##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

Commission File Number 000-30138

ROCKFORD CORPORATION
(Exact Name of Registrant as Specified in its Charter)

|                                                                                 |  |                                                
|-------------------------------------------------------------------------------- |  | -----------------------------------------------
|ARIZONA
(State or Other Jurisdiction of
Incorporation or Organization)           |  | 86-0394353
(I.R.S. Employer Identification
No.)
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |  |                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|600 South Rockford Drive
Tempe, Arizona
(Address of Principal Executive
Offices) |  | 85281
(Zip Code)                               

(480) 967-3565
(Registrants Telephone Number, Including Area Code)

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

Indicate the number of shares of each of the issuers classes of common stock,
as of the latest practical date:

As of June 30, 2001, there were 8,170,624 shares of Common Stock, $.01 par
value per share, outstanding.





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TABLE OF CONTENTS



|                                                                                                                   |                                                                  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                                     
|Item 1. Financial Statements                                                                                      
|                                                                                                                   | CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)               
|                                                                                                                   | CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)            
|                                                                                                                   | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)     
|                                                                                                                   | Notes to Condensed Consolidated Financial Statements (Unaudited)
|                                                                                                                   | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)     
|Item 2. Managements Discussion and Analysis of Financial Condition and                      Results of Operations
|Part II. Other Information                                                                                        
|Item 1. Legal Proceedings.                                                                                        
|Item 4. Submission of Matters to a Vote of Security Holders.                                                      
|Item 6. Exhibits and Reports on Form 8-K                                                                          
|SIGNATURES                                                                                                        
|EX-10.39                                                                                                          
|EX-10.40                                                                                                          



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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

|           |         |                       |                                                                      |    |      |   | 
|---------- | ------- | --------------------- | -------------------------------------------------------------------- | -- | ---- | - | 
|           |         |                       |                                                                      |    | Page
|Part I:    |         | Financial Information |                                                                      |    |      |  
|          
|          
|          
|          
|           | Item 1. |                       | Financial Statements (Unaudited)                                     |    |      |   | 
|          
|          
|          
|          
|           |         |                       | Condensed Consolidated Balance Sheets                               |    |      | 1 | 
|          
|          
|          
|          
|           |         |                       | June 30, 2001 and December 31, 2000                                  |    |      |   | 
|          
|          
|          
|          
|           |         |                       | Condensed Consolidated Income Statements                            |    |      | 2 | 
|          
|          
|          
|          
|           |         |                       | Three and Six Months Ended June 30, 2001 and 2000                    |    |      |   | 
|          
|          
|          
|          
|           |         |                       | Condensed Consolidated Statements of Cash Flows                     |    |      | 3 | 
|          
|          
|          
|          
|           |         |                       | Six Months Ended June 30, 2001 and 2000                              |    |      |   | 
|          
|          
|          
|          
|           |         |                       | Notes to Condensed Consolidated Financial Statements  June 30, 2001 |    |      | 4 | 
|          
|          
|          
|          
|           | Item 2. |                       | Managements Discussion and Analysis of Financial                    | 6  |      |   | 
|          
|          
|          
|          
|           |         |                       | Condition and Results of Operations                                  |    |      |   | 
|          
|          
|          
|          
|Part II:   |         | Other Information     |                                                                      |    |      |  
|          
|          
|          
|          
|           | Item 1. |                       | Legal Proceedings                                                    | 13 |      |   | 
|          
|          
|          
|          
|           | Item 4. |                       | Submission of Matters to a Vote of Security Holders                  | 13 |      |   | 
|          
|          
|          
|          
|           | Item 6. |                       | Exhibits and Reports on Form 8-K                                     | 13 |      |   | 
|          
|          
|          
|          
|Signatures |         |                       |                                                                      |    |      |   | 





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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




ROCKFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

|                                                       |                                               |                                                                                                                        |        |                |        |              |        |    |        | 
|------------------------------------------------------ | --------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------ | -------------- | ------ | ------------ | ------ | -- | ------ | 
|                                                       |                                               |                                                                                                                        |        | June 30,       |        | December 31,
|                                                       |                                               |                                                                                                                        |        | 2001           |        | 2000        
|                                                       |                                               |                                                                                                                        |        |                |        |             
|                                                       |                                               |                                                                                                                        |        | (Unaudited)    |        | (Note)      
|                                                       |                                               |                                                                                                                        |        | (In thousands)
|Assets                                                 |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|Current assets:                                        |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Cash                                                                                                                   |        | $              | 1,111  |              |        | $  | 2,750  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Accounts receivable, less allowances of $2,385,000 and
$1,427,000 at June 30, 2001 and December 31, 2000,
respectively |        |                | 34,898 |              |        |    | 28,488 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Inventories, net                                                                                                       |        |                | 25,119 |              |        |    | 20,406 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Deferred income taxes                                                                                                  |        |                | 3,596  |              |        |    | 3,596  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Prepaid expenses and other                                                                                             |        |                | 3,129  |              |        |    | 2,091  | 
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   
|Total current assets                                   |                                               |                                                                                                                        | 67,853 |                |        |              | 57,331 |   
|                                                      
|                                                      
|                                                      
|                                                      
|Property and equipment, net                            |                                               |                                                                                                                        | 7,070  |                |        |              | 5,996  |   
|                                                      
|                                                      
|                                                      
|                                                      
|Deferred income taxes                                  |                                               |                                                                                                                        | 605    |                |        |              | 605    |   
|                                                      
|                                                      
|                                                      
|                                                      
|Goodwill, net                                          |                                               |                                                                                                                        | 2,191  |                |        |              | 2,275  |   
|                                                      
|                                                      
|                                                      
|                                                      
|Other assets                                           |                                               |                                                                                                                        | 626    |                |        |              | 711    |   
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|Total Assets                                           |                                               | $                                                                                                                      | 78,345 |                |        | $            | 66,918 |   
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   
|Liabilities and shareholders equity                   |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|Current liabilities:                                   |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Accounts payable                                                                                                       |        | $              | 11,701 |              |        | $  | 7,118  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Accrued salaries and incentives                                                                                        |        |                | 2,137  |              |        |    | 2,561  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Accrued warranty                                                                                                       |        |                | 4,662  |              |        |    | 4,621  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Income taxes payable                                                                                                   |        |                | 386    |              |        |    | 449    | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Other accrued expenses                                                                                                 |        |                | 5,205  |              |        |    | 4,468  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Current portion of notes payable, long-term debt and capital
lease obligations                                         |        |                | 1,167  |              |        |    | 935    | 
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|Total current liabilities                              |                                               |                                                                                                                        | 25,258 |                |        |              | 20,152 |   
|                                                      
|                                                      
|                                                      
|                                                      
|Notes payable and long-term debt, less current portion |                                               |                                                                                                                        | 1,600  |                |        |              | 0      |   
|                                                      
|                                                      
|                                                      
|                                                      
|Capital lease obligations, less current portion        |                                               |                                                                                                                        | 261    |                |        |              | 434    |   
|                                                      
|                                                      
|                                                      
|                                                      
|Shareholders equity:                                  |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Common stock, $.01 par value  Authorized shares  40,000,000                                                          |        |                |        |              |        |    |        | 
|                                                       |                                               | Issued shares - 8,170,624 shares at June 30, 2001, and
7,997,529 shares at December 31, 2000                           |        |                | 82     |              |        |    | 80     | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Additional paid-in capital                                                                                             |        |                | 30,060 |              |        |    | 29,504 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                               | Retained earnings                                                                                                      |        |                | 21,271 |              |        |    | 16,695 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accumulated other comprehensive income (loss) |                                                                                                                        |        | (181           | )      |              |        | 53 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Treasury stock  832 shares                   |                                                                                                                        |        | (6             | )      |              |        | 0  |       
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|Total shareholders equity                             |                                               |                                                                                                                        | 51,226 |                |        |              | 46,332 |   
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   
|                                                      
|                                                      
|                                                      
|                                                      
|Total liabilities and shareholders equity             |                                               | $                                                                                                                      | 78,345 |                |        | $            | 66,918 |   
|                                                       |                                               |                                                                                                                        |        |                |        |              |        |   

Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

See notes to condensed consolidated financial statements.

1



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##### Table of Contents






ROCKFORD CORPORATION AND
SUBSIDIARIESCONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)

|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |        | 
|------------------------------- | -------------------------- | - | ------------------------------------- | ----- | ---------------- | - | ------ | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                |                            |   | Three months ended                    |       | Six months ended
|                                |                            |   | June 30,                              |       | June 30,        
|                                |                            |   |                                       |       |                 
|                                |                            |   | 2001                                  |       | 2000             |   | 2001   |       | 2000
|                                |                            |   |                                       |       |                  |   |        |       |     
|                                |                            |   | (In
thousands, except per share data)
|Revenues                        |                            | $ | 44,803                                |       |                  | $ | 45,137 |       |      | $ | 82,166 |        |  | $ | 79,725 |       
|                               
|                               
|                               
|                               
|Cost of goods sold              |                            |   | 29,306                                |       |                  |   | 27,561 |       |      |   | 53,389 |        |  |   | 48,674 |       
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|Gross profit                    |                            |   | 15,497                                |       |                  |   | 17,576 |       |      |   | 28,777 |        |  |   | 31,051 |       
|                               
|                               
|                               
|                               
|Operating expenses:             |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|                               
|                               
|                               
|                               
|                                | Sales and marketing        |   |                                       | 6,235 |                  |   |        | 7,080 |      |   |        | 12,015 |  |   |        | 12,796 | 
|                               
|                               
|                               
|                               
|                                | General and administrative |   |                                       | 4,326 |                  |   |        | 4,121 |      |   |        | 7,700  |  |   |        | 7,586  | 
|                               
|                               
|                               
|                               
|                                | Research and development   |   |                                       | 691   |                  |   |        | 646   |      |   |        | 1,461  |  |   |        | 1,357  | 
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|Total operating expenses        |                            |   | 11,252                                |       |                  |   | 11,847 |       |      |   | 21,176 |        |  |   | 21,739 |       
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|Operating income                |                            |   | 4,245                                 |       |                  |   | 5,729  |       |      |   | 7,601  |        |  |   | 9,312  |       
|                               
|                               
|                               
|                               
|Interest and other expense, net |                            |   | 96                                    |       |                  |   | 273    |       |      |   | 300    |        |  |   | 734    |       
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|Income before income tax        |                            |   | 4,149                                 |       |                  |   | 5,456  |       |      |   | 7,301  |        |  |   | 8,578  |       
|                               
|                               
|                               
|                               
|Income tax expense              |                            |   | 1,563                                 |       |                  |   | 2,040  |       |      |   | 2,723  |        |  |   | 3,235  |       
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|                               
|                               
|                               
|                               
|Net income                      |                            | $ | 2,586                                 |       |                  | $ | 3,416  |       |      | $ | 4,578  |        |  | $ | 5,343  |       
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|Net income per share:           |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|                               
|                               
|                               
|                               
|                                | Basic                      |   | $                                     | 0.32  |                  |   | $      | 0.50  |      |   | $      | 0.57   |  |   | $      | 0.91   | 
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|                                | Diluted                    |   | $                                     | 0.29  |                  |   | $      | 0.41  |      |   | $      | 0.51   |  |   | $      | 0.73   | 
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|Weighted average shares:        |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|                               
|                               
|                               
|                               
|                                | Basic                      |   |                                       | 8,082 |                  |   |        | 6,899 |      |   |        | 8,044  |  |   |        | 5,848  | 
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       
|                               
|                               
|                               
|                               
|                                | Diluted                    |   |                                       | 8,925 |                  |   |        | 8,431 |      |   |        | 8,903  |  |   |        | 7,366  | 
|                                |                            |   |                                       |       |                  |   |        |       |      |   |        |        |  |   |        |       

See notes to condensed consolidated financial statements.

2



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##### Table of Contents






ROCKFORD CORPORATION AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                                                            |                                   |                                        |                                           |        |                  |        |         |         |       |       
|------------------------------------------------------------------------------------------- | --------------------------------- | -------------------------------------- | ----------------------------------------- | ------ | ---------------- | ------ | ------- | ------- | ----- | ------
|                                                                                            |                                   |                                        |                                           |        | Six months ended
|                                                                                            |                                   |                                        |                                           |        | June 30,        
|                                                                                            |                                   |                                        |                                           |        |                 
|                                                                                            |                                   |                                        |                                           |        | 2001             |        | 2000   
|                                                                                            |                                   |                                        |                                           |        |                  |        |        
|                                                                                            |                                   |                                        |                                           |        | (In thousands)  
|Operating activities                                                                        |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Net income                                                                                  |                                   | $                                      | 4,578                                     |        |                  | $      | 5,343   |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Adjustments to reconcile net income to net cash provided
by (used in) operating activities: |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                   | Depreciation and amortization          |                                           |        | 1,688            |        |         |         | 1,971 |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                   | Gain on sale of property and equipment |                                           |        | (4               | )      |         |         | (3    | )     
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                   | Provision for doubtful accounts        |                                           |        | 465              |        |         |         | 246   |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                   | Provision for inventory                |                                           |        | 784              |        |         |         | 640   |       
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Changes in operating assets and liabilities:                                                |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accounts receivable               |                                        |                                           | (6,875 | )                |        |         | (10,593 | )    
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Inventories                       |                                        |                                           | (5,497 | )                |        |         | (2,740  | )    
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Prepaid expenses and other assets |                                        |                                           | (1,038 | )                |        |         | (870    | )    
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accounts payable                  |                                        |                                           | 4,583  |                  |        |         | 4,117   |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accrued salaries and incentives   |                                        |                                           | (507   | )                |        |         | (1,828  | )    
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accrued warranty                  |                                        |                                           | 41     |                  |        |         | 641     |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Income taxes payable              |                                        |                                           | 20     |                  |        |         | 276     |      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Other accrued expenses            |                                        |                                           | 738    |                  |        |         | 2,679   |      
|                                                                                            |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                            |                                   |                                        | Net cash used in operating activities     |        |                  | (1,024 | )       |         |       | (121  
|                                                                                           
|Investing activities                                                                        |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Purchases of property and equipment                                                         |                                   |                                        | (2,764                                    | )      |                  |        | (1,647  | )      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Proceeds from sale of property and equipment                                                |                                   |                                        | 4                                         |        |                  |        | 3       |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Decrease (increase) in other assets                                                         |                                   |                                        | 170                                       |        |                  |        | (378    | )      
|                                                                                            |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                            |                                   |                                        | Net cash used in investing activities     |        |                  | (2,590 | )       |         |       | (2,022
|                                                                                           
|Financing activities                                                                        |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Payments on bank line of credit                                                             |                                   |                                        | 0                                         |        |                  |        | (15,812 | )      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Proceeds from (payments on) other long-term debt                                            |                                   |                                        | 2,068                                     |        |                  |        | (206    | )      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Payments on capital lease obligations                                                       |                                   |                                        | (409                                      | )      |                  |        | (323    | )      
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Proceeds from the exercise of stock options and warrants                                    |                                   |                                        | 437                                       |        |                  |        | 128     |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Proceeds from sale of capital stock                                                         |                                   |                                        | 121                                       |        |                  |        | 24,530  |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Treasury shares purchased                                                                   |                                   |                                        | (6                                        | )      |                  |        | 0       |        
|                                                                                            |                                   |                                        |                                           |        |                  |        |         |        
|                                                                                            |                                   |                                        | Net cash provided by financing activities |        |                  | 2,211  |         |         |       | 8,317 
|                                                                                           
|Effect of exchange rate changes on cash                                                     |                                   |                                        | (236                                      | )      |                  |        | (96     | )      
|                                                                                            |                                   |                                        |                                           |        |                  |        |         |        
|Net increase (decrease) in cash and cash equivalents                                        |                                   |                                        | (1,639                                    | )      |                  |        | 6,078   |        
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Cash and cash equivalents at beginning of period                                            |                                   |                                        | 2,750                                     |        |                  |        | 917     |        
|                                                                                            |                                   |                                        |                                           |        |                  |        |         |        
|Cash and cash equivalents at end of period                                                  |                                   | $                                      | 1,111                                     |        |                  | $      | 6,995   |        
|                                                                                            |                                   |                                        |                                           |        |                  |        |         |        

See notes to condensed consolidated financial statements.

3



---



##### Table of Contents






Rockford Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 30, 2001

1. Basis of Presentation

We have prepared our unaudited condensed consolidated financial statements in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, we have made all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation.

Operating results for the three-month and six-month periods ended June 30, 2001
are not necessarily indicative of the results you may expect for the year
ending December 31, 2001.

For further information, refer to the consolidated financial statements and
footnotes included as part of our Form 10-K for the year ended December 31,
2000 filed with the SEC on March 13, 2001.

2. Inventories

Inventories consist of the following:

|                 |  |                |        |              |  |   |        |  
|---------------- |  | -------------- | ------ | ------------ |  | - | ------ | -
|                 |  | June 30,       |        | December 31,
|                 |  | 2001           |        | 2000        
|                 |  |                |        |             
|                 |  | (In thousands)
|                
|                
|                
|                
|Raw materials    |  | $              | 7,489  |              |  | $ | 7,330  |  
|                
|                
|                
|                
|Work-in-progress |  |                | 1,186  |              |  |   | 863    |  
|                
|                
|                
|                
|Finished goods   |  |                | 18,379 |              |  |   | 13,659 |  
|                 |  |                |        |              |  |   |        |  
|                
|                
|                
|                
|                 |  |                | 27,054 |              |  |   | 21,852 |  
|                
|                
|                
|                
|Less allowances  |  |                | (1,935 | )            |  |   | (1,446 | )
|                 |  |                |        |              |  |   |        |  
|                 |  | $              | 25,119 |              |  | $ | 20,406 |  
|                 |  |                |        |              |  |   |        |  

4



---



##### Table of Contents






ROCKFORD CORPORATION AND
SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED)(continued)

3. Earnings Per Share

The following table sets forth the computation of basic and diluted net income
per share:

|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |       |       | 
|------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------- | ----- | ------------------------------------- | --- | ---------------- | ----- | ----- | ----- | ---- | ----- | ----- | --- | - | ----- | ----- | ----- | 
|                                                                                                              |                                                                         |                        |       | Three months ended                    |     | Six months ended
|                                                                                                              |                                                                         |                        |       | June 30,                              |     | June 30,        
|                                                                                                              |                                                                         |                        |       |                                       |     |                 
|                                                                                                              |                                                                         |                        |       | 2001                                  |     | 2000             |       | 2001  |       | 2000
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |     
|                                                                                                              |                                                                         |                        |       | (in thousands, except per share data)
|Numerator:                                                                                                    |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Net income                                                              |                        | $     | 2,586                                 |     |                  | $     | 3,416 |       |      | $     | 4,578 |     |   | $     | 5,343 |      
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Effect of dilutive securities
interest impact of convertible
debentures |                        |       | 0                                     |     |                  |       | 10    |       |      |       | 0     |     |   |       | 23    |      
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|Numerator for diluted net income
per share, income available to
common shareholders after assumed
Conversions |                                                                         | $                      | 2,586 |                                       |     | $                | 3,426 |       |       | $    | 4,578 |       |     | $ | 5,366 |      
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|Denominator:                                                                                                  |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Denominator for basic net
income per share, weighted
average shares     |                        |       | 8,082                                 |     |                  |       | 6,899 |       |      |       | 8,044 |     |   |       | 5,848 |      
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              | Effect of dilutive securities:                                          |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |       |      
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                                                                         | Employee stock options |       |                                       | 837 |                  |       |       | 1,212 |      |       |       | 853 |   |       |       | 1,143 | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                                                                         | Warrants               |       |                                       | 6   |                  |       |       | 8     |      |       |       | 6   |   |       |       | 19    | 
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                              |                                                                         | Convertible debentures |       |                                       | 0   |                  |       |       | 312   |      |       |       | 0   |   |       |       | 356   | 
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|                                                                                                              | Dilutive potential common shares                                        |                        |       | 843                                   |     |                  |       | 1,532 |       |      |       | 859   |     |   |       | 1,518 |      
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|Denominator for diluted net
income per share, adjusted
weighted average shares and
assumed conversions        |                                                                         |                        | 8,925 |                                       |     |                  | 8,431 |       |       |      | 8,903 |       |     |   | 7,366 |      
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|Basic net income per share                                                                                    |                                                                         | $                      | 0.32  |                                       |     | $                | 0.50  |       |       | $    | 0.57  |       |     | $ | 0.91  |      
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      
|Diluted net income per share                                                                                  |                                                                         | $                      | 0.29  |                                       |     | $                | 0.41  |       |       | $    | 0.51  |       |     | $ | 0.73  |      
|                                                                                                              |                                                                         |                        |       |                                       |     |                  |       |       |       |      |       |       |     |   |       |      

5



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Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations

You should read this discussion and analysis of financial condition and results
of operations in conjunction with our unaudited condensed consolidated
financial statements and the related disclosures included elsewhere in this
report, and Managements Discussion and Analysis of Financial Condition and
Results of Operations included as part of our Form 10-K for the year 2000,
filed with the SEC on March 13, 2001.

Forward-Looking Statements

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. 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
will almost certainly differ materially from those described in our
forward-looking statements. We disclaim any obligation or undertaking to
update or revise our forward-looking statements to reflect changes in our
expectations or changes in events, conditions, or circumstances on which our
expectations are based.

Our forward-looking statements discuss future expectations. They may contain
projections of results of operations or of financial condition or state other
forward-looking information. When considering our forward-looking statements,
you should keep in mind the risk factors and other cautionary statements
identified in this report, in our Annual Report on Form 10-K for the year 2000,
filed with the SEC on March 13, 2001, and in Exhibit 99.1 to our Annual Report,
Risk Factors That May Affect Rockfords Operating Results, Business Prospects
and Stock Price. The risk factors noted throughout this report and our Annual
Report, particularly in the discussion in Exhibit 99.1 to our Annual Report,
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.

Overview

History

Rockford is a designer, manufacturer and distributor of high performance car
audio systems under the Rockford Fosgate and Lightning Audio brands for the
worldwide car audio aftermarket. We also sell professional audio products
under the Hafler brand. We began selling home theater products under the
Fosgate Audionics brand in April 2001. Our corporate headquarters and
electronics manufacturing facilities are located in Tempe, Arizona. We
manufacture speakers at our facility in Grand Rapids, Michigan. We use
warehouses strategically located in the U.S., Canada, Japan, Singapore and
Germany that enhance our ability to serve our markets faster and, we believe,
more cost effectively than many of our competitors.

6



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##### Table of Contents



Business

We generated over 98% of our sales in the quarters ended June 30, 2001 and 2000
from our car audio products.

In the U.S., we sell our car audio products using commissioned independent
sales representative firms who are supported by our employee regional managers.
Internationally, we sell products in over 60 countries. In most countries
outside the U.S., we have established relationships with independent
distributors who purchase our products and resell them to retailers. As part of
our efforts to convert selected foreign markets to a one-step distribution
system, we sell through wholly owned subsidiaries using commissioned
independent sales representatives in Germany (since 1999), Austria (beginning
in early 2000) and Japan (starting in 2001). We sell through commissioned
independent sales representatives in Canada (since 1999).

In March 1999, we began selling our car audio products to Best Buy. Best Buy
accounted for 16.6% of our sales for the six months ended June 30, 2001 and
15.8% for the six months ended June 30, 2000. Our growth plan contemplates that
Best Buy will continue to account for a significant portion of our sales for
the foreseeable future.

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

Results of Operations

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

|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |      | 
|------------------------------------------ | -------------------------- |  | ------------------ | ---- | ---------------- |  | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                           |                            |  | Three months ended |      | Six months ended
|                                           |                            |  | June 30,           |      | June 30,        
|                                           |                            |  |                    |      |                 
|                                           |                            |  | 2001               |      | 2000             |  | 2001  |      | 2000
|                                           |                            |  |                    |      |                  |  |       |      |     
|Net sales                                  |                            |  | 100.0              | %    |                  |  | 100.0 | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|                                          
|                                          
|                                          
|                                          
|Cost of goods sold                         |                            |  | 65.4               |      |                  |  | 61.1  |      |      |  | 65.0  |      |  |  | 61.1  |     
|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|Gross profit                               |                            |  | 34.6               |      |                  |  | 38.9  |      |      |  | 35.0  |      |  |  | 38.9  |     
|                                          
|                                          
|                                          
|                                          
|Operating expenses:                        |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|                                          
|                                          
|                                          
|                                          
|                                           | Sales and marketing        |  |                    | 13.9 |                  |  |       | 15.7 |      |  |       | 14.6 |  |  |       | 16.0 | 
|                                          
|                                          
|                                          
|                                          
|                                           | General and administrative |  |                    | 9.7  |                  |  |       | 9.1  |      |  |       | 9.3  |  |  |       | 9.5  | 
|                                          
|                                          
|                                          
|                                          
|                                           | Research and development   |  |                    | 1.5  |                  |  |       | 1.4  |      |  |       | 1.8  |  |  |       | 1.7  | 
|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|Sales, general and administrative expenses |                            |  | 25.1               |      |                  |  | 26.2  |      |      |  | 25.7  |      |  |  | 27.2  |     
|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|                                          
|                                          
|                                          
|                                          
|Operating income                           |                            |  | 9.5                |      |                  |  | 12.7  |      |      |  | 9.3   |      |  |  | 11.7  |     
|                                          
|                                          
|                                          
|                                          
|Interest and other expense, net            |                            |  | 0.2                |      |                  |  | 0.6   |      |      |  | 0.4   |      |  |  | 0.9   |     
|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|Income before tax                          |                            |  | 9.3                |      |                  |  | 12.1  |      |      |  | 8.9   |      |  |  | 10.8  |     
|                                          
|                                          
|                                          
|                                          
|Income tax expense                         |                            |  | 3.5                |      |                  |  | 4.5   |      |      |  | 3.3   |      |  |  | 4.1   |     
|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     
|Net income                                 |                            |  | 5.8                | %    |                  |  | 7.6   | %    |      |  | 5.6   | %    |  |  | 6.7   | %   
|                                           |                            |  |                    |      |                  |  |       |      |      |  |       |      |  |  |       |     

7



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Cost of goods sold primarily consists of raw materials, direct labor and
manufacturing costs associated with production of our products as well as
warranty, warehousing and customer service expenses.

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

General and administrative expenses primarily consist of salaries, facilities
and other costs of our accounting, finance, management information systems,
administrative and executive departments, as well as legal, accounting and
other professional fees and expenses associated with our business.

Research and development expenses primarily consist of salaries associated with
our research and development personnel.

Geographic Distribution of Sales

Our sales by geographic region were as follows:

|                |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|--------------- |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|                |  | Three months ended |        | Six months ended
|                |  | June 30,           |        | June 30,        
|                |  |                    |        |                 
|                |  | 2001               |        | 2000             |  | 2001 |        | 2000
|                |  |                    |        |                  |  |      |        |     
|                |  | (In thousands)     |        | (In thousands)  
|REGION:         |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|               
|               
|               
|               
|United States   |  | $                  | 36,733 |                  |  | $    | 37,210 |      |  | $ | 68,168 |  |  | $ | 66,773 | 
|               
|               
|               
|               
|Other Americas  |  |                    | 3,304  |                  |  |      | 3,112  |      |  |   | 5,190  |  |  |   | 4,661  | 
|               
|               
|               
|               
|Europe          |  |                    | 2,627  |                  |  |      | 2,111  |      |  |   | 4,517  |  |  |   | 3,771  | 
|               
|               
|               
|               
|Asia            |  |                    | 2,139  |                  |  |      | 2,704  |      |  |   | 4,291  |  |  |   | 4,520  | 
|                |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 
|Total sales (1) |  | $                  | 44,803 |                  |  | $    | 45,137 |      |  | $ | 82,166 |  |  | $ | 79,725 | 
|                |  |                    |        |                  |  |      |        |      |  |   |        |  |  |   |        | 



---

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

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000



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

Net Sales. Sales increased by $2.5 million, or 3.1%, to $82.2 million for the
six months ended June 30, 2001 from $79.7 million for the six months ended June
30, 2000. Excluding currency effects, sales increased 3.9% for the six months
ended June 30, 2001. The increase in sales primarily was attributable to
growth in Lightning Audio sales due to the launch of a new line of full-range
speakers and the introduction of new brand line amplifiers and subwoofers. The
increase in Lightning Audio sales of 54.0% was partially offset by a 3.2%
decrease in Rockford Fosgate sales year over year. In addition, Best Buy
accounted for $13.6 million, or 16.6% of our sales, for the six months ended
June 30, 2001 compared to $12.6 million, or 15.8% of our sales, for the six
months ended June 30, 2000.

8



---



##### Table of Contents



U.S. sales increased by $1.4 million, or 2.1%, to $68.2 million for the six
months ended June 30, 2001 from $66.8 million for the six months ended June 30,
2000. International sales increased by $1.1 million, or 8.5%, to $14.0 million
for the six months ended June 30, 2001 from $12.9 million for the six months
ended June 30, 2000.

Cost of Goods Sold. Cost of goods sold increased by $4.7 million, or 9.6%, to
$53.4 million for the six months ended June 30, 2001 from $48.7 million for the
six months ended June 30, 2000. Substantially all of the increase was due to
increased sales of lower margined product. As a percent of sales, cost of goods
sold increased to 65.0% for the six months ended June 30, 2001 from 61.1% for
the six months ended June 30, 2000. The primary reasons for the increase as a
percent of sales included a mix shift toward lower margined products, a more
aggressive stance on pricing and promotional programs to increase market share
and end-of-life discounts on source units.

Sales and Marketing Expenses. Sales and marketing expenses decreased by $0.8
million, or 6.7%, to
$12.0 million for the six months ended June 30, 2001 from $12.8 million
for the six months ended June 30, 2000. As a percent of sales, sales and
marketing expenses decreased to 14.6% for the six months ended June 30, 2001
from 16.0% for the six months ended June 30, 2000. The decrease as a percent
of sales primarily was because of lower commissions and because some expenses
in this category are fixed and do not fluctuate with sales.

General and Administrative Expenses. General and administrative expenses
increased slightly by $0.1 million, or 1.3%, to $7.7 million for the six months
ended June 30, 2001 from $7.6 million for the six months ended June 30, 2000.
As a percent of sales, general and administrative expenses decreased to 9.3%
for the six months ended June 30, 2001 from 9.5% for the six months ended June
30, 2000. 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 $0.1 million, or 7.1%, to $1.5 million for the six months ended June 30,
2001 from $1.4 million for the six months ended June 30, 2000. As a percent of
sales, these expenses increased to 1.8% for the six months ended June 20, 2001
from 1.7% for the six months ended June 30, 2000.

Operating Income. Operating income decreased by $1.7 million, or 18.3%, to
$7.6 million for the six months ended June 30, 2001 from $9.3 million for the
six months ended June 30, 2000. As a percent of sales, operating income
decreased to 9.3% for the six months ended June 30, 2001 from 11.7% for the six
months ended June 30, 2000. This decrease primarily was attributable to mix
shift toward lower margined products, a more aggressive stance on pricing and
promotional programs to increase market share and end-of-life discounts on
source units.

Interest and Other Expense, Net. Interest and other expense, net, primarily
consists of interest expense and currency gains and losses. Interest and other
expense, net, decreased by $0.4 million, or 59.1%, to $0.3 million for the six
months ended June 30, 2001 from $0.7 million for the six months ended June 30,
2000. The decrease in interest expense was primarily due to the repayment of
our line of credit with proceeds from our initial public offering on April 20,
2000, which was partially offset by losses resulting from foreign currency
exchange rate changes on certain international sales.

Income Tax Expense. Income tax expense decreased by $0.5 million, or 15.6%, to
$2.7 million for the six months

9



---



##### Table of Contents



ended June 30, 2001 from $3.2 million for the six months ended June 30, 2000.
The effective income tax rates were 37.3% for the six months ended June 30,
2001 and 37.7% for the six months ended June 30, 2000.

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000



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

Net Sales. Sales decreased by $0.3 million, or 0.7%, to $44.8 million for the
three months ended June 30, 2001 from $45.1 million for the three months ended
June 30, 2000. Excluding currency effects, sales decreased by 0.2% for the
three months ended June 30, 2001. The decrease in sales primarily was
attributable to an overall softness in the car audio market. In addition, Best
Buy accounted for $7.0 million, or 15.6% of our sales, for the three months
ended June 30, 2001 compared to $6.3 million, or 13.9% of our sales, for the
three months ended June 30, 2000.

U.S. sales decreased by $0.5 million, or 1.3%, to $36.7 million for the three
months ended June 30, 2001 from $37.2 million for the three months ended June
30, 2000. International sales increased by $0.2 million, or 2.5%, to $8.1
million for the three months ended June 30, 2001 from $7.9 million for the
three months ended June 30, 2000.

Cost of Goods Sold. Cost of goods sold increased by $1.7 million, or 6.2%, to
$29.3 million for the three months ended June 30, 2001 from $27.6 million for
the three months ended June 30, 2000. Substantially all of the increase was
due to increased sales of lower margined product. As a percent of sales, cost
of goods sold increased to 65.4% for the three months ended June 30, 2001 from
61.1% for the three months ended June 30, 2000. The primary reasons for the
increase as a percent of sales included a mix shift toward lower margined
products, a more aggressive stance on pricing and promotional programs to
increase market share and end-of-life discounts on source units.

Sales and Marketing Expenses. Sales and marketing expenses decreased by $0.9
million, or 12.7%, to
$6.2 million for the three months ended June 30, 2001 from $7.1 million
for the three months ended June 30, 2000. As a percent of sales, sales and
marketing expenses decreased to 13.9% for the three months ended June 30, 2001
from 15.7% for the three months ended June 30, 2000. The decrease as a percent
of sales primarily was because of lower commissions and because some expenses
in this category are fixed and do not fluctuate with sales.

General and Administrative Expenses. General and administrative expenses
increased slightly by $0.2 million, or 4.9%, to $4.3 million for the three
months ended June 30, 2001 from $4.1 million for the three months ended June
30, 2000. Although our focus is on controlling operational spending, some
expenses that are fixed over the short run cannot be quickly reduced. As a
percent of sales, general and administrative expenses increased to 9.7% for the
three months ended June 30, 2001 from 9.1% for the three months ended June 30,
2000. The increase as a percent of sales primarily was because some expenses
in this category could not be decreased in the short run while our sales
decreased slightly during this period.

Research and Development Expenses. Research and development expenses increased
by $0.1 million, or 7.0%, to $0.7 million for the three months ended June 30,
2001 from $0.6 million for the three months ended June 30, 2000. As a percent
of sales, these expenses increased to 1.5% for the three months ended June 20,
2001 from 1.4% for the three months ended June 30, 2000.

Operating Income. Operating income decreased by $1.5 million, or 26.3%, to
$4.2 million for the three months

10



---



##### Table of Contents



ended June 30, 2001 from $5.7 million for the three months ended June 30, 2000.
As a percent of sales, operating income decreased to 9.5% for the three months
ended June 30, 2001 from 12.7% for the three months ended June 30, 2000. This
decrease primarily was attributable to a mix shift toward lower margined
products, a more aggressive stance on pricing and promotional programs to
increase market share and end-of-life discounts on source units.

Interest and Other Expense, Net. Interest and other expense, net, primarily
consists of interest expense and currency gains and losses. Interest and other
expense, net, decreased by $0.2 million, or 66.7%, to $0.1 million for the
three months ended June 30, 2001 from $0.3 million for the three months ended
June 30, 2000. The decrease in interest expense was primarily due to the
repayment of our line of credit with proceeds from our initial public offering
on April 20, 2000, which was partially offset by losses resulting from foreign
currency exchange rate changes on certain international sales.

Income Tax Expense. Income tax expense decreased by $0.4 million, or 20.0%, to
$1.6 million for the three months ended June 30, 2001 from $2.0 million for the
three months ended June 30, 2000. The effective income tax rates were 37.7%
for the three months ended June 30, 2001 and 37.4% for the three months ended
June 30, 2000.

Liquidity and Capital Resources

Since 1995, we have financed our business primarily using cash flows from
operations, bank borrowings and borrowings from shareholders. In the second
quarter of 2000 we added the proceeds of our initial public offering to this
financing. We had working capital of $42.6 million at June 30, 2001, compared
to $37.2 million at December 31, 2000. At June 30, 2001, we maintained $1.1
million of cash balances.

On June 28, 2001, we entered into a $30 million revolving credit facility with
Bank of America, N.A. and Bank One, Arizona, N.A. This new credit facility
replaced a $20 million line previously held with another financial institution.

As of June 30, 2001 we had a balance of $1.6 million on this bank credit
facility, which is collateralized by substantially all of our assets. The
line-of-credit has a blended variable interest rate per annum of LIBOR plus 150
basis points or prime plus no basis points. As of June 30, 2001, the revolving
line-of-credit had an interest rate of 5.37% per annum. The bank credit
facility is scheduled to mature on June 27, 2003. The credit facility
contains provisions that, among other things, require Rockford to maintain
certain minimum levels of EBITDA and debt service coverage and also limit the
amount of debt incurred and capital expenditures annually.

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 of June 30, 2001, the capital lease credit facility had
an outstanding balance of $0.7 million with a weighted-average interest rate of
8.16% per annum.

Net cash used in operating activities was $1.0 million for the six months ended
June 30, 2001, and $0.1 million for the six months ended June 30, 2000. Cash
used in operating activities was primarily related to the effect of increasing
accounts receivables and inventories, which was partially offset by the
increase in accounts payable.

Net cash used in investing activities was $2.6 million for the six months ended
June 30, 2001, and $2.0 million for the six months ended June 30, 2000. Net
cash used in investing activities was primarily related to purchases of
property and equipment and an increase in other assets.

11



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##### Table of Contents



Net cash provided by financing activities was $2.2 million for the six months
ended June 30, 2001, and $8.3 million for the six months ended June 30, 2000.
Net cash provided by financial activities was primarily a result of borrowing
from our new credit facility established on June 28, 2001. It also includes
proceeds from the exercise of stock options, which was partially offset by
payments on capital lease obligations. Net cash provided by financing
activities for 2000 was primarily a result of the net proceeds received from
our initial public offering on April 20, 2000 of $24.5 million partially offset
by the repayment of our credit facility.

We may pursue acquisitions of businesses, products or technologies that could
complement or expand our business and product offerings. Any material
acquisition could result in an increase in working capital requirements
depending on the amount, timing and nature of the consideration we agree to
pay. On July 16, 2001, we entered into an agreement to purchase Audio
Innovations, Inc., located in Stillwater, Oklahoma. Audio Innovations
manufactures, markets and distributes branded, aftermarket car audio enclosures
under the names of Q-Logic, Q-Forms and Q-Customs. Audio Innovations has a broad
range of distribution including over 1,000 specialty dealer locations and major
retailers such as Best Buy, Circuit City and Crutchfield. We completed this
acquisition on July 31, 2001. We financed the purchase price of approximately
$4 million, as well as debt repayments of approximately $2 million, from our
line of credit. We also anticipate making earn-out payments to the sellers of
$500,000 over the next three years.

We believe our existing resources and anticipated cash flows from operations
will be sufficient to meet our cash needs for the next twelve months. This is
the case even taking into account our Audio Innovations acquisition. However,
should we pursue an acquisition larger than our existing resources can support,
we may need to pursue additional debt or equity resources.

Subsequent Events

As noted above, we announced our agreement to acquire Audio Innovations on July
16, 2001, and completed the acquisition on July 31, 2001.

12



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##### Table of Contents






Part II. Other Information




Item 1. Legal Proceedings.

In our Annual Report on Form 10-K for the year 2000, filed with the SEC on
March 13, 2001, we described a patent claim made against us by Integrated
Electronic Technologies ("IET") and its principal, David Fiori. The claim, which IET
and Fiori have pursued intermittently since 1998, alleges that our patented
TOPAZ circuit design infringes IET and Fiori patents. The TOPAZ circuit is used
in our higher-priced Punch line of car audio amplifiers and in our Hafler
professional amplifiers. Since March 13, 2001, we have engaged in additional
discussions with Fiori and his counsel relating to the complaint filed early
this year. Based on our belief that our products do not infringe the patents,
and other available defenses, we have refused to make a material payment to
settle the claim. Fiori 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 of the patents in question. We continue to believe that these claims are
without merit and intend to defend 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 of June 30, 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 held our annual meeting of shareholders on Wednesday, April 25, 2001.
The election of all our directors was the only matter submitted to our
shareholders. The shareholders re-elected all six of our directors at the
meeting.

The names of the directors elected, and the number of votes each received,
is as follows:

|                   |  |           |           |               |  |             |   |                  |  |  |       |  |  |  |   | 
|------------------ |  | --------- | --------- | ------------- |  | ----------- | - | ---------------- |  |  | ----- |  |  |  | - | 
|Name               |  | Votes For |           | Votes Against |  | Abstentions |   | Broker Non-Votes
|                   |  |           |           |               |  |             |   |                 
|W. Gary Suttle     |  |           | 7,431,867 |               |  |             | 0 |                  |  |  | 2,951 |  |  |  | 0 | 
|                  
|                  
|                  
|                  
|Nicholas G. Bartol |  |           | 7,431,867 |               |  |             | 0 |                  |  |  | 2,951 |  |  |  | 0 | 
|                  
|                  
|                  
|                  
|Ralph B. Godfrey   |  |           | 7,431,867 |               |  |             | 0 |                  |  |  | 2,951 |  |  |  | 0 | 
|                  
|                  
|                  
|                  
|Jerry E. Goldress  |  |           | 7,431,867 |               |  |             | 0 |                  |  |  | 2,951 |  |  |  | 0 | 
|                  
|                  
|                  
|                  
|Timothy C. Bartol  |  |           | 7,431,867 |               |  |             | 0 |                  |  |  | 2,951 |  |  |  | 0 | 
|                  
|                  
|                  
|                  
|John P. Lloyd      |  |           | 7,431,867 |               |  |             | 0 |                  |  |  | 2,951 |  |  |  | 0 | 




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  |  | Exhibits
| | --- |  |  | --------

|        |  |                                                                  
|------- |  | -----------------------------------------------------------------
|Exhibit |  |                                                                  
|Number  |  | Description of Document                                          
|        |  |                                                                  
|3.1     |  | Articles of Incorporation+                                       
|       
|       
|       
|       
|3.2     |  | Restated Bylaws as amended through July 27, 2000++               
|       
|       
|       
|       
|3.3     |  | Amendment to Articles of Incorporation filed on January 12,
1988+
|       
|       
|       
|       
|3.4     |  | Amendment to Articles of Incorporation filed on May 12,
1999+    
|       
|       
|       
|       
|3.5     |  | Amendment to Articles of Incorporation filed on May 17,
1999+    
|       
|       
|       
|       
|3.6     |  | Amendments to Bylaws adopted by the board of directors on        

13



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##### Table of Contents



|        |  |                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                             
|Number  |  | Description of Document                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                             
|       
|       
|       
|       
|3.6     |  | May 14, 1999+                                                                                                                                                                                                               
|       
|       
|       
|       
|3.7     |  | Amendment to Articles of Incorporation filed on July 1,
1999+                                                                                                                                                               
|       
|       
|       
|       
|4.1     |  | Specimen Common Stock Certificate+                                                                                                                                                                                          
|       
|       
|       
|       
|4.2     |  | Reference is made to the Articles of Incorporation, as
amended, and the Restated Bylaws, as amended, filed as
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, and 3.7 for a description
of the rights of the holders of Common Stock.
|       
|       
|       
|       
|10.39   |  | Credit Agreement among Rockford Corporation, the Subsidiaries of
Rockford Corporation, Bank One, Arizona, N.A., and Bank of
America, N.A.                                                                                   
|       
|       
|       
|       
|10.40   |  | Stock Purchase Agreement among Rockford Corporation, Audio
Innovations, Inc., and the shareholders of Audio Innovations,
Inc.*                                                                                              



---

|+  |  | Previously filed with our registration statement on Form S-1, which the
SEC declared effective on 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.                   
|  
|  
|  
|  
|*  |  | Portions of the document have
been omitted and filed separately with the Commission under a request
for confidential treatment.   



| | (b) |  | Rockford did not file any reports on Form 8-K during the quarter for
which this report is filed.
| | --- |  | ------------------------------------------------------------------------------------------------

14



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##### Table of Contents






SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



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



|Date: August  14, 2001 | By: | /s/ James M. Thomson
James M. Thomson
Vice President of Finance,
Chief Financial Officer and Secretary
(Principal Financial Officer
and Duly Authorized Officer)
|---------------------- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

15



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##### Table of Contents



Exhibit Index

|        |  |                                                                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                             
|Number  |  | Description of Document                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                             
|3.1     |  | Articles of Incorporation+                                                                                                                                                                                                  
|       
|       
|       
|       
|3.2     |  | Restated Bylaws as amended through July 27, 2000++                                                                                                                                                                          
|       
|       
|       
|       
|3.3     |  | Amendment to Articles of Incorporation filed on January 12,
1988+                                                                                                                                                           
|       
|       
|       
|       
|3.4     |  | Amendment to Articles of Incorporation filed on May 12,
1999+                                                                                                                                                               
|       
|       
|       
|       
|3.5     |  | Amendment to Articles of Incorporation filed on May 17,
1999+                                                                                                                                                               
|       
|       
|       
|       
|3.6     |  | Amendments to Bylaws adopted by the board of directors on
May 14, 1999+                                                                                                                                                     
|       
|       
|       
|       
|3.7     |  | Amendment to Articles of Incorporation filed on July 1,
1999+                                                                                                                                                               
|       
|       
|       
|       
|4.1     |  | Specimen Common Stock Certificate+                                                                                                                                                                                          
|       
|       
|       
|       
|4.2     |  | Reference is made to the Articles of Incorporation, as
amended, and the Restated Bylaws, as amended, filed as
Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, and 3.7 for a description
of the rights of the holders of Common Stock.
|       
|       
|       
|       
|10.39   |  | Credit Agreement among Rockford Corporation, the Subsidiaries of
Rockford Corporation, Bank One, Arizona, N.A., and Bank of
America, N.A.                                                                                   
|       
|       
|       
|       
|10.40   |  | Stock Purchase Agreement among Rockford Corporation, Audio
Innovations, Inc., and the shareholders of Audio Innovations,
Inc.*                                                                                              



---

|+  |  | Previously filed with our registration statement on Form S-1, which the
SEC declared effective on 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.                   



|* |  | Portions of the document
have been omitted and filed separately with the Commission under a
request for confidential treatment.
|- |  | -------------------------------------------------------------------------------------------------------------------------------