|--- | -------------------------------------
|(1) | Excludes abandoned acquisition costs.

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, 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.

Geographic
Distribution of Sales

Since 1999, our sales by geographic region were
as follows:

|               |             |                         |         |         |  |      |         |         |  |   |         |         |  |  |      |       |  
|-------------- | ----------- | ----------------------- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  |  | ---- | ----- | -
|               |             |                         |         |        
|               |             | Year Ended December 31, |         |        
|               |             |                         |         | %      
|Region(1)      |             | 1999                    |         | 2000    |  | 2001 |         | 2001   
|               |             |                         |         |         |  |      |         |        
|               |             |                         |         |        
|               |             | (In thousands)          |         |        
|United States  |             | $                       | 105,482 |         |  | $    | 121,375 |         |  | $ | 130,459 |         |  |  | 82.7 | %    
|Other Americas |             |                         | 5,294   |         |  |      | 7,289   |         |  |   | 9,469   |         |  |  | 6.0  |      
|Europe         |             |                         | 7,337   |         |  |      | 7,687   |         |  |   | 10,278  |         |  |  | 6.5  |      
|Asia           |             |                         | 5,776   |         |  |      | 8,289   |         |  |   | 7,546   |         |  |  | 4.8  |      
|               |             |                         |         |         |  |      |         |         |  |   |         |         |  |  |      |      
|               | Total sales |                         | $       | 123,889 |  |      | $       | 144,640 |  |   | $       | 157,752 |  |  |      | 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.

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Accounting
Policies and Estimates

The methods, estimates and judgments we use in
applying our accounting policies have a significant impact on
the results we report in our consolidated financial statements.
We evaluate our estimates and judgments on an on-going basis. We
base our estimates on historical experience and on assumptions
that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments
about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may vary
from what we anticipate and different assumptions or estimates
about the future could change our reported results. We believe
the following accounting policies are the most critical to us,
in that they are important to the portrayal of our financial
statements and they require our most difficult, subjective or
complex judgments in the preparation of our consolidated
financial statements:

Revenue Recognition.We recognize revenue pursuant to Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements. Accordingly, we recognize revenue and record
sales, net of related discounts, when all of the following
criteria are met:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | Persuasive evidence of an arrangement exists;           
|
| |  | Ownership has transferred to the customer;              
|
| |  | The price to the customer is fixed or
	determinable; and
|
| |  | Collectability is reasonably assured.                   

These criteria are satisfied and, accordingly, we
recognize revenue upon shipment of product.

We also record reductions to revenue for
estimated customer returns and additional sales incentive
offerings such as growth and volume incentive rebates and prompt
pay discounts based on historical rates. Should a greater
proportion of customers return product or redeem incentives than
we estimate, we may need to make additional reductions to
revenue.

Intangible Assets.On January 1, 2002, we adopted Statement of Financial
Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. When we account for acquired businesses
as purchases, we allocate purchase prices to the assets and
liabilities acquired based on the estimated fair values on the
respective acquisition dates. Based on these values, any excess
purchase price over the fair value of the net assets acquired is
allocated to goodwill.

Prior to January 1, 2002, we amortized
goodwill over the useful life of the underlying asset, not to
exceed 15 years. On January 1, 2002, we began
accounting for goodwill under the provisions of SFAS
Nos. 141 and 142. As at December 31, 2001, we had
gross goodwill of $6,704,000 and accumulated amortization of
$401,000. For the year ended December 31, 2001, we
recognized $168,000 of amortization expense. We completed two
acquisitions in the third quarter of 2001 and have not recorded
any amortization for these acquisitions on amounts preliminarily
allocated to goodwill in accordance with SFAS No. 141.
Application of the non-amortization provisions of SFAS
No. 142 is expected to result in an increase in income from
continuing operations before income taxes of approximately
$168,000 in 2002.

In assessing the recoverability of our goodwill
and other intangibles, we must make assumptions about estimated
future cash flows and other factors to determine the fair value
of the respective assets. If these estimates or their related
assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.
Some factors we consider important which could trigger an
impairment review include the following:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Significant underperformance relative to expected
	historical or projected future operating results;          
|
| |  | Significant changes in the manner of our use of
	the acquired assets or the strategy for our overall business;
|
| |  | Our market capitalization relative to net book
	value; and                                                    
|
| |  | Significant negative industry or economic trends.                                                             

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We have tested goodwill for impairment using the
two-step process prescribed in SFAS No. 142. The first step
is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. We performed the
first of the required impairment tests for goodwill as of
January 1, 2002, and determined that the carrying amount of
our goodwill is not impaired. In addition, we will be reviewing
our classification of intangible assets between goodwill and
other identifiable intangibles. During the year ended
December 31, 2001, we did not record any impairment losses
related to goodwill and other intangible assets.

Allowance for Doubtful
Accounts.We maintain an allowance for
doubtful accounts, based on historical rates, for estimated
losses resulting from the inability of our customers to make
required payments. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances might be required.

Excess and Obsolete
Inventory.We maintain a reserve for
estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions
are less favorable than those we project, additional inventory
write-downs might be required. Any change to the reserve arising
from forecast revisions is reflected in cost of sales in the
period the revision is made.

In the following discussion, certain increases
or decreases may differ due to rounding.

Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000

Net Sales.Sales
increased by $13.2 million, or 9.1%, to $157.8 million for 2001
from $144.6 million for 2000. Excluding currency effects, sales
increased by $14.5 million, or 10.0%, to $159.1 million for
2001. The increase in sales was primarily attributable to sales
in the amount of $9.3 million under the brands acquired in 2001,
Q-Logic and MB Quart. Additionally, OEM sales to Nissan, which
began in the third quarter of 2001, and increased sales by
Lightning Audio and InstallEdge.com, contributed to the increase
in sales. The increase in sales was partially offset by a
decrease in Rockford Fosgate sales during the period, reflective
of the soft consumer market. Until the consumer market
strengthens, we are planning for sales of our flagship Rockford
Fosgate brand to be flat, compared to anticipated declines for
the mobile audio market as a whole, and expect that most of our
sales growth will come from our new brands.

U.S. sales increased by $9.1 million, or 7.5%, to
$130.5 million for 2001 from $121.4 million for 2000, with the
increase attributable to the factors discussed above.
International sales increased by $4.0 million, or 17.2%, to
$27.3 million for 2001 from $23.3 million for 2000. This
increase was primarily due to increased sales in Europe, Latin
America and Canada, offset by a slight decrease in sales in Asia.

Cost of Goods Sold.Cost of goods sold increased by $11.4
million, or 12.3%, to $103.9 million for 2001 from $92.5 million
for 2000. This increase was primarily due to increased sales. As
a percent of sales, cost of goods sold increased to 65.9% for
2001 from 64.0% for 2000. The increase as a percent of sales
resulted from a mix shift toward lower margined products, a more
aggressive stance on pricing and promotional programs aimed at
increasing market share and end-of-life discounts on source
units. Additionally, based on Accounting Principles Board (APB)
Opinion No. 16, Business Combinations, cost of goods
sold relating to the finished goods inventory purchased in the
acquisitions of Audio Innovations and MB Quart was higher than
we expect our manufactured cost to be. Once the finished goods
inventory purchased through these acquisitions is sold and we
begin selling our newly manufactured inventory, we believe cost
of goods sold relating to these acquired product lines will
decrease.

Sales and Marketing Expenses.Sales and marketing expenses increased
by $1.5 million, or 6.6%, to $24.2 million for 2001 from
$22.7 million for 2000. This increase was primarily due to
increased headcount in our sales and marketing departments
principally related to the acquisitions of Audio Innovations and
MB Quart and increased freight expense. As a percent of sales,
sales and marketing expenses decreased to 15.4% for 2001 from
15.7% for 2000. The decrease as a percent of sales was primarily
because some expenses in this category are fixed and do not
fluctuate with sales.

General and Administrative Expenses.General and administrative expenses,
including abandoned acquisition costs, increased by
$2.8 million, or 21.5%, to $15.8 million for 2001 from
$13.0 million for 2000.

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Excluding abandoned acquisition costs, general
and administrative expenses increased by $2.2 million, or 16.9%,
to $15.2 million for 2001 from $13.0 million for 2000. The
primary reason for the increase in general and administrative
expenses was cost structures in our two acquired businesses,
Audio Innovations and MB Quart, that did not yet reflect
synergies we expect to create over the next several quarters.
Additionally, abandoned acquisition costs of $0.6 million were
written off during the third quarter of 2001. These were
previously capitalized costs for a proposed acquisition, which
was abandoned and accordingly expensed. As a percent of sales,
general and administrative expenses, including abandoned
acquisition costs, increased to 10.0% for 2001 from 9.0% for
2000. Excluding abandoned acquisition costs, general and
administrative expenses increased to 9.6% of sales for 2001.


Research and Development Expenses.Research and development expenses
increased by $0.5 million, or 17.3%, to $3.3 million
for 2001 from $2.8 million for 2000. This increase was
primarily due to increased personnel and product development
costs. As a percent of sales, these expenses increased to 2.1%
for 2001 from 2.0% for 2000.

Operating Income.Operating income decreased by
$3.0 million, or 22.2%, to $10.5 million for 2001 from
$13.5 million for 2000. This decrease primarily was attributable
to a mix shift toward lower margined products and a more
aggressive stance on pricing and promotional programs aimed at
increasing market share, the expensing of abandoned acquisition
costs and end-of-life discounts on source units. As a percent of
sales, operating income decreased to 6.6% for 2001 from 9.3% for
2000. The primary reasons for this decrease are mentioned above.

Interest and Other Expense, Net.Interest and other expense, net,
primarily consists of interest expense. Interest and other
expense, net, decreased by $0.3 million, or 32.1%, to $0.5
million for 2001 from $0.8 million for 2000. Interest expense
decreased in 2001 primarily due to substantially lower market
interest rates.

Income Tax Expense.Income tax expense decreased by $0.9
million to $3.8 million for 2001 from $4.7 million for 2000 due
primarily to the decrease in our taxable income. The effective
income tax rates were 37.6% for 2001 and 37.0% for 2000. The
primary reason for this increase in the effective tax rate was a
decrease in foreign tax benefits from foreign net operating
losses.

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 mobile audio specialty dealers. Sales to mobile 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.

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. U.S. sales to mobile audio specialty
dealers for Rockford Fosgate 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

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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 expenses relating to our financial
performance-based employee incentive program and controlled
operational spending. As a percent of sales, these expenses
decreased to 9.0% for 2000 from 10.9% 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.

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 the
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.

Quarterly Results of Operations

Our sales on a quarterly basis reflect the
seasonality of the mobile 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.

The following tables show selected consolidated
quarterly statements of income data that were derived from our
unaudited financial statements for each of the eight quarters
ended December 31, 2001, 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.

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##### Table of Contents



Consolidated Statement of Income
Data

|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |       |        | 
|---------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | -------- | ----- | -------- | ------ | -------- | ------ | -------- | ------ | -------- | ----- | -------- | ------ | -------- | ----- | - | ------ | ----- | ----- | - | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                               |                               |                                      
|                                               |                               | Three Months Ended                   
|                                               |                               |                                      
|                                               |                               | Mar. 31,                              |        | Jun. 30, |       | Sep. 30, |        | Dec. 31, |        | Mar. 31, |        | Jun. 30, |       | Sep. 30, |        | Dec. 31,
|                                               |                               | 2000                                  |        | 2000     |       | 2000     |        | 2000     |        | 2001     |        | 2001     |       | 2001     |        | 2001    
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |         
|                                               |                               |                                      
|                                               |                               | (In thousands, except per share data)
|Net sales                                      |                               | $                                     | 34,588 |          |       | $        | 45,137 |          |        | $        | 36,370 |          |       | $        | 28,545 |          |       | $ | 37,363 |       |       | $ | 44,803 |       |        | $ | 36,562 |       |        | $ | 39,024 |      
|Cost of goods sold                             |                               |                                       | 21,113 |          |       |          | 27,561 |          |        |          | 24,491 |          |       |          | 19,368 |          |       |   | 24,083 |       |       |   | 29,306 |       |        |   | 24,577 |       |        |   | 25,938 |      
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|Gross profit                                   |                               |                                       | 13,475 |          |       |          | 17,576 |          |        |          | 11,879 |          |       |          | 9,177  |          |       |   | 13,280 |       |       |   | 15,497 |       |        |   | 11,985 |       |        |   | 13,086 |      
|Operating expenses:                            |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|                                               | Sales and marketing           |                                       |        | 5,716    |       |          |        | 7,080    |        |          |        | 5,000    |       |          |        | 4,913    |       |   |        | 5,780 |       |   |        | 6,235 |        |   |        | 5,962 |        |   |        | 6,251 |       
|                                               | General and administrative(1) |                                       |        | 3,465    |       |          |        | 4,121    |        |          |        | 3,501    |       |          |        | 1,949    |       |   |        | 3,374 |       |   |        | 4,326 |        |   |        | 3,272 |        |   |        | 4,248 |       
|                                               | Research and development      |                                       |        | 711      |       |          |        | 646      |        |          |        | 722      |       |          |        | 752      |       |   |        | 770   |       |   |        | 691   |        |   |        | 925   |        |   |        | 936   |       
|                                               | Abandoned acquisition costs   |                                       |        |         |       |          |        |         |        |          |        |         |       |          |        |         |       |   |        |      |       |   |        |      |        |   |        | 551   |        |   |        |      |       
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|                                               |                               | Total operating expenses              |        |          | 9,892 |          |        |          | 11,847 |          |        |          | 9,223 |          |        |          | 7,614 |   |        |       | 9,924 |   |        |       | 11,252 |   |        |       | 10,710 |   |        |       | 11,435 | 
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|Operating income                               |                               |                                       | 3,583  |          |       |          | 5,729  |          |        |          | 2,656  |          |       |          | 1,563  |          |       |   | 3,356  |       |       |   | 4,245  |       |        |   | 1,275  |       |        |   | 1,651  |      
|Interest and other expense (income), net       |                               |                                       | 461    |          |       |          | 273    |          |        |          | 79     |          |       |          | (6     | )        |       |   | 204    |       |       |   | 96     |       |        |   | (67    | )     |        |   | 314    |      
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|Income before tax                              |                               |                                       | 3,122  |          |       |          | 5,456  |          |        |          | 2,577  |          |       |          | 1,569  |          |       |   | 3,152  |       |       |   | 4,149  |       |        |   | 1,342  |       |        |   | 1,338  |      
|Income tax expense                             |                               |                                       | 1,195  |          |       |          | 2,040  |          |        |          | 925    |          |       |          | 554    |          |       |   | 1,160  |       |       |   | 1,563  |       |        |   | 489    |       |        |   | 546    |      
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|Net income                                     |                               | $                                     | 1,927  |          |       | $        | 3,416  |          |        | $        | 1,652  |          |       | $        | 1,015  |          |       | $ | 1,992  |       |       | $ | 2,586  |       |        | $ | 853    |       |        | $ | 792    |      
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|Net income per share:                          |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|                                               | Basic                         |                                       | $      | 0.40     |       |          | $      | 0.50     |        |          | $      | 0.21     |       |          | $      | 0.13     |       |   | $      | 0.25  |       |   | $      | 0.32  |        |   | $      | 0.10  |        |   | $      | 0.10  |       
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|                                               | Diluted                       |                                       | $      | 0.31     |       |          | $      | 0.41     |        |          | $      | 0.19     |       |          | $      | 0.12     |       |   | $      | 0.23  |       |   | $      | 0.29  |        |   | $      | 0.10  |        |   | $      | 0.09  |       
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|Shares used to calculate net income per share: |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|                                               | Basic                         |                                       |        | 4,798    |       |          |        | 6,899    |        |          |        | 7,810    |       |          |        | 7,923    |       |   |        | 8,007 |       |   |        | 8,082 |        |   |        | 8,172 |        |   |        | 8,174 |       
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      
|                                               | Diluted                       |                                       |        | 6,283    |       |          |        | 8,431    |        |          |        | 8,643    |       |          |        | 8,631    |       |   |        | 8,834 |       |   |        | 8,925 |        |   |        | 8,957 |        |   |        | 8,935 |       
|                                               |                               |                                       |        |          |       |          |        |          |        |          |        |          |       |          |        |          |       |   |        |       |       |   |        |       |        |   |        |       |        |   |        |      

|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |      |      | 
|---------------------------------------- | ----------------------------- | ------------------------------------------- | ----- | -------- | ---- | -------- | ----- | -------- | ---- | -------- | ----- | -------- | ---- | -------- | ----- | -------- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                                         |                               |                                            
|                                         |                               | Percent of Sales for the Three Months Ended
|                                         |                               |                                            
|                                         |                               | Mar. 31,                                    |       | Jun. 30, |      | Sep. 30, |       | Dec. 31, |      | Mar. 31, |       | Jun. 30, |      | Sep. 30, |       | Dec. 31,
|                                         |                               | 2000                                        |       | 2000     |      | 2000     |       | 2000     |      | 2001     |       | 2001     |      | 2001     |       | 2001    
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |         
|Net sales                                |                               |                                             | 100.0 | %        |      |          | 100.0 | %        |      |          | 100.0 | %        |      |          | 100.0 | %        |      |  | 100.0 | %    |      |  | 100.0 | %    |      |  | 100.0 | %    |      |  | 100.0 | %   
|Cost of goods sold                       |                               |                                             | 61.0  |          |      |          | 61.1  |          |      |          | 67.3  |          |      |          | 67.9  |          |      |  | 64.5  |      |      |  | 65.4  |      |      |  | 67.2  |      |      |  | 66.5  |     
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Gross profit                             |                               |                                             | 39.0  |          |      |          | 38.9  |          |      |          | 32.7  |          |      |          | 32.1  |          |      |  | 35.5  |      |      |  | 34.6  |      |      |  | 32.8  |      |      |  | 33.5  |     
|Operating expenses:                      |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|                                         | Sales and marketing           |                                             |       | 16.5     |      |          |       | 15.7     |      |          |       | 13.8     |      |          |       | 17.2     |      |  |       | 15.4 |      |  |       | 13.9 |      |  |       | 16.3 |      |  |       | 16.0 |     
|                                         | General and administrative(1) |                                             |       | 10.0     |      |          |       | 9.1      |      |          |       | 9.6      |      |          |       | 6.8      |      |  |       | 9.0  |      |  |       | 9.7  |      |  |       | 9.0  |      |  |       | 10.9 |     
|                                         | Research and development      |                                             |       | 2.1      |      |          |       | 1.4      |      |          |       | 2.0      |      |          |       | 2.6      |      |  |       | 2.1  |      |  |       | 1.5  |      |  |       | 2.5  |      |  |       | 2.4  |     
|                                         | Abandoned acquisition costs   |                                             |       | 0.0      |      |          |       | 0.0      |      |          |       | 0.0      |      |          |       | 0.0      |      |  |       | 0.0  |      |  |       | 0.0  |      |  |       | 1.5  |      |  |       | 0.0  |     
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|                                         |                               | Total operating expenses                    |       |          | 28.6 |          |       |          | 26.2 |          |       |          | 25.4 |          |       |          | 26.7 |  |       |      | 26.5 |  |       |      | 25.1 |  |       |      | 29.3 |  |       |      | 29.3 | 
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Operating income                         |                               |                                             | 10.4  |          |      |          | 12.7  |          |      |          | 7.3   |          |      |          | 5.4   |          |      |  | 9.0   |      |      |  | 9.5   |      |      |  | 3.5   |      |      |  | 4.2   |     
|Interest and other expense (income), net |                               |                                             | 1.3   |          |      |          | 0.6   |          |      |          | 0.2   |          |      |          | 0.0   |          |      |  | 0.6   |      |      |  | 0.2   |      |      |  | (0.2  | )    |      |  | 0.8   |     
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Income before tax                        |                               |                                             | 9.1   |          |      |          | 12.1  |          |      |          | 7.1   |          |      |          | 5.4   |          |      |  | 8.4   |      |      |  | 9.3   |      |      |  | 3.7   |      |      |  | 3.4   |     
|Income tax expense                       |                               |                                             | 3.5   |          |      |          | 4.5   |          |      |          | 2.5   |          |      |          | 1.9   |          |      |  | 3.1   |      |      |  | 3.5   |      |      |  | 1.4   |      |      |  | 1.4   |     
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     
|Net income                               |                               |                                             | 5.6   | %        |      |          | 7.6   | %        |      |          | 4.6   | %        |      |          | 3.5   | %        |      |  | 5.3   | %    |      |  | 5.8   | %    |      |  | 2.3   | %    |      |  | 2.0   | %   
|                                         |                               |                                             |       |          |      |          |       |          |      |          |       |          |      |          |       |          |      |  |       |      |      |  |       |      |      |  |       |      |      |  |       |     




|    |                                      
|--- | -------------------------------------
|(1) | Excludes abandoned acquisition costs.

Liquidity and Capital Resources

We have financed our business primarily using
existing working capital, cash flows from operations, the
proceeds from our initial public offering, and bank borrowings.
On June 28, 2001, we entered into a $30.0 million
revolving credit facility with Bank of America, N.A. and Bank
One, Arizona, N.A. This credit

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facility replaced a $20.0 million line
previously maintained with another financial institution. We had
working capital of $45.9 million at December 31, 2001,
compared to $37.2 million at December 31, 2000. At
December 31, 2001, we maintained $2.4 million of cash
and cash equivalent balances.


As at December 31, 2001, we had a balance of
$9.3 million on our $30.0 million bank credit
facility, which is collateralized by substantially all of our
assets and consists of a swing line of credit and a revolving
line of credit. The swing line of credit has a blended variable
interest rate per annum of LIBOR plus 175 basis points. The
revolving line of credit has a fixed interest rate of 10.67% per
annum. As at December 31, 2001, the bank credit facility
had a weighted average interest rate of 4.04% per annum. The
bank credit facility is scheduled to mature on June 28,
2003. The bank credit facility contains provisions that, among
other things, require that we maintain certain minimum levels of
EBITDA and debt service coverage and also limit the amount of
debt incurred and capital expenditures annually.

We also have a $5.0 million capital lease credit
facility under which we can fund leases until July 1, 2002,
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,
2001, the capital lease credit facility had an outstanding
balance of $1.4 million with a weighted average interest
rate of 6.67% per annum.

Net cash provided by operating activities was
$7.5 million for the twelve months ended December 31, 2001,
and net cash used in operating activities was $2.5 million
for the twelve months ended December 31, 2000. Net cash
provided by operating activities for the twelve months ended
December 31, 2001, was slightly higher than net income for
the period, primarily due to the add back of non-cash expenses
in excess of working capital needs.

Net cash used in investing activities was $16.5
million for the twelve months ended December 31, 2001, and
$4.1 million for the twelve months ended December 31,
2000. Net cash used in investing activities was primarily
related to the acquisitions of Audio Innovations and MB Quart in
the third quarter of 2001 and to purchases of property, plant
and equipment.

Net cash provided by financing activities was
$9.0 million for the twelve months ended December 31, 2001,
and $8.7 million for the twelve months ended
December 31, 2000. Net cash provided by financing
activities for 2001 was primarily a result of the net proceeds
received from our bank line of credit facility.

We believe our existing resources and anticipated
cash flows from operations, coupled with availability on our
credit facility, 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
seek additional debt or equity resources.




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. We do not use derivative financial instruments. Our
holdings of cash equivalents are subject to interest rate
fluctuations, but we believe this risk is immaterial due to the
short-term nature of these investments and the relatively small
cash balances we carry. At December 31, 2001, we had a
balance of $9.3 million on our $30.0 million bank
credit facility, which is also subject to interest rate
fluctuations.

The value of the U.S. dollar affects our
financial results. Changes in exchange rates may positively or
negatively affect our revenues, gross margins, operating
expenses and shareholders equity as expressed in U.S.
dollars. Historically, our exposure to currency exchange rate
fluctuations was modest due to the fact that we sold our
products primarily in U.S. dollars and held only a small
percentage of our assets outside the U.S. However, we conduct a
growing portion of our business in foreign currency and are
increasing our billings in local currencies in Japan, Canada and
Europe. During 2001, $18.8 million or 11.9% of our sales
were denominated in a currency other than U.S. dollars. In
addition, during 2001 our acquisition of MB Quart assets
increased the amount of assets we held outside the U.S. by
$8.1 million.

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At December 31, 2001, we had not engaged in
any foreign currency hedging activities, but instead have
attempted to minimize currency exposure risk through
natural hedges, which balance foreign denominated
assets with foreign denominated liabilities. There can be no
assurance that such an approach will be successful, especially
if a significant and sudden decline occurs in the value of local
currencies.

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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                                                    |  |  | 30 | 
|Consolidated Balance Sheets as at
	December 31, 2000 and 2001                                         |  |  | 31 | 
|Consolidated Statements of Income for the years
	ended December 31, 1999, 2000 and 2001               |  |  | 32 | 
|Consolidated Statements of Shareholders
	Equity for the years ended December 31, 1999, 2000 and 2001 |  |  | 33 | 
|Consolidated Statements of Cash Flows for the
	years ended December 31, 1999, 2000 and 2001           |  |  | 34 | 
|Notes to Consolidated Financial Statements                                                            |  |  | 35 | 

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Rockford Corporation


We have audited the accompanying consolidated
balance sheets of Rockford Corporation and subsidiaries
(Rockford) as at December 31, 2001 and 2000, and the
related consolidated statements of income, shareholders
equity and cash flows for the years ended December 31,
2001, 2000 and 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14. 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, 2001 and 2000,
and the consolidated results of their operations and their cash
flows for the years ended December 31, 2001, 2000 and 1999,
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

February 22, 2002


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ROCKFORD CORPORATION AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


|                                                        |                                                                                                        |                    |        |        |  |   |        |        |  
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------ | ------ | ------ |  | - | ------ | ------ | -
|                                                        |                                                                                                        |                   
|                                                        |                                                                                                        | December 31,      
|                                                        |                                                                                                        |                   
|                                                        |                                                                                                        | 2000               |        | 2001  
|                                                        |                                                                                                        |                    |        |       
|                                                        |                                                                                                        |                   
|                                                        |                                                                                                        | (In thousands,    
|                                                        |                                                                                                        | except share data)
|Assets                                                  |                                                                                                        |                    |        |        |  |   |        |       
|Current assets:                                         |                                                                                                        |                    |        |        |  |   |        |       
|                                                        | Cash and cash equivalents                                                                              |                    | $      | 2,750  |  |   | $      | 2,411  |  
|                                                        | Accounts receivable, less allowances of $1,427
	and $2,613 at December 31, 2000 and 2001, respectively |                    |        | 28,488 |  |   |        | 28,036 |  
|                                                        | Inventories, net                                                                                       |                    |        | 20,406 |  |   |        | 28,165 |  
|                                                        | Deferred income taxes                                                                                  |                    |        | 3,596  |  |   |        | 4,500  |  
|                                                        | Income taxes receivable                                                                                |                    |        |       |  |   |        | 1,874  |  
|                                                        | Prepaid expenses and other                                                                             |                    |        | 2,091  |  |   |        | 3,371  |  
|                                                        |                                                                                                        |                    |        |        |  |   |        |       
|Total current assets                                    |                                                                                                        |                    | 57,331 |        |  |   | 68,357 |       
|Property and equipment, net                             |                                                                                                        |                    | 5,996  |        |  |   | 9,976  |       
|Deferred income taxes                                   |                                                                                                        |                    | 605    |        |  |   | 394    |       
|Goodwill, net                                           |                                                                                                        |                    | 2,275  |        |  |   | 6,303  |       
|Other assets                                            |                                                                                                        |                    | 711    |        |  |   | 924    |       
|                                                        |                                                                                                        |                    |        |        |  |   |        |       
|Total assets                                            |                                                                                                        | $                  | 66,918 |        |  | $ | 85,954 |       
|                                                        |                                                                                                        |                    |        |        |  |   |        |       
|Liabilities and shareholders
	equity                   |                                                                                                        |                    |        |        |  |   |        |       
|Current liabilities:                                    |                                                                                                        |                    |        |        |  |   |        |       
|                                                        | Accounts payable                                                                                       |                    | $      | 7,118  |  |   | $      | 9,089  |  
|                                                        | Accrued salaries and incentives                                                                        |                    |        | 2,561  |  |   |        | 2,451  |  
|                                                        | Accrued warranty                                                                                       |                    |        | 4,621  |  |   |        | 4,815  |  
|                                                        | Income taxes payable                                                                                   |                    |        | 449    |  |   |        |       |  
|                                                        | Other accrued expenses                                                                                 |                    |        | 4,468  |  |   |        | 5,210  |  
|                                                        | Current portion of notes payable, long-term debt
	and capital lease obligations                        |                    |        | 935    |  |   |        | 879    |  
|                                                        |                                                                                                        |                    |        |        |  |   |        |       
|Total current liabilities                               |                                                                                                        |                    | 20,152 |        |  |   | 22,444 |       
|Notes payable and long-term debt, less current
	portion |                                                                                                        |                    |       |        |  |   | 9,720  |       
|Capital lease obligations, less current portion         |                                                                                                        |                    | 434    |        |  |   | 833    |       
|Shareholders equity                                    |                                                                                                        |                    |        |        |  |   |        |       
|                                                        | Common stock, $.01 par value. Authorized
	shares  40,000,000                                          |                    |        |        |  |   |        |        |  
|                                                        | Issued shares  7,997,529 shares at
	December 31, 2000, and 8,196,619 at December 31, 2001             |                    |        | 80     |  |   |        | 82     |  
|                                                        | Additional paid-in capital                                                                             |                    |        | 29,504 |  |   |        | 30,341 |  
|                                                        | Retained earnings                                                                                      |                    |        | 16,695 |  |   |        | 22,918 |  
|                                                        | Accumulated other comprehensive income (loss)                                                          |                    |        | 53     |  |   |        | (384   | )
|                                                        |                                                                                                        |                    |        |        |  |   |        |       
|Total shareholders equity                              |                                                                                                        |                    | 46,332 |        |  |   | 52,957 |       
|                                                        |                                                                                                        |                    |        |        |  |   |        |       
|Total liabilities and shareholders equity              |                                                                                                        | $                  | 66,918 |        |  | $ | 85,954 |       
|                                                        |                                                                                                        |                    |        |        |  |   |        |       

See accompanying notes.

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ROCKFORD CORPORATION AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF INCOME


|                                |                            |                                       |         |        |  |      |         |        |  |   |         |        | 
|------------------------------- | -------------------------- | ------------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                |                            |                                      
|                                |                            | Year Ended December 31,              
|                                |                            |                                      
|                                |                            | 1999                                  |         | 2000   |  | 2001
|                                |                            |                                       |         |        |  |     
|                                |                            |                                      
|                                |                            | (In thousands, except per share data)
|Net sales                       |                            | $                                     | 123,889 |        |  | $    | 144,640 |        |  | $ | 157,752 |       
|Cost of goods sold              |                            |                                       | 75,014  |        |  |      | 92,533  |        |  |   | 103,904 |       
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Gross profit                    |                            |                                       | 48,875  |        |  |      | 52,107  |        |  |   | 53,848  |       
|Operating expenses:             |                            |                                       |         |        |  |      |         |        |  |   |         |       
|                                | Sales and marketing        |                                       |         | 20,602 |  |      |         | 22,709 |  |   |         | 24,228 | 
|                                | General and administrative |                                       |         | 13,465 |  |      |         | 13,036 |  |   |         | 15,771 | 
|                                | Research and development   |                                       |         | 2,277  |  |      |         | 2,831  |  |   |         | 3,322  | 
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Total operating expenses        |                            |                                       | 36,344  |        |  |      | 38,576  |        |  |   | 43,321  |       
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Operating income                |                            |                                       | 12,531  |        |  |      | 13,531  |        |  |   | 10,527  |       
|Other expense:                  |                            |                                       |         |        |  |      |         |        |  |   |         |       
|                                | Interest                   |                                       |         | 1,671  |  |      |         | 793    |  |   |         | 455    | 
|                                | Other                      |                                       |         | 282    |  |      |         | 14     |  |   |         | 93     | 
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Income before income taxes      |                            |                                       | 10,578  |        |  |      | 12,724  |        |  |   | 9,979   |       
|Income tax expense              |                            |                                       | 4,088   |        |  |      | 4,714   |        |  |   | 3,756   |       
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Income before minority interest |                            |                                       | 6,490   |        |  |      | 8,010   |        |  |   | 6,223   |       
|Minority interest               |                            |                                       | 7       |        |  |      |        |        |  |   |        |       
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Net income                      |                            | $                                     | 6,497   |        |  | $    | 8,010   |        |  | $ | 6,223   |       
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Net income per common share:    |                            |                                       |         |        |  |      |         |        |  |   |         |       
|                                | Basic                      |                                       | $       | 1.40   |  |      | $       | 1.17   |  |   | $       | 0.77   | 
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|                                | Diluted                    |                                       | $       | 1.04   |  |      | $       | 1.00   |  |   | $       | 0.70   | 
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|Weighted average shares:        |                            |                                       |         |        |  |      |         |        |  |   |         |       
|                                | Basic                      |                                       |         | 4,641  |  |      |         | 6,864  |  |   |         | 8,109  | 
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       
|                                | Diluted                    |                                       |         | 6,289  |  |      |         | 8,009  |  |   |         | 8,913  | 
|                                |                            |                                       |         |        |  |      |         |        |  |   |         |       

See accompanying notes.

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ROCKFORD CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                             |                                                             |                |       |            |  |          |    |               |  |               |        |        |  |       |        |       |  |   |      |      |   |   |     |    |  |   |        |        |  
|---------------------------- | ----------------------------------------------------------- | -------------- | ----- | ---------- |  | -------- | -- | ------------- |  | ------------- | ------ | ------ |  | ----- | ------ | ----- |  | - | ---- | ---- | - | - | --- | -- |  | - | ------ | ------ | -
|                             |                                                             |                |       |            |  |          |    | Accumulated   |  |               |        |       
|                             |                                                             | Common Stock   |       | Additional |  |          |    | Other         |  |               |        |       
|                             |                                                             |                |       | Paid-In    |  | Retained |    | Comprehensive |  | Treasury      |        |       
|                             |                                                             | Shares         |       | Amount     |  | Capital  |    | Earnings      |  | Income (Loss) |        | Stock  |  | Total
|                             |                                                             |                |       |            |  |          |    |               |  |               |        |        |  |      
|                             |                                                             |               
|                             |                                                             | (In thousands)
|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 |       
|                             | Currency translation                                        |                |       |           |  |          |    |              |  |               |        |       |  |       |        |      |  |   |      | (437 | ) |   |     |   |  |   |        | (437   | )
|                             | Net income                                                  |                |       |           |  |          |    |              |  |               |        |       |  |       |        | 6,223 |  |   |      |     |   |   |     |   |  |   |        | 6,223  |  
|                             |                                                             |                |       |            |  |          |    |               |  |               |        |        |  |       |        |       |  |   |      |      |   |   |     |    |  |   |        |       
|                             | Comprehensive income                                        |                |       |            |  |          |    |               |  |               |        |        |  |       |        |       |  |   |      |      |   |   |     |    |  |   |        | 5,786  |  
|                            
|                             | Exercise of stock options                                   |                |       | 149        |  |          |    | 1             |  |               |        | 440    |  |       |        |      |  |   |      |     |   |   |     |   |  |   |        | 441    |  
|                             | Issuance of shares for employee stock purchase
	plan        |                |       | 51         |  |          |    | 1             |  |               |        | 397    |  |       |        |      |  |   |      |     |   |   |     |   |  |   |        | 398    |  
|                             |                                                             |                |       |            |  |          |    |               |  |               |        |        |  |       |        |       |  |   |      |      |   |   |     |    |  |   |        |       
|Balance at December 31, 2001 |                                                             |                | 8,197 |            |  | $        | 82 |               |  | $             | 30,341 |        |  | $     | 22,918 |       |  | $ | (384 | )    |   | $ |    |    |  | $ | 52,957 |       
|                             |                                                             |                |       |            |  |          |    |               |  |               |        |        |  |       |        |       |  |   |      |      |   |   |     |    |  |   |        |       

See accompanying notes.

33



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##### Table of Contents



ROCKFORD CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |       |        |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------ | ----- | ------ | ---- | ------- | ----- | ------ | - | ------- | ----- | ------ | -
|                                                                                             |                                              |                                  
|                                                                                             |                                              | Year Ended December 31,          
|                                                                                             |                                              |                                  
|                                                                                             |                                              | 1999                              |        | 2000  |        | 2001
|                                                                                             |                                              |                                   |        |       |        |     
|                                                                                             |                                              |                                  
|                                                                                             |                                              | (In thousands)                   
|Operating activities                                                                         |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Net income                                                                                   |                                              | $                                 | 6,497  |       |        | $    | 8,010   |       |        | $ | 6,223   |      
|Adjustments to reconcile net income to net cash
	provided by (used in) operating activities: |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|                                                                                             | Depreciation and amortization                |                                   |        | 2,386 |        |      |         | 3,396 |        |   |         | 3,880 |       
|                                                                                             | Loss (gain) on sale of fixed assets          |                                   |        | 92    |        |      |         | (3    | )      |   |         | (6    | )     
|                                                                                             | Deferred income tax                          |                                   |        | (866  | )      |      |         | (251  | )      |   |         | 834   |       
|                                                                                             | Provision for doubtful accounts              |                                   |        | 991   |        |      |         | 249   |        |   |         | 969   |       
|                                                                                             | Provision for inventory allowances           |                                   |        | 2,269 |        |      |         | 616   |        |   |         | 1,332 |       
|                                                                                             | Minority interest                            |                                   |        | (7    | )      |      |         |      |        |   |         |      |       
|                                                                                             | Changes in operating assets and liabilities: |                                   |        |       |        |      |         |       |        |   |         |       |       
|                                                                                             |                                              | Accounts receivable               |        |       | (5,974 | )    |         |       | (7,656 | ) |         |       | 2,359  |  
|                                                                                             |                                              | Inventories                       |        |       | (4,137 | )    |         |       | (6,096 | ) |         |       | (3,403 | )
|                                                                                             |                                              | Prepaid expenses and other        |        |       | (1,967 | )    |         |       | 657    |   |         |       | (522   | )
|                                                                                             |                                              | Accounts payable                  |        |       | 98     |      |         |       | (324   | ) |         |       | 1,093  |  
|                                                                                             |                                              | Accrued salaries and incentives   |        |       | 1,555  |      |         |       | (2,507 | ) |         |       | (1,743 | )
|                                                                                             |                                              | Accrued warranty                  |        |       | (113   | )    |         |       | 1,109  |   |         |       | (113   | )
|                                                                                             |                                              | Income taxes payable (receivable) |        |       | 289    |      |         |       | 130    |   |         |       | (2,334 | )
|                                                                                             |                                              | Other accrued expenses            |        |       | 1,707  |      |         |       | 181    |   |         |       | (1,020 | )
|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Net cash provided by (used in) operating
	activities                                         |                                              |                                   | 2,820  |       |        |      | (2,489  | )     |        |   | 7,549   |      
|Investing activities                                                                         |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Purchases of property and equipment                                                          |                                              |                                   | (2,781 | )     |        |      | (3,851  | )     |        |   | (5,300  | )    
|Proceeds from sale of property and equipment                                                 |                                              |                                   | 46     |       |        |      | 3       |       |        |   | 6       |      
|Acquisitions of business, net of cash acquired                                               |                                              |                                   | (1,508 | )     |        |      |        |       |        |   | (11,292 | )    
|Decrease (increase) in other assets                                                          |                                              |                                   | (186   | )     |        |      | (252    | )     |        |   | 123     |      
|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Net cash used in investing activities                                                        |                                              |                                   | (4,429 | )     |        |      | (4,100  | )     |        |   | (16,463 | )    
|Financing activities                                                                         |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Net proceeds from notes payable, long-term debt                                              |                                              |                                   | 3,064  |       |        |      | 249     |       |        |   | 1,122   |      
|Proceeds from (payments on) notes payable and
	long-term debt                                |                                              |                                   | (665   | )     |        |      | (15,719 | )     |        |   | 7,910   |      
|Payments on capital lease obligations                                                        |                                              |                                   | (531   | )     |        |      | (697    | )     |        |   | (859    | )    
|Proceeds from initial public offering                                                        |                                              |                                   |       |       |        |      | 24,102  |       |        |   |        |      
|Proceeds from employee stock purchase plan                                                   |                                              |                                   |       |       |        |      | 135     |       |        |   | 398     |      
|Proceeds from exercise of stock options and
	warrants                                        |                                              |                                   | 88     |       |        |      | 637     |       |        |   | 441     |      
|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Net cash provided by financing activities                                                    |                                              |                                   | 1,956  |       |        |      | 8,707   |       |        |   | 9,012   |      
|Effect of exchange rate changes on cash                                                      |                                              |                                   | 100    |       |        |      | (285    | )     |        |   | (437    | )    
|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Net increase (decrease) in cash and cash
	equivalents                                        |                                              |                                   | 447    |       |        |      | 1,833   |       |        |   | (339    | )    
|Cash and cash equivalents at beginning of year                                               |                                              |                                   | 470    |       |        |      | 917     |       |        |   | 2,750   |      
|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|Cash and cash equivalents at end of year                                                     |                                              | $                                 | 917    |       |        | $    | 2,750   |       |        | $ | 2,411   |      
|                                                                                             |                                              |                                   |        |       |        |      |         |       |        |   |         |      
|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.

34



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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
mobile audio systems under the Rockford Fosgate, Lightning
Audio, Q-Logic and MB Quart brand names for the worldwide mobile
audio aftermarket. Rockford also sells professional audio
products under the Hafler and MB Quart brand names and home
theater audio products under the MB Quart and Fosgate Audionics
brand names. 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; Grand Rapids,
Michigan; Stillwater, Oklahoma; and Obrigheim, Germany. Rockford
uses warehouses located in the United States, Germany, Singapore
and Japan.

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, Rockford completed its initial public
offering.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of Rockford and its wholly owned subsidiaries in the
United States, 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, 2001, Rockford has the
following financial instruments: cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, notes
payable, long-term debt 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.



| |                    
| | -------------------
| | Revenue Recognition

Rockford recognizes revenue and records sales,
net of related discounts, when all of the following criteria are
met:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | Persuasive evidence of an arrangement exists;           
|
| |  | Ownership has transferred to the customer;              
|
| |  | The price to the customer is fixed or
	determinable; and
|
| |  | Collectability is reasonably assured.                   

These criteria are satisfied and, accordingly,
Rockford recognizes revenue upon shipment of product.

35



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##### Table of Contents



ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Rockford also records reductions to revenue for
estimated customer returns and additional sales incentive
offerings such as growth and volume incentive rebates and prompt
pay discounts based on historical rates. Should a greater
proportion of customers return product or redeem incentives than
estimated by Rockford, Rockford may be required to make
additional reductions to revenue.



| |                            
| | ---------------------------
| | Shipping and Handling Costs

Rockford records product shipping costs as
freight expense in direct sales and marketing expense. Customers
are billed for shipping, which is then recorded as a recovery of
freight, or reduction of freight expense. However, customers are
often eligible for a freight discount, depending on the size of
the order or payment terms. Freight discounts taken by customers
reduce the recovery of freight expense. Handling costs charged
to customers are minimal.



| |                    
| | -------------------
| | Accounts Receivable

Rockford sells its products principally to mobile
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,
2000 and 2001, net accounts receivable includes approximately
$5,658,000 and $4,580,000, respectively, due from overseas
businesses.

Rockford maintains an allowance for doubtful
accounts, based on historical rates, for estimated losses
resulting from the inability of its customers to make required
payments. Rockford has included in the allowance for accounts
receivable at December 31, 2000 and 2001, approximately
$1,018,000 and $1,812,000, respectively, for doubtful accounts.
If the financial condition of Rockfords customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances might be required.

Rockford also maintains allowances for prompt pay
and freight discounts, based on historical rates for discounts
offered to customers for invoices paid under 40 to 60 days
of issuance. Rockford has included in its allowance for accounts
receivable at December 31, 2000 and 2001, approximately
$410,000 and $673,000, respectively, with respect to customers
expected to use such discounts after year-end. Should a greater
proportion of customers take advantage of these discounts than
estimated by Rockford, additional reductions to revenue might be
required.



| |            
| | -----------
| | 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.

Rockford maintains a reserve for estimated
obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value
based upon assumptions about future demand and market
conditions. If actual future demand or market conditions are
less favorable than those Rockford projected, additional
inventory write-downs might be required.



| |                       
| | ----------------------
| | 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 two
to ten year life. The building acquired in the MB Quart
acquisition, which is located in Obrigheim, Germany, is being
depreciated over a period of 25 years. 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.

36



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##### Table of Contents



ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                
| | -------------------------------
| | 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

On January 1, 2002, Rockford adopted
SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets.
Purchase prices of acquired businesses that are accounted for as
purchases have been allocated to the assets and liabilities
acquired based on the estimated fair values on the respective
acquisition dates. Based on these values, the excess purchase
prices over the fair value of the net assets acquired were
allocated to goodwill.

Prior to January 1, 2002, Rockford amortized
goodwill over the useful life of the underlying asset, not to
exceed 15 years. On January 1, 2002, Rockford began
accounting for the goodwill under the provisions of
SFAS Nos. 141 and 142 and discontinued the
amortization of goodwill. As at December 31, 2001, Rockford
had gross goodwill of $6,704,000 and accumulated amortization of
$401,000. For the year ended December 31, 2001, Rockford
recognized $168,000 of amortization expense. Rockford completed
two acquisitions in the third quarter of 2001 and has not
recorded any amortization for these acquisitions on amounts
preliminarily allocated to goodwill in accordance with
SFAS No. 141. Application of the non-amortization
provisions of SFAS No. 142 is expected to result in an
increase in income from continuing operations before income
taxes of approximately $168,000 in 2002.

In assessing the recoverability of
Rockfords goodwill and other intangibles, Rockford must
make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If
these estimates or their related assumptions change in the
future, Rockford may be required to record impairment charges
for these assets not previously recorded. Some factors we
consider important which could trigger an impairment review
include the following:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Significant underperformance relative to expected
	historical or projected future operating results;          
|
| |  | Significant changes in the manner of our use of
	the acquired assets or the strategy for our overall business;
|
| |  | Rockfords market capitalization relative to
	net book value; and                                             
|
| |  | Significant negative industry or economic trends.                                                             

Rockford has tested goodwill for impairment using
the two-step process prescribed in SFAS No. 142. The
first step is a screen for potential impairment, while the
second step measures the amount of the impairment, if any.
Rockford has performed the first of the required impairment
tests for goodwill as of January 1, 2002, and has
determined that the carrying amount of goodwill is not impaired.
In addition, Rockford will be reviewing its classification of
intangible assets between goodwill and other identifiable
intangibles. During the year ended December 31, 2001,
Rockford did not record any impairment losses related to
goodwill and other intangible assets.

37



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##### Table of Contents



ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Advertising

Rockford expenses advertising as incurred.
Advertising expense for the years ended December 31, 1999,
2000 and 2001 was approximately $1,245,000, $1,948,000 and
$1,912,000, 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 SFAS No. 128, Earnings Per Share.
Diluted net income per share includes the dilutive effects of
options, warrants and convertible securities.



| |                     
| | --------------------
| | Significant Customer

Rockford has sales to one customer representing
19.9 percent, 16.7 percent and 16.3 percent of
net sales for the years ended December 31, 1999, 2000 and
2001, respectively.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The financial statements of foreign subsidiaries
have been translated into U.S. dollars in accordance with
SFAS No. 52, Foreign Currency Translation. 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
1999 and 2000 consolidated financial statements to conform them
to the 2001 presentation.

38



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##### Table of Contents



ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In June 2001, FASB issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets, that are applicable for fiscal
years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized, but will be subject to annual
impairment tests in accordance with the statements. Other
intangible assets will continue to be amortized over their
useful lives. For fiscal 2001, the amortization provisions of
SFAS No. 142 apply to goodwill and other intangible assets
acquired after June 30, 2001. For fiscal 2002, the
provision will apply to all goodwill and other intangible
assets. Rockford adopted the new rules on accounting for
goodwill and other intangible assets beginning in the first
quarter of fiscal 2002, including the required impairment tests.
Rockford recorded approximately $168,000 in amortization of its
intangible assets during 2001. The provisions of these standards
are not expected to have a significant effect on Rockfords
financial position or operating results.

In August 2001, FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, that is applicable to financial
statements issued for fiscal years beginning after
December 15, 2001. The FASBs new rules on asset
impairment supercedes SFAS No. 121, Accounting for the
Impairment or Disposal of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and portions of Accounting
Principles Board (APB) Opinion No. 30, Reporting the
Results of Operations. This Standard provides a single
accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are
not depreciated and are stated at the lower of fair value and
carrying amount. The Standard also required expected future
operating losses from discontinued operations to be displayed in
the period(s) in which the losses are incurred, rather than as
of the measurement date as presently required. The provisions of
this Standard are not expected to have a significant effect on
Rockfords financial position or operating results.

In April 2001, the Emerging Issues Task Force
(EITF) issued Issue 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, that is applicable to financial
statements issued for fiscal years beginning after
December 15, 2001. EITF 00-25 addresses the accounting and
income statement classification of costs that a vendor incurs on
behalf of a reseller in connection with the resellers
purchase or promotion of the vendors products. The
provisions of this Standard are not expected to have a
significant effect on Rockfords financial position or
operating results.

In July 2001, FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, that is
applicable to financial statements issued for fiscal years
beginning after June 15, 2001. This Standard applies to
obligations associated with the retirement of tangible
long-lived assets. The provisions of this Standard are not
expected to have a significant effect on Rockfords
financial position or operating results.

2. Acquisitions

Lightning Audio.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 paid $600,000 of additional consideration
over two years subsequent to the purchase of Lightning Audio
based on the achievement of certain performance goals. Through
December 31, 1999, the former owners of 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. This goodwill was being amortized
over 15 years until January 1, 2002, at which time
Rockford began accounting for the goodwill under the provisions
of SFAS Nos. 141 and 142. 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.

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Audio Innovations.On August 1, 2001, Rockford acquired the Audio Innovations
business by purchasing all of the outstanding shares of common
stock of Audio Innovations, Inc., an Oklahoma corporation.
Rockford paid the shareholders of Audio Innovations $4 million
($3.8 million cash and $0.2 million payable to the selling
shareholders) at the closing and paid approximately $1.9 million
to settle outstanding Audio Innovations debt. Rockford also
anticipates making payments of $500,000 to the selling
shareholders over the next three years if Audio Innovations
meets agreed upon profitability and sales goals. Rockford
financed the purchase price using borrowings from its line of
credit. The assets acquired and liabilities assumed were
recorded at their fair values at the date of acquisition with
$3.9 million recorded as goodwill. The acquisition was accounted
for using the purchase method of accounting and accordingly, the
results of operations of Audio Innovations were included in
Rockfords consolidated results of operations beginning on
August 1, 2001. The acquisition was not significant under
the requirements of the Securities and Exchange Commission.

MB Quart.On
September 1, 2001, Rockford acquired MB Quart GmbH as a
subsidiary of Rockfords existing German subsidiary,
Rockford Europe GmbH. Through MB Quart GmbH, Rockford entered
into agreements with Dr. Werner Schreiber, a receiver
appointed under German bankruptcy law to manage the business of
MB Quart Akustik GmbH. Under these agreements, MB Quart GmbH
acquired substantially all of the operating assets of MB Quart
Akustik GmbH, and Rockford directly acquired all of the stock of
the U.S. subsidiary, M.B. Quart Electronics (USA), Inc. Rockford
paid approximately $6 million for all of these assets. Rockford
financed the purchase price, as well as working capital
requirements for this acquired business, using borrowings from
its line of credit. The assets acquired and liabilities assumed
were recorded at their fair values at the date of acquisition.
The remaining portion of the purchase price was assigned to
property and equipment with $248,000 being assigned to goodwill.
The acquisition was accounted for using the purchase method of
accounting and accordingly, the results of operations of MB
Quart were included in Rockfords consolidated results of
operations beginning on September 1, 2001. The acquisition
was not significant under the requirements of the Securities and
Exchange Commission.

Stock for Minority Interest.On June 14, 1999, Rockford issued
21,500 shares of its treasury stock in exchange for the
10 percent interest in its Japanese subsidiary 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 was being amortized over 15 years
until January 1, 2002, at which time Rockford began
accounting for the goodwill under the provisions of SFAS
Nos. 141 and 142.

3. Inventories

Inventories consisted of the following:

|                 |  |                |        |      |  |   |        |  
|---------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                 |  |               
|                 |  | December 31,  
|                 |  |               
|                 |  | 2000           |        | 2001
|                 |  |                |        |     
|                 |  |               
|                 |  | (In thousands)
|Raw materials    |  | $              | 7,330  |      |  | $ | 9,361  |  
|Work in progress |  |                | 863    |      |  |   | 1,424  |  
|Finished goods   |  |                | 13,659 |      |  |   | 20,263 |  
|                 |  |                |        |      |  |   |        |  
|                 |  |                | 21,852 |      |  |   | 31,048 |  
|Less allowances  |  |                | (1,446 | )    |  |   | (2,883 | )
|                 |  |                |        |      |  |   |        |  
|                 |  | $              | 20,406 |      |  | $ | 28,165 |  
|                 |  |                |        |      |  |   |        |  

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

4. Property and Equipment

Property and equipment consisted of the following:

|                                               |  |                |         |      |  |   |         |  
|---------------------------------------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                                               |  |               
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 2000           |         | 2001
|                                               |  |                |         |     
|                                               |  |               
|                                               |  | (In thousands)
|Land                                           |  | $              |        |      |  | $ | 398     |  
|Building                                       |  |                |        |      |  |   | 1,138   |  
|Machinery and equipment                        |  |                | 13,610  |      |  |   | 16,050  |  
|Tooling equipment                              |  |                | 5,898   |      |  |   | 7,839   |  
|Leasehold improvements                         |  |                | 2,093   |      |  |   | 2,822   |  
|Furniture and fixtures                         |  |                | 1,256   |      |  |   | 1,617   |  
|Construction in process                        |  |                | 907     |      |  |   | 1,592   |  
|                                               |  |                |         |      |  |   |         |  
|                                               |  |                | 23,764  |      |  |   | 31,456  |  
|Less accumulated depreciation and amortization |  |                | (17,768 | )    |  |   | (21,480 | )
|                                               |  |                |         |      |  |   |         |  
|                                               |  | $              | 5,996   |      |  | $ | 9,976   |  
|                                               |  |                |         |      |  |   |         |  

5. Notes Payable and Long-Term
Debt

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

|                                                                                                                                                                                                                                                                                                                                       |  |                |      |      |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---- | ---- |  | - | ----- | -
|                                                                                                                                                                                                                                                                                                                                       |  |               
|                                                                                                                                                                                                                                                                                                                                       |  | December 31,  
|                                                                                                                                                                                                                                                                                                                                       |  |               
|                                                                                                                                                                                                                                                                                                                                       |  | 2000           |      | 2001
|                                                                                                                                                                                                                                                                                                                                       |  |                |      |     
|                                                                                                                                                                                                                                                                                                                                       |  |               
|                                                                                                                                                                                                                                                                                                                                       |  | (In thousands)
|$30,000,000 line of credit with a lender
	collateralized by substantially all assets. Interest payments at
	LIBOR plus 175 basis points until June 2003 when all
	remaining principal and interest is due and payable. Borrowings
	under this line of credit are limited to a borrowing base as
	defined and adjusted in the agreement |  | $              |     |      |  | $ | 9,300 |  
|$17,000,000 revolving line of credit replaced in
	2001                                                                                                                                                                                                                                                                                 |  |                | 1    |      |  |   |      |  
|Other                                                                                                                                                                                                                                                                                                                                  |  |                | 152  |      |  |   | 500   |  
|                                                                                                                                                                                                                                                                                                                                       |  |                |      |      |  |   |       |  
|                                                                                                                                                                                                                                                                                                                                       |  |                | 153  |      |  |   | 9,800 |  
|Less current portion                                                                                                                                                                                                                                                                                                                   |  |                | (153 | )    |  |   | (80   | )
|                                                                                                                                                                                                                                                                                                                                       |  |                |      |      |  |   |       |  
|                                                                                                                                                                                                                                                                                                                                       |  | $              |     |      |  | $ | 9,720 |  
|                                                                                                                                                                                                                                                                                                                                       |  |                |      |      |  |   |       |  

Annual maturities of notes payable and long-term
debt for the five years succeeding December 31, 2001, are
$80,000 in 2002 and $9,720,000 in 2003. Interest payments were
approximately $1,671,000, $793,000 and $455,000 for the years
ended December 31, 1999, 2000 and 2001, respectively.

At December 31, 2001, Rockford had a balance
of approximately $9,300,000 on its $30,000,000 bank credit
facility. At December 31, 2001, Rockford had $20,700,000
available on the 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, 2001.

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 December 2006.

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

|                              |  |                |        |      |  |   |        |  
|----------------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                              |  |               
|                              |  | December 31,  
|                              |  |               
|                              |  | 2000           |        | 2001
|                              |  |                |        |     
|                              |  |               
|                              |  | (In thousands)
|Equipment                     |  | $              | 4,295  |      |  | $ | 5,571  |  
|Less accumulated amortization |  |                | (2,627 | )    |  |   | (3,785 | )
|                              |  |                |        |      |  |   |        |  
|                              |  | $              | 1,668  |      |  | $ | 1,786  |  
|                              |  |                |        |      |  |   |        |  

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

During the years ended December 31, 2000 and
2001, Rockford acquired approximately $389,000 and $1,276,000 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, 2001:

|                                   |  |                |       |                  |  |   |       | 
|---------------------------------- |  | -------------- | ----- | ---------------- |  | - | ----- | 
|                                   |  | Capital Leases |       | Operating Leases
|                                   |  |                |       |                 
|                                   |  |               
|                                   |  | (In thousands)
|2002                               |  | $              | 829   |                  |  | $ | 2,402 | 
|2003                               |  |                | 564   |                  |  |   | 1,573 | 
|2004                               |  |                | 322   |                  |  |   | 1,131 | 
|2005                               |  |                |      |                  |  |   | 292   | 
|2006                               |  |                |      |                  |  |   | 986   | 
|                                   |  |                |       |                  |  |   |       | 
|Total minimum lease payments       |  |                | 1,715 |                  |  | $ | 6,384 | 
|                                   |  |                |       |                  |  |   |       | 
|Less amounts representing interest |  |                | (83   | )                |  |   |       | 
|                                   |  |                |       |                  |  |   |       | 
|Present value of net minimum lease |  |                | 1,632 |                  |  |   |       | 
|Less current portion               |  |                | (799  | )                |  |   |       | 
|                                   |  |                |       |                  |  |   |       | 
|                                   |  | $              | 833   |                  |  |   |       | 
|                                   |  |                |       |                  |  |   |       | 

Total rental expense for all operating leases was
approximately $1,719,000, $2,032,000 and $2,545,000 for the
years ended December 31, 1999, 2000 and 2001, respectively.

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7. Income Taxes

Significant components of Rockfords
deferred tax assets are:

|                          |                                 |                |       |       |  |   |       |       | 
|------------------------- | ------------------------------- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                          |                                 |               
|                          |                                 | December 31,  
|                          |                                 |               
|                          |                                 | 2000           |       | 2001 
|                          |                                 |                |       |      
|                          |                                 |               
|                          |                                 | (In thousands)
|Deferred tax assets:      |                                 |                |       |       |  |   |       |      
|                          | Inventory basis                 |                | $     | 576   |  |   | $     | 728   | 
|                          | Basis in receivables            |                |       | 828   |  |   |       | 829   | 
|                          | Book over tax depreciation      |                |       | 606   |  |   |       | 394   | 
|                          | Accrued warranty                |                |       | 1,690 |  |   |       | 1,790 | 
|                          | Net operating loss carryforward |                |       |      |  |   |       | 280   | 
|                          | Accrued liabilities and other   |                |       | 501   |  |   |       | 954   | 
|                          |                                 |                |       |       |  |   |       |      
|Total deferred tax assets |                                 | $              | 4,201 |       |  | $ | 4,894 |      
|                          |                                 |                |       |       |  |   |       |      

During 2001, Rockford acquired all of the
outstanding stock of M.B. Quart Electronics (USA), Inc. and
Audio Innovations, Inc. in taxable stock acquisitions. As a
result of these acquisitions, approximately $1,418,000 of net
deferred tax assets were transferred to Rockford including net
operating loss carryovers of approximately $1,927,000. All of
the net operating losses acquired are limited for tax purposes
under Internal Revenue Code section 382 which limits the annual
utilization of net operating losses.

At December 31, 2001, Rockford had federal
net operating loss carryforwards for federal income tax purposes
of approximately $1,927,000 which will begin to expire in 2011
if not previously utilized. All of the net operating loss is
attributable to Rockfords acquisition of M.B. Quart
Electronics (USA), Inc. As such, it is limited for tax purposes
under Internal Revenue Code section 382, which limits the annual
utilization of net operating losses. The deferred tax asset
relating to the net operating losses is shown net of the
estimated amount that will expire as a result of this annual
limitation.

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

|                                 |                           |                         |       |       |   |      |       |       |   |   |       |       |  
|-------------------------------- | ------------------------- | ----------------------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | -
|                                 |                           |                        
|                                 |                           | Year Ended December 31,
|                                 |                           |                        
|                                 |                           | 1999                    |       | 2000  |   | 2001
|                                 |                           |                         |       |       |   |     
|                                 |                           |                        
|                                 |                           | (In thousands)         
|Current:                         |                           |                         |       |       |   |      |       |       |   |   |       |      
|                                 | Federal expense           |                         | $     | 3,994 |   |      | $     | 4,472 |   |   | $     | 3,060 |  
|                                 | State expense             |                         |       | 942   |   |      |       | 423   |   |   |       | 59    |  
|                                 | Foreign expense (benefit) |                         |       | 18    |   |      |       | 70    |   |   |       | (88   | )
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      
|Total current expense            |                           |                         | 4,954 |       |   |      | 4,965 |       |   |   | 3,031 |      
|Deferred:                        |                           |                         |       |       |   |      |       |       |   |   |       |      
|                                 | Federal expense (benefit) |                         |       | (796  | ) |      |       | (233  | ) |   |       | 672   |  
|                                 | State expense (benefit)   |                         |       | (70   | ) |      |       | (18   | ) |   |       | 54    |  
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      
|Total deferred expense (benefit) |                           |                         | (866  | )     |   |      | (251  | )     |   |   | 726   |      
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      
|                                 |                           | $                       | 4,088 |       |   | $    | 4,714 |       |   | $ | 3,756 |      
|                                 |                           |                         |       |       |   |      |       |       |   |   |       |      

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                  |  |                         |       |      |  |      |       |   |  |   |       |  
|--------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                  |  |                        
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 1999                    |       | 2000 |  | 2001
|                                  |  |                         |       |      |  |     
|                                  |  |                        
|                                  |  | (In thousands)         
|Federal statutory rate            |  | $                       | 3,597 |      |  | $    | 4,453 |   |  | $ | 3,493 |  
|State tax net of federal benefit  |  |                         | 575   |      |  |      | 273   |   |  |   | 64    |  
|Nondeductible items               |  |                         | 98    |      |  |      | 231   |   |  |   | 148   |  
|Higher (lower) foreign tax rates  |  |                         | (34   | )    |  |      | (99   | ) |  |   | 267   |  
|Foreign sales corporation benefit |  |                         | (145  | )    |  |      | (107  | ) |  |   | (129  | )
|Other, net                        |  |                         | (3    | )    |  |      | (37   | ) |  |   | (87   | )
|                                  |  |                         |       |      |  |      |       |   |  |   |       |  
|                                  |  | $                       | 4,088 |      |  | $    | 4,714 |   |  | $ | 3,756 |  
|                                  |  |                         |       |      |  |      |       |   |  |   |       |  

Rockfords income (loss) attributable
to foreign operations amounted to approximately $150,000,
$285,000 and $(969,000) for the years ended December 31,
1999, 2000 and 2001, respectively.

For the years ended December 31, 1999, 2000
and 2001, Rockford made tax payments of $4,631,000 (net of
$29,000 in refunds), $5,305,000 (net of $524,000 in refunds) and
$5,266,000 (net of $14,000 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 Opinion
No. 25 and related Interpretations in Accounting for its
employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS
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 Opinion
No. 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.

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 SFAS 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

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

these options was estimated at the date of grant
using a minimum value-pricing model with the following weighted
average assumptions:

|                           |  |      |           |      |  |      |           |  |  |  |             | 
|-------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | ----------- | 
|                           |  | 1999 |           | 2000 |  | 2001
|                           |  |      |           |      |  |     
|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 |  |  |  | 4.5 percent | 
|Expected volatility        |  |      | 0         |      |  |      | .97       |  |  |  | .75         | 

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,
|                                 |         |                        
|                                 |         | 1999                    |       | 2000 |  | 2001
|                                 |         |                         |       |      |  |     
|                                 |         |                        
|                                 |         | (In thousands, except  
|                                 |         | per share data)        
|Net income as reported           |         | $                       | 6,497 |      |  | $    | 8,010 |      |  | $ | 6,223 |     
|Proforma SFAS No. 123 expense    |         |                         | (262  | )    |  |      | (248  | )    |  |   | (327  | )   
|                                 |         |                         |       |      |  |      |       |      |  |   |       |     
|Proforma net income              |         | $                       | 6,235 |      |  | $    | 7,762 |      |  | $ | 5,896 |     
|                                 |         |                         |       |      |  |      |       |      |  |   |       |     
|Proforma income per common share |         |                         |       |      |  |      |       |      |  |   |       |     
|                                 | Basic   |                         | $     | 1.35 |  |      | $     | 1.13 |  |   | $     | 0.74 | 
|                                 |         |                         |       |      |  |      |       |      |  |   |       |     
|                                 | Diluted |                         | $     | 1.00 |  |      | $     | .97  |  |   | $     | 0.66 | 
|                                 |         |                         |       |      |  |      |       |      |  |   |       |     

Option activity under the stock option plan
during the years ended December 31, 1999, 2000 and 2001 is
as follows:

|                                 |  |                  |          |                     |  |                  |           |   |  |   |       | 
|-------------------------------- |  | ---------------- | -------- | ------------------- |  | ---------------- | --------- | - |  | - | ----- | 
|                                 |  |                  |          |                    
|                                 |  |                  |          | Outstanding Options
|                                 |  |                  |          |                    
|                                 |  | Shares Available |          |                     |  | Weighted Average
|                                 |  | Under Option     |          | Shares              |  | Exercise Price  
|                                 |  |                  |          |                     |  |                 
|Outstanding at December 31, 1998 |  |                  | 482,109  |                     |  |                  | 1,648,004 |   |  | $ | 3.12  | 
|Granted                          |  |                  | (172,000 | )                   |  |                  | 172,000   |   |  |   | 7.67  | 
|Exercised                        |  |                  |         |                     |  |                  | (20,748   | ) |  |   | 3.76  | 
|Expired or cancelled             |  |                  | 26,875   |                     |  |                  | (26,875   | ) |  |   | 5.39  | 
|                                 |  |                  |          |                     |  |                  |           |   |  |   |       | 
|Outstanding at December 31, 1999 |  |                  | 336,984  |                     |  |                  | 1,772,381 |   |  |   | 3.55  | 
|Granted                          |  |                  | (81,500  | )                   |  |                  | 81,500    |   |  |   | 10.83 | 
|Exercised                        |  |                  |         |                     |  |                  | (192,352  | ) |  |   | 2.42  | 
|Expired or cancelled             |  |                  | 43,163   |                     |  |                  | (43,163   | ) |  |   | 4.76  | 
|                                 |  |                  |          |                     |  |                  |           |   |  |   |       | 
|Outstanding at December 31, 2000 |  |                  | 298,647  |                     |  |                  | 1,618,366 |   |  |   | 4.06  | 
|Granted                          |  |                  | (302,814 | )                   |  |                  | 302,814   |   |  |   | 6.61  | 
|Exercised                        |  |                  |         |                     |  |                  | (149,325  | ) |  |   | 3.12  | 
|Expired or cancelled             |  |                  | 4,225    |                     |  |                  | (4,225    | ) |  |   | 6.02  | 
|                                 |  |                  |          |                     |  |                  |           |   |  |   |       | 
|Outstanding at December 31, 2001 |  |                  | 58       |                     |  |                  | 1,767,630 |   |  | $ | 4.55  | 
|                                 |  |                  |          |                     |  |                  |           |   |  |   |       | 

The weighted average fair value of options
granted during the years ended December 31, 1999, 2000 and
2001, was $1.99, $2.85 and $4.24, respectively.

45



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##### Table of Contents



ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options under the plans outstanding at December 31,
2001:

|                         |  |                     |           |                     |  |          |           |                   |  |          |      |  |  |  |           |  |  |   |      | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------- | --------- | ----------------- |  | -------- | ---- |  |  |  | --------- |  |  | - | ---- | 
|                         |  |                     |           |                     |  |         
|                         |  | 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, 2001   |           | Life                |  | Price    |           | December 31, 2001 |  | Price   
|                         |  |                     |           |                     |  |          |           |                   |  |         
|$1.51                    |  |                     | 339,289   |                     |  |          | 4.0 years |                   |  | $        | 1.51 |  |  |  | 339,289   |  |  | $ | 1.51 | 
|$2.44  $3.45            |  |                     | 369,402   |                     |  |          | 4.4 years |                   |  |          | 2.62 |  |  |  | 369,402   |  |  |   | 2.62 | 
|$4.19  $5.81            |  |                     | 510,625   |                     |  |          | 6.1 years |                   |  |          | 4.53 |  |  |  | 510,625   |  |  |   | 4.53 | 
|$6.00  $6.68            |  |                     | 301,814   |                     |  |          | 9.6 years |                   |  |          | 6.62 |  |  |  | 76,750    |  |  |   | 6.62 | 
|$7.67  $11.00           |  |                     | 246,500   |                     |  |          | 7.4 years |                   |  |          | 8.68 |  |  |  | 220,000   |  |  |   | 8.73 | 
|                         |  |                     |           |                     |  |          |           |                   |  |          |      |  |  |  |           |  |  |   |      | 
|                         |  |                     | 1,767,630 |                     |  |          |           |                   |  |          |      |  |  |  | 1,516,066 |  |  |   |      | 

9. Earnings Per Share

|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |       | 
|-------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                                                                               |                                                                          |                        
|                                                                                                               |                                                                          | Year Ended December 31,
|                                                                                                               |                                                                          |                        
|                                                                                                               |                                                                          | 1999                    |       | 2000  |  | 2001
|                                                                                                               |                                                                          |                         |       |       |  |     
|                                                                                                               |                                                                          |                        
|                                                                                                               |                                                                          | (In thousands, except  
|                                                                                                               |                                                                          | per share data)        
|Numerator:                                                                                                     |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|                                                                                                               | Net income                                                               |                         | $     | 6,497 |  |      | $     | 8,010 |  |   | $     | 6,223 | 
|                                                                                                               | Effect of dilutive securities interest impact of
	convertible debentures |                         |       | 72    |  |      |       | 18    |  |   |       |      | 
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|Numerator for diluted net income per share,
	income available to common stockholders after assumed conversions |                                                                          | $                       | 6,569 |       |  | $    | 8,028 |       |  | $ | 6,223 |      
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|Denominator:                                                                                                   |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|                                                                                                               | Denominator for basic net income per share,
	weighted average shares     |                         |       | 4,641 |  |      |       | 6,864 |  |   |       | 8,109 | 
|                                                                                                               | Effect of dilutive securities:                                           |                         |       |       |  |      |       |       |  |   |       |       | 
|                                                                                                               | Employee stock options                                                   |                         |       | 1,075 |  |      |       | 948   |  |   |       | 799   | 
|                                                                                                               | Warrants                                                                 |                         |       | 71    |  |      |       | 11    |  |   |       | 5     | 
|                                                                                                               | Convertible debentures                                                   |                         |       | 503   |  |      |       | 185   |  |   |       |      | 
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|                                                                                                               | Dilutive potential common shares                                         |                         |       | 1,648 |  |      |       | 1,144 |  |   |       | 804   | 
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|Denominator for diluted net income per share,
	adjusted weighted average shares and assumed conversions        |                                                                          |                         | 6,289 |       |  |      | 8,009 |       |  |   | 8,913 |      
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|Basic net income per share                                                                                     |                                                                          | $                       | 1.40  |       |  | $    | 1.17  |       |  | $ | 0.77  |      
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      
|Diluted net income per share                                                                                   |                                                                          | $                       | 1.04  |       |  | $    | 1.00  |       |  | $ | 0.70  |      
|                                                                                                               |                                                                          |                         |       |       |  |      |       |       |  |   |       |      

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.

46



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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 1999, 2000 and 2001,
were approximately $369,000, $388,000 and $395,000, 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 six month purchase period. 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 mobile
audio, professional and home theater audio and OEM segments. For
each of the periods ended December 31, 1999, 2000 and 2001,
the professional and home theater audio and OEM segments were
not significant and, accordingly, no additional disclosures of
operations information about the segments are required. Below is
geographic information for revenues of Rockford:

|                                    |  |                |         |      |  |      |         |  |  |   |         | 
|----------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|Region(1)                           |  | 1999           |         | 2000 |  | 2001
|                                    |  |                |         |      |  |     
|                                    |  |               
|                                    |  | (In thousands)
|United States                       |  | $              | 105,482 |      |  | $    | 121,375 |  |  | $ | 130,459 | 
|Other Americas                      |  |                | 5,294   |      |  |      | 7,289   |  |  |   | 9,469   | 
|Europe                              |  |                | 7,337   |      |  |      | 7,687   |  |  |   | 10,278  | 
|Asia                                |  |                | 5,776   |      |  |      | 8,289   |  |  |   | 7,546   | 
|                                    |  |                |         |      |  |      |         |  |  |   |         | 
|Total sales from external customers |  | $              | 123,889 |      |  | $    | 144,640 |  |  | $ | 157,752 | 
|                                    |  |                |         |      |  |      |         |  |  |   |         | 




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

For the years ended December 31, 1999, 2000
and 2001, sales to one customer accounted for 19.9 percent,
16.7 percent and 16.3 percent of those periods
net sales, respectively. Rockfords long-lived assets
outside of the United States consist of the land and building
used in Rockfords MB Quart operations and located in
Obrigheim, Germany.

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, 2000 and 2001. In
managements opinion, this unaudited quarterly 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. Rockford believes that
quarter-to-quarter comparisons of its

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ROCKFORD CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

financial results are not necessarily meaningful
and should not be relied upon as an indication of future
performance.

|                         |  |                                       |        |         |  |              |        |             |  |       |        |  |  |   |        |  |  |   |         | 
|------------------------ |  | ------------------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                         |  |                                      
|                         |  | Year Ended December 31, 2001         
|                         |  |                                      
|                         |  | March 31                              |        | June 30 |  | September 30 |        | December 31 |  | Total
|                         |  |                                       |        |         |  |              |        |             |  |      
|                         |  |                                      
|                         |  | (In thousands, except per share data)
|Net Sales                |  | $                                     | 37,363 |         |  | $            | 44,803 |             |  | $     | 36,562 |  |  | $ | 39,024 |  |  | $ | 157,752 | 
|Gross Profit             |  |                                       | 13,280 |         |  |              | 15,497 |             |  |       | 11,985 |  |  |   | 13,086 |  |  |   | 53,848  | 
|Operating Income         |  |                                       | 3,356  |         |  |              | 4,245  |             |  |       | 1,275  |  |  |   | 1,651  |  |  |   | 10,527  | 
|Net Income               |  |                                       | 1,992  |         |  |              | 2,586  |             |  |       | 853    |  |  |   | 792    |  |  |   | 6,223   | 
|Basic Income Per Share   |  |                                       | 0.25   |         |  |              | 0.32   |             |  |       | 0.10   |  |  |   | 0.10   |  |  |   | 0.77    | 
|Diluted Income Per Share |  |                                       | 0.23   |         |  |              | 0.29   |             |  |       | 0.10   |  |  |   | 0.09   |  |  |   | 0.70    | 

|                         |  |                              |        |                                       |  |              |        |             |  |       |        |  |  |   |        |  |  |   |         | 
|------------------------ |  | ---------------------------- | ------ | ------------------------------------- |  | ------------ | ------ | ----------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                         |  |                             
|                         |  | 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    | 

48



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|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|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 May 8, 2002.




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  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 May 8, 2002.






|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management and Related Stockholder
	Matters

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 May 8, 2002.




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 May 8, 2002.

49



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##### 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 29 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, 2001 |                       |                |   |            |  |                |   |            |  |               |   |       |     |  |   |       |     |  |   |      
|                  | Receivable allowances |                | $ | 1,427      |  |                | $ | 969        |  |               | $ | 2,966 | (3) |  | $ | 2,749 | (1) |  | $ | 2,613 | 
|                  | Inventory reserve     |                |   | 1,446      |  |                |   | 1,332      |  |               |   | 1,431 | (4) |  |   | 1,326 | (2) |  |   | 2,883 | 
|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 | 




|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Accounts written off net of recoveries and
	returns.                                                                                                            
|   
|(2) | Reserved inventory sold or scrapped.                                                                                                                            
|   
|(3) | Amounts netted against sales. Includes, for 2001,
	$342,000 related to allowances acquired in connection with
	acquisitions and $2,624,000 netted against sales.
|   
|(4) | Inventory reserves relating to inventory acquired
	in connection with acquisitions during 2001.                                                                 

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+                                                                                                                                                           
|        | 3.7  |                         |  | 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 and 3.7 for a
	description of the rights of the holders of Common Stock.
|        | 10.1 |                         |  | 1994 Stock Option Plan+                                                                                                                                                                                                  

50



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|        |         |                         |  |                                                                                                                                                                                                                  
|------- | ------- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Document
|        |         |                        
|        | 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+                                                                                           
|        | 10.14   |                         |  | Employee 401(k) Deferred Compensation Plan and
	amendments thereto+                                                                                                                                              
|        | 10.16   |                         |  | Product Sales Agreement by and between Rockford
	Corporation and Avnet Electronics Marketing**+                                                                                                                  
|        | 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.+                                                                                          
|        | 10.35   |                         |  | Form of Indemnification Agreement+                                                                                                                                                                               
|        | 10.35.1 |                         |  | Schedule for Indemnification Agreement+                                                                                                                                                                          
|        | 10.39   |                         |  | Financing Lease Schedule No. 1000100950
	by and between Banc One Leasing Corporation and Rockford
	Corporation+                                                                                                  

51



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|        |       |                         |  |                                                                                                                                                                                                                                                                                                             
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 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**+++                                                                                                                                                                                                                       
|        | 10.43 |                         |  | Credit Agreement among Rockford Corporation, the
	Subsidiaries of Rockford Corporation, Bank One, Arizona, N.A.,
	and Bank of America, N.A. (previously numbered
	Exhibit 10.39)#                                                                                                                           
|        | 10.44 |                         |  | Stock Purchase Agreement among Rockford
	Corporation, Audio Innovations, Inc., and the shareholders of
	Audio Innovations, Inc. (previously numbered
	Exhibit 10.40)**#                                                                                                                                     
|        | 10.45 |                         |  | English translation of the Asset Purchase
	Agreement between a subsidiary of Rockford Corporation and
	Dr. Werner Schreiber, a receiver under German bankruptcy
	law. Under this deed, the subsidiary acquired the assets of
	MB Quart Akustik GmbH (previously numbered
	Exhibit 10.41)##                  
|        | 10.46 |                         |  | English translation of the Deed between a
	subsidiary of Rockford Corporation and Dr. Werner
	Schreiber, a receiver under German bankruptcy law. Under this
	deed, the subsidiary acquired the real estate assets of MB Quart
	Akustik GmbH (previously numbered Exhibit 10.42)##                           
|        | 10.47 |                         |  | English translation of the Deed between Rockford
	Corporation and Dr. Werner Schreiber, a receiver under
	German bankruptcy law. Under this Deed, Rockford acquired the
	shares of M.B. Quart Electronics (USA), Inc. (the U.S.
	Subsidiary of MB Quart Akustik GmbH) (previously numbered
	Exhibit 10.43)##
|        | 10.48 |                         |  | 2002 Stock Option Plan                                                                                                                                                                                                                                                                                      
|        | 10.49 |                         |  | License Agreement between Rockford Corporation
	and Milwaukee Electric Tool 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.                
|   
|+++ | Previously filed on March 13, 2001 with our
	Annual Report on Form 10-K for the year ended
	December 31, 2000.                   
|   
|#   | Previously filed on August 14, 2001 with our
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001.                
|   
|##  | Previously filed on November 14, 2001 with
	our Quarterly Report on Form 10-Q for the quarter ended
	September 30, 2001.         

52



---



##### 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 28, 2002.



| |                     
| | --------------------
| | 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 28, 2002
|                                        
|/s/ JAMES M. THOMSONJames M. Thomson     |  | Vice President of Finance and Chief Financial
	Officer, Secretary (Principal Financial Officer) |  | March 28, 2002
|                                        
|/s/ D. LYNN THROWERD. Lynn Thrower       |  | Corporate Controller (Principal Accounting
	Officer)                                            |  | March 28, 2002
|                                        
|/s/ JERRY E. GOLDRESSJerry E. Goldress   |  | Director                                                                                        |  | March 28, 2002
|                                        
|/s/ TIMOTHY C. BARTOLTimothy C. Bartol   |  | Director                                                                                        |  | March 28, 2002
|                                        
|/s/ NICHOLAS G. BARTOLNicholas G. Bartol |  | Director                                                                                        |  | March 28, 2002
|                                        
|/s/ RALPH B. GODFREYRalph B. Godfrey     |  | Director                                                                                        |  | March 28, 2002
|                                        
|/s/ JOHN P. LLOYDJohn P. Lloyd           |  | Director                                                                                        |  | March 28, 2002

53



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##### 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+                                                                                                                                                            
|        | 3.7     |                         |  | 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, 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+                                                                                                    
|        | 10.14   |                         |  | Employee 401(k) Deferred Compensation Plan and
	amendments thereto+                                                                                                                                                       
|        | 10.16   |                         |  | Product Sales Agreement by and between Rockford
	Corporation and Avnet Electronics Marketing**+                                                                                                                           
|        | 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+                                          



---



##### Table of Contents



|        |         |                         |  |                                                                                                                                                                                                                                                                                                             
|------- | ------- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                        
|Number  |         | Description of Document
|        |         |                        
|        | 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.+                                                                                                                                                                                     
|        | 10.35   |                         |  | Form of Indemnification Agreement+                                                                                                                                                                                                                                                                          
|        | 10.35.1 |                         |  | Schedule for Indemnification 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**+++                                                                                                                                                                                                                       
|        | 10.43   |                         |  | Credit Agreement among Rockford Corporation, the
	Subsidiaries of Rockford Corporation, Bank One, Arizona, N.A.,
	and Bank of America, N.A. (previously numbered
	Exhibit 10.39)#                                                                                                                           
|        | 10.44   |                         |  | Stock Purchase Agreement among Rockford
	Corporation, Audio Innovations, Inc., and the shareholders of
	Audio Innovations, Inc. (previously numbered
	Exhibit 10.40)**#                                                                                                                                     
|        | 10.45   |                         |  | English translation of the Asset Purchase
	Agreement between a subsidiary of Rockford Corporation and Dr.
	Werner Schreiber, a receiver under German bankruptcy law. Under
	this deed, the subsidiary acquired the assets of MB Quart
	Akustik GmbH (previously numbered Exhibit 10.41)##                   
|        | 10.46   |                         |  | English translation of the Deed between a
	subsidiary of Rockford Corporation and Dr. Werner
	Schreiber, a receiver under German bankruptcy law. Under this
	deed, the subsidiary acquired the real estate assets of
	MB Quart Akustik GmbH (previously numbered
	Exhibit 10.42)##                          
|        | 10.47   |                         |  | English translation of the Deed between Rockford
	Corporation and Dr. Werner Schreiber, a receiver under
	German bankruptcy law. Under this Deed, Rockford acquired the
	shares of M.B. Quart Electronics (USA), Inc. (the U.S.
	Subsidiary of MB Quart Akustik GmbH) (previously numbered
	Exhibit 10.43)##
|        | 10.48   |                         |  | 2002 Stock Option Plan                                                                                                                                                                                                                                                                                      
|        | 10.49   |                         |  | License Agreement between Rockford Corporation
	and Milwaukee Electric Tool 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                                         



---



##### Table of Contents





|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|++  | Previously filed on August 11, 2000 with our
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2000.       
|   
|+++ | Previously filed on March 13, 2001 with our
	Annual Report on Form 10-K for the year ended
	December 31, 2000.          
|   
|#   | Previously filed on August 14, 2001 with our
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001.       
|   
|##  | Previously filed on November 14, 2001 with
	our Quarterly Report on Form 10-Q for the quarter ended
	September 30, 2001.