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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 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 or15(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. Yesþ           Noo Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act) Yeso            Noþ Indicate the number of shares of each of the issuers classes of common stock, as of the
latest practical date: As of April 30, 2005, there were 9,233,024 shares of Common Stock, $.01 par value per share,
outstanding, which is the only class of common stock of the Company registered under Section 12(g)
of the Securities Act of 1933.




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##### Table of Contents



ROCKFORD CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS Forward Looking StatementsPart I: Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets  March 31, 2005 (Unaudited) and December 31, 2004Condensed Consolidated Statements of Operations  Three Months Ended March 31, 2005 and 2004 (Unaudited)Condensed Consolidated Statements of Cash Flows  Three Months Ended March 31, 2005 and 2004 (Unaudited)Notes to Condensed Unaudited Consolidated Financial Statements  March 31, 2005Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPart II: Other InformationItem 1. Legal ProceedingsItem 6. Exhibits and Reports on Form 8-KSignaturesCertificationsExhibit 31.1Exhibit 31.2Exhibit 32




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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, continued acceptance
and growth of our products, dependence on significant customers and suppliers, and the adequacy of
our available cash resources. Statements may contain projections of results of operations or of
financial condition. These statements may be identified by the 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 these forward-looking statements, which speak only as at the date on which
they are made. Actual results may differ materially from those described in these forward-looking
statements. We disclaim any obligation or undertaking to update these forward-looking statements to
reflect changes in our expectations or changes in events, conditions, or circumstances on which our
expectations are based. When considering our forward-looking statements, you should keep in mind the risk factors and
other cautionary statements identified in this report, in our Annual Report on Form 10-K for the
year 2004, filed with the SEC on April 15, 2005, and in Exhibit 99.9 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 99.9 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.




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##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements ROCKFORD CORPORATION AND SUBSIDIARIES 
  (In thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, less allowances
of $3,458 and $3,504 at March 31,
2005 and December 31, 2004,
respectively
    
    
    36,454
    
    
    
    33,195Inventories
    
    
    29,112
    
    
    
    34,005Income taxes receivable
    
    
    918
    
    
    
    940Prepaid expenses and other
    
    
    3,138
    
    
    
    2,953Total current assets
    
    
    69,622
    
    
    
    71,093Property and equipment, net
    
    
    5,622
    
    
    
    6,407Other assets
    
    
    2,849
    
    
    
    2,853Total assets
    
    $
    78,093
    
    
    $
    80,353Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    11,844
    
    
    $
    15,594Accrued salaries and incentives
    
    
    1,751
    
    
    
    1,438Accrued warranty
    
    
    2,825
    
    
    
    2,902Other accrued expenses
    
    
    6,777
    
    
    
    7,693Current portion of long-term debt
    
    
    20,960
    
    
    
    18,204Total current liabilities
    
    
    44,157
    
    
    
    45,831Notes payable, less unaccreted discount
of $763 and $563 at March 31, 2005 and
December 31, 2004, respectively
    
    
    11,737
    
    
    
    11,937Total liabilities
    
    
    55,894
    
    
    
    57,768Shareholders equity:Common stock, $.01 par value 
Authorized shares - 40,000 Issued
shares  9,233 shares at March 31,
2005 and 9,205 at December 31, 2004
    
    
    92
    
    
    
    92Additional paid-in capital
    
    
    37,614
    
    
    
    37,329Retained deficit
    
    
    (15,929
    )
    
    
    (15,321
    )Accumulated other comprehensive income
    
    
    422
    
    
    
    485Total shareholders equity
    
    
    22,199
    
    
    
    22,585Total liabilities and shareholders equity
    
    $
    78,093
    
    
    $
    80,353
 Note: The consolidated balance sheet at December 31, 2004, has been derived from the audited
consolidated financial statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete
financial statements. See accompanying notes to condensed consolidated financial statements.




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ROCKFORD CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data)
 Three months endedMarch 31,2005
    
    
    2004Net sales
    
    $
    41,567
    
    
    $
    38,722Cost of goods sold
    
    
    29,539
    
    
    
    31,115Gross profit
    
    
    12,028
    
    
    
    7,607Operating expenses:Sales and marketing
    
    
    6,411
    
    
    
    7,284General and administrative
    
    
    4,545
    
    
    
    4,574Research and development
    
    
    919
    
    
    
    2,460Total operating expenses
    
    
    11,875
    
    
    
    14,318Operating income (loss)
    
    
    153
    
    
    
    (6,711
    )Interest and
other expense, net
    
    
    745
    
    
    
    592Loss from continuing operations before income taxes
    
    
    (592
    )
    
    
    (7,303
    )Income tax expense (benefit)
    
    
    16
    
    
    
    (2,837
    )Loss from continuing operations
    
    
    (608
    )
    
    
    (4,466
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (937
    )Net loss
    
    $
    (608
    )
    
    $
    (5,403
    )Net loss per common share:Loss from continuing operationsBasic
    
    $
    (0.07
    )
    
    $
    (0.50
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.50
    )Loss from discontinued operationsBasic
    
    $
    (0.00
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.10
    )Net lossBasic
    
    $
    (0.07
    )
    
    $
    (0.60
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.60
    )Weighted average shares:Basic
    
    
    9,233
    
    
    
    9,014Diluted
    
    
    9,233
    
    
    
    9,014
 See notes to condensed consolidated financial statements.




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ROCKFORD CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
 Three months ended March 31,2005
    
    
    2004Cash flow from continuing operating activities:Net loss from continuing operations
    
    $
    (608
    )
    
    $
    (4,466
    )Adjustments to reconcile net loss from continuing operations to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    1,022
    
    
    
    1,152Gain on sale of property and equipment
    
    
    (14
    )
    
    
    Provision for doubtful accounts
    
    
    208
    
    
    
    157Provision for inventory
    
    
    187
    
    
    
    385Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,467
    )
    
    
    (4,324
    )Inventories
    
    
    4,706
    
    
    
    (10,404
    )Prepaid expenses and other
    
    
    (185
    )
    
    
    (1,365
    )Bank overdraft
    
    
    
    
    
    
    2,383Accounts payable
    
    
    (3,750
    )
    
    
    17,237Accrued salaries and incentives
    
    
    313
    
    
    
    (55
    )Accrued warranty
    
    
    (77
    )
    
    
    17Income taxes payable (receivable)
    
    
    21
    
    
    
    (1,383
    )Other accrued expenses
    
    
    (917
    )
    
    
    995Net cash
(used in) provided by operating activities
    
    
    (2,561
    )
    
    
    329Cash flow from investing activities:Purchases of property and equipment
    
    
    (193
    )
    
    
    (1,401
    )Proceeds from sale of property and equipment
    
    
    93
    
    
    
    (4
    )Increase in other assets
    
    
    (80
    )
    
    
    (767
    )Net cash
(used in) provided by investing activities
    
    
    (180
    )
    
    
    (2,172
    )Cash flow from financing activities:Net proceeds from notes payable and long-term debt
    
    
    2,756
    
    
    
    2,975Payments on capital lease obligations
    
    
    
    
    
    
    (1,408
    )Proceeds from employee stock purchase plan
    
    
    48
    
    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    60Net cash provided by financing activities
    
    
    2,804
    
    
    
    1,627Effect of exchange rate changes on cash
    
    
    (63
    )
    
    
    (259
    )Net decrease
in cash flow from continuing operations
    
    
    
    
    
    
    (475
    )Net decrease in cash flow from discontinued operations
    
    
    
    
    
    
    (241
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    716Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
 See notes to condensed consolidated financial statements.




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Rockford Corporation and Subsidiaries 
 Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2005 1. Basis of Presentation Unaudited Interim Financial Information Rockford Corporation and subsidiaries (Rockford) has prepared its unaudited condensed
consolidated financial statements in accordance with accounting principles generally accepted in
the United States 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 accounting principles generally accepted in the United States for complete financial
statements. In the opinion of management, Rockford has made all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. Operating results for the three-month period ended March 31, 2005, are not necessarily
indicative of the results you may expect for the year ending December 31, 2005. Certain
reclassifications have been made to the March 31, 2004 interim financial statements in order to
conform to the March 31, 2005 presentation. For further information, refer to the consolidated financial statements and footnotes included
as part of Rockfords Form 10-K for the year ended December 31, 2004, filed with the Securities and
Exchange Commission (SEC) on April 15, 2005. Comprehensive Income (Loss) The components of comprehensive loss for the three months ended March 31, 2005 and 2004 are as
follows: Three months endedMarch 31,2005
    
    
    2004(In thousands, except per share data)Net loss
    
    $
    (608
    )
    
    $
    (5,403
    )Foreign currency translation adjustments
    
    
    (63
    )
    
    
    (392
    )Total comprehensive loss
    
    $
    (671
    )
    
    $
    (5,795
    )
 Stock-based Compensation Rockford grants stock options for a fixed number of shares to employees with an exercise price
equal to the fair market value of the shares at date of grant. Fair market value of the underlying
shares is determined by the market price at the date of the grant. Rockford accounts for stock
options using the intrinsic value method, in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Rockford has
adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
and accordingly, recognizes no compensation expense for the employee stock option grants. Stock
option grants to non-employees are charged to expense based upon the fair value of the options
granted. The following table represents the effect on net income (loss) and income (loss) per share if
Rockford had applied the fair value based method and recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation: Three months endedMarch 31,2005
    
    
    2004(In thousands, except per share data)Net loss as reported
    
    $
    (608
    )
    
    $
    (5,403
    )Proforma SFAS No. 123 expense
    
    
    (63
    )
    
    
    (107
    )Proforma net loss
    
    $
    (671
    )
    
    $
    (5,510
    )Proforma loss per common share:Basic
    
    $
    (0.07
    )
    
    $
    (0.61
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.61
    )




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For purposes of proforma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting period. 2. Discontinued Operations SimpleDevices, Inc.Rockford sold its majority interest in SimpleDevices, Inc. to Universal
Electronics Inc. in October of 2004 for $7.8 million. At closing, Rockford received approximately
$6.4 million which was used to pay down Rockfords senior credit facility. The remaining proceeds
of approximately $1.2 million, net of $0.2 million of fees, were placed into an escrow account that
will be used to pay claims, if any, of Universal relating to the representations made in the Stock
Purchase Agreement. No claims were made as of April 1, 2005, and one-third of the escrow amount
was released to Rockford in April 2005. If there are no claims before October 1, 2006, the rest of
the escrow amount will be released in October 2006. The amount held in escrow is recorded as a note
receivable at March 31, 2005 and December 31, 2004. As a result of the October 2004 sale, Rockford
has treated the SimpleDevices operations as discontinued operations for all periods presented. The following represents the results of operations for Simple Devices, Inc. for the three
months ended March 31, 2004 and are reported on Rockfords statements of operations as results from
discontinued operations: Three monthsendedMarch 31,2004(In thousands)Revenues
    
    $
    152Cost of sales
    
    
    78Operating expenses
    
    
    329Interest and other expense net
    
    
    2Income tax expense
    
    
    Minority interest
    
    
    (163
    )Net loss
    
    $
    (94
    )
 MB Quart.Rockford placed its MB Quart GmbH subsidiary into receivership under German law in
September of 2004. By instituting the receivership, Rockford relinquished any future benefit from
the assets of this subsidiary. As a result, Rockford has treated the MB Quart GmbH operations as
discontinued operations for all periods presented. The following represents the results of operations for MB Quart GmbH for the periods presented
and are reported on Rockfords statements of operations as results from discontinued operations: Three monthsendedMarch 31,2004(In thousands)Revenues
    
    $
    1,296Cost of sales
    
    
    868Operating expenses
    
    
    1,264Interest and other expense net
    
    
    13Income tax benefit
    
    
    (6
    )Net loss
    
    $
    (843
    )
 3. Inventories Inventories consist of the following:




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March 31,
    
    
    December 31,2005
    
    
    2004(In thousands)Raw materials
    
    $
    7,842
    
    
    $
    8,269Work-in-progress
    
    
    1,551
    
    
    
    1,796Finished goods
    
    
    19,719
    
    
    
    23,940$
    29,112
    
    
    $
    34,005
 4. Net Loss Per Share The following table sets forth the computation of basic and diluted net loss per share: Three months endedMarch 31,2005
    
    
    2004(In thousands, except per share data)Numerator:Loss from continuing operations
    
    $
    (608
    )
    
    
    (4,466
    )Loss from discontinuing operations
    
    
    
    
    
    
    (937
    )Net loss
    
    $
    (608
    )
    
    $
    (5,403
    )Denominator:Denominator for basic net loss per share
    
    
    9,233
    
    
    
    9,014Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Dilutive potential common shares
    
    
    
    
    
    
    Denominator for diluted net loss per share
    
    
    9,233
    
    
    
    9,014Loss per common share:Loss from continuing operationsBasic
    
    $
    (0.07
    )
    
    $
    (0.50
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.50
    )Loss from discontinued operationsBasic
    
    $
    (0.00
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.10
    )Net lossBasic
    
    $
    (0.07
    )
    
    $
    (0.60
    )Diluted
    
    $
    (0.07
    )
    
    $
    (0.60
    )
 There were 38,109 and 468,871 employee stock options not included in the
diluted loss per share calculation for March 31, 2004 and 2005, respectively, as they were not
dilutive. As of March 31, 2005 Rockford also has $12.5 million of 4.5% convertible senior
subordinated secured notes due 2009 and warrants to purchase 1,246,573 shares of common stock at
$3.73 per share. The noteholders may convert the notes into Rockford common stock at any time
before the scheduled maturity date of June 10, 2009 and Rockford has the right to force conversion
of the notes before maturity under certain circumstances. The conversion price at March 31, 2005,
was $4.61 per share. If fully converted, the notes are scheduled to convert into 2,711,497 shares
of Rockfords common stock. The convertible senior subordinated secured notes and warrants were not
included in the diluted loss per share calculation for March 31, 2005, as they were not dilutive. 5. Notes Payable and Long-Term Debt Rockford entered into a 3-year asset-based credit facility with Congress Financial Corporation
(Western) as Agent and Wachovia Bank, National Association as Arranger on March 29, 2004 and as
amended on June 10, 2004 and December 30, 2004. This credit facility, as amended, is collateralized
by substantially all of Rockfords assets and has a variable interest rate of LIBOR plus 450 basis
points or Prime plus 200 basis points. The balance on the facility and interest rate were $19.1
million and 7.5% per annum, respectively, at March 31, 2005. At March 31, 2005, Rockford was in
compliance with all applicable covenants.




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The credit facility requires that Rockford maintain blocked lock box accounts, whereby
Congress takes possession of all cash receipts on a daily basis and these amounts are applied to
reduce Rockfords outstanding debt. In accordance with EITF 95-22: Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective
Acceleration Clause and a Lock-Box Arrangement, Rockford has recorded the $19.1 million and $15.5
million outstanding balance as at March 31, 2005 and December 31, 2004 respectively, on the
Congress credit facility as short-term. Rockford expects to maintain the facility for the entire
three-year term. Rockford closed agreements for the private placement of $12.5 million of 4.5% convertible
senior subordinated secured notes due 2009 and warrants to purchase 1,246,573 shares of common
stock at $3.73 per share on June 10, 2004 and as amended on November 12, 2004. The net proceeds of
approximately $12.5 million are allocated between the warrants and the notes based on their
relative fair values. The value of the warrants was calculated using the Black-Scholes pricing
model. The carrying value of the notes is being accreted ratably, over the term of the notes, to
the $12.5 million amount due at maturity. The carrying value of the notes approximated their fair
values as of March 31, 2005 and December 31, 2004. Debt issuance costs totaling $0.9 million were
capitalized and are being amortized over the life of the notes. The noteholders may convert the
notes into Rockfords common stock at any time before the scheduled maturity date of June 10, 2009.
The conversion price is $4.61 per share. If fully converted, the notes will convert into 2,711,497
shares of Rockfords common stock. Rockford has the right automatically to convert the notes into
common stock if the common stock trades above a specified target price for a specified period.
Rockford may also force the exercise of the warrants under certain circumstances prior to their
expiration date. The noteholders also have a second priority lien on certain Rockford assets. Due
to the modification of the convertible notes and warrants on November 10, 2004, Rockford has
adopted variable accounting for the warrants which will cause the value of the warrants to change
in future periods. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Continuing
Operations This discussion and analysis of financial condition and results of continuing operations
should be read in conjunction with Rockfords 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 Continuing Operations included as part of Rockfords
Form 10-K for the year 2004, filed with the SEC on April 15, 2005. Strategic Realignment Rockford announced plans for the strategic realignment of its business on September 21, 2004.
These plans will re-focus Rockford on its core mobile audio business and are likely to involve the
divestiture of its remaining non-core businesses. As part of this realignment, Rockford put its MB Quart GmbH German manufacturing operations
into receivership in September 2004, completed the sale of its SimpleDevices business in October
2004 and engaged an investment banker in January 2005 to assess strategic alternatives for its home
and professional audio business including the NHT, Fosgate Audionics, and Hafler brands. There were
no outstanding liabilities at March 31, 2005 associated with this realignment. Overview Rockford believes that its strategic realignment and the investments it made in new products,
distribution channels and technologies, combined with improvements it is implementing in its
processes, have positioned Rockford for improved financial performance in 2005. Rockfords results in the first quarter of 2005 were substantially improved compared to the
first quarter of 2004. The more modest new product introductions for 2005 were completed on
schedule, production issues were not a significant factor in Rockfords performance, and the
reduced expense levels resulting from the realignments undertaken during the later part of 2004 all
contributed to positive operating income and a reduction in net loss from $0.60 per share to $0.07
per share. Net sales increased by $2.8 million, or 7.3%, demonstrating the continuing acceptance of
Rockfords products in the marketplace. Rockfords first quarter 2004 product launches had a significant negative impact on Rockfords
results for 2004. End of life discounting of 2003 product was greater than usual in the first
quarter of 2004 due to the extent of the product line overhaul. Discounting and production issues
with the new product resulted in unfavorable manufacturing variances and product shortages which
negatively impacted gross margins in the first quarter of 2004. Rockford also experienced increased
engineering costs and premium freight charges associated with the delayed production of these new
products.




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Rockford continues to expect a shift in its sales mix into different distribution channels,
with the independent specialty dealer and audio/video retailer channels seeing declines in sales
and the consumer electronics chain and mass merchandise channels seeing growth in sales. This shift
has had and will continue to have some positive effects, including expansion of Rockfords product
exposure beyond its traditional target market and smoothing out of sales seasonality. At the same
time, the different demands of the larger merchants continue to require greater working capital
compared to the working capital required for smaller merchants. 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 endedMarch 31 ,2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    71.1
    
    
    
    80.4Gross profit
    
    
    28.9
    
    
    
    19.6Operating expenses:Sales and marketing
    
    
    15.4
    
    
    
    18.8General and administrative
    
    
    10.9
    
    
    
    11.8Research and development
    
    
    2.2
    
    
    
    6.4Total operating expenses
    
    
    28.5
    
    
    
    37.0Operating income (loss)
    
    
    0.4
    
    
    
    (17.4
    )Interest and other expense, net
    
    
    1.8
    
    
    
    1.5Loss from continuing operations before income tax
    
    
    (1.4
    )
    
    
    (18.9
    )Income tax expense (benefit)
    
    
    0.1
    
    
    
    (7.3
    )Loss from continuing operations
    
    
    (1.5
    )
    
    
    (11.6
    )Loss from discontinuing operations
    
    
    
    
    
    
    (2.4
    )Net loss
    
    
    (1.5
    )%
    
    
    (14.0
    )%
 Cost of goods sold primarily consists of raw materials, direct labor and manufacturing costs
associated with production of 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 outbound freight. General and administrative expenses primarily consist of salaries, facilities and other costs
of accounting, finance, management information systems, administrative and executive departments,
as well as legal, accounting and other professional fees and expenses associated with Rockfords
business. Research and development expenses primarily consist of salaries associated with research and
development personnel and legal costs related to Rockfords intellectual property. Geographic Distribution of Sales Sales by geographic region were as follows: Three months endedMarch 31 ,2005
    
    
    2004(In thousands)Region:(1)United States
    
    $
    34,677
    
    
    $
    33,731Other Americas
    
    
    2,695
    
    
    
    1,206Europe
    
    
    2,797
    
    
    
    2,815Asia
    
    
    1,398
    
    
    
    970Total sales
    
    $
    41,567
    
    
    $
    38,722




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##### Table of Contents



(1)
    
    Sales are attributed to geographic regions based on the location of customers. No single
foreign country accounted for greater than 10% of our sales. In the following discussion, certain increases or decreases may differ due to rounding Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Net Sales. Net sales increased by $2.8 million, or 7.3%, to $41.6 million for the three months
ended March 31, 2005, from $38.7 million for the three months ended March 31, 2004. The increase in
sales was primarily attributable to increases in OEM sales and sales of discontinued product lines. U.S. sales increased by $0.9 million, or 3.0%, to $34.7 million for the three months ended
March 31, 2005, from $33.7 million for the three months ended March 31, 2004. International sales
increased by $1.9 million, or 38.0%, to $6.9 million for the three months ended March 31, 2005,
from $5.0 million for the three months ended March 31, 2004. The increase in international sales
was primarily because 2005 sales were not affected by the product availability shortfall that
impacted sales in the first quarter of 2004. The 2004 shortfall occurred because of the delays in
2004 new product introductions and the allocation of limited inventory to the U.S. market until
there was adequate inventory to meet demand. Gross Profit. Gross Profit increased by $4.4 million, or 58.1%, to $12.0 million for the three
months ended March 31, 2005, from $7.6 million for the three months ended March 31, 2004. As a
percent of sales, gross profit increased to 28.9% for the three months ended March 31, 2005, from
19.6% for the three months ended March 31, 2004. This increase was primarily due to costs incurred
in 2004 associated with the production delays, manufacturing and engineering costs, and premium
freight to expedite production of the new 2004 products whose introduction was delayed during the
first quarter of 2004. Sales and Marketing Expenses.Sales and marketing expenses decreased by $0.9 million, or
12.0%, to $6.4 million for the three months ended March 31, 2005 from $7.3 million for the three
months ended March 31, 2004. As a percent of sales, sales and marketing expenses decreased to 15.4%
for the three months ended March 31, 2005 from 18.8% for 2004. The decrease was due to lower costs
for sales and marketing employees and reduced promotional activities. General and Administrative Expenses.General and administrative expenses were relatively flat
at $4.5 million for the three months ended March 31, 2005 compared to $4.6 million for the same
period in 2004. The slight decrease in general and administrative expenses is primarily due to
lower information systems and other administrative expenses partially offset by higher professional
fees. As a percent of sales, general and administrative expenses decreased to 10.9% for the three
months ended March 31, 2005 from 11.8% for the three months ended March 31, 2004. Research and Development Expenses. Research and development expenses decreased by $1.5
million, or 62.6% to $0.9 million for the three months ended March 31, 2005, from $2.5 million for
the three months ended March 31, 2004. As a percent of sales, these expenses decreased to 2.2% for
the three months ended March 31, 2005, from 6.4% for the three months ended March 31, 2004. The
decrease is primarily due to costs incurred in the first quarter of 2004 related to the delayed new
product launch. Operating Income (Loss). Operating income (loss) improved by $6.9 million, or 102.3%, to a
$0.2 million operating income for the three months ended March 31, 2005 from a $6.7 million loss
for the three months ended March 31, 2004. As a percent of sales, operating income (loss) improved
to a 0.4% operating income for the three months ended March 31, 2005, from a 17.4% operating loss
for the three months ended March 31, 2004. This improvement in operating income is the result of
the increase in gross profit and lower operating expenses described above. 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, increased by $0.2
million, or 25.8%, to $0.7 million for the three months ended March 31, 2005 from $0.6 million for
the three months ended March 31, 2004. The increase is primarily attributable to increased
interest rates applicable to the Congress credit facility and increased debt balances resulting
from the convertible notes sale in June 2004. Income Tax (Benefit) Expense.Income tax (benefit) expense increased by $2.9 million, or
100.6%, to a $16,000 expense for the three months ended March 31, 2005, from a $2.8 million benefit
for the three months ended March 31, 2004. The effective income tax rates were an expense of 2.7%
for the three months ended March 31, 2005, and a benefit of 38.8% for the three months ended March
31, 2004. The change in rate was primarily a result of not recording any tax benefit on losses in
the first quarter of 2005.




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##### Table of Contents



Liquidity and Capital Resources Rockford has financed its business primarily using existing capital, cash flows from
operations, if any, proceeds from its private placement of convertible notes, and bank borrowings.
Rockfords cash flow used in operations was $2.6 million for the three months ended March 31, 2005
compared to $0.3 million of cash flow provided by operations for the three months ended March 31, 2004.
The reduction in accounts payable accounts for Rockfords primary use of cash during the first
quarter of 2005. Rockford entered into a $35 million, 3-year asset-based credit facility with Congress
Financial Corporation (Western), as Agent, and Wachovia Bank, National Association, as Arranger, on
March 29, 2004 and as amended on June 10, 2004 and December 30, 2004. This credit facility is
collateralized by substantially all of Rockfords assets and has a variable interest rate of LIBOR
plus 450 basis points or Prime plus 200 basis points. Rockfords balance on the Congress facility
was $19.1 million as of March 31, 2005. Rockford closed agreements for the private placement of $12.5 million of 4.5% convertible
senior subordinated secured notes due 2009 and warrants to purchase 1,246,573 shares of common
stock at $3.73 per share on June 10, 2004 and as amended on November 12, 2004. The net proceeds of
approximately $12.5 million are allocated between the warrants and the notes based on their
relative fair values. The value of the warrants was calculated using the Black-Scholes pricing
model. The carrying value of the notes is being accreted ratably, over the term of the notes, to
the $12.5 million amount due at maturity. The carrying value of the notes approximated their fair
values as of March 31, 2005 and December 31, 2004. Debt issuance costs totaling $0.9 million were
capitalized and are being amortized over the life of the notes. The noteholders may convert the
notes into Rockfords common stock at any time before the scheduled maturity date of June 10, 2009.
The conversion price is $4.61 per share. If fully converted, the notes will convert into 2,711,497
shares of Rockfords common stock. Rockford has the right automatically to convert the notes into
common stock if the common stock trades above a specified target price for a specified period.
Rockford may also force the exercise of the warrants under certain circumstances prior to their
expiration date. The noteholders have a second priority lien on certain Rockford assets. Due to the
modification of the convertible notes and warrants, Rockford has adopted variable accounting for
the warrants which will cause the value of the warrants to change in future periods. Rockford anticipates, based on its cash flow forecast, that cash flow from operations at the
expected level of operations for 2005 and 2006 and available borrowings under its credit facility
will be adequate to meet Rockfords requirements for current capital expenditures, working capital
and interest payments for the next twelve months. Rockford anticipates that its operations will
significantly improve compared to its operations during 2004, so that its cash requirements in 2005
and 2006 will be less than its cash requirements in 2004. Rockford has not budgeted for proceeds
from non-core asset sales resulting from its strategic realignment, so that if received such
proceeds should supplement Rockfords cash resources. If Rockfords operations fail to improve, or if Rockford is otherwise unable to satisfy its
liquidity needs as anticipated, it could be forced to seek one or more financing alternatives.
These alternatives could include reducing or delaying capital expenditures, borrowing additional
funds, restructuring indebtedness, selling additional assets, reducing expenditures for new product
development, and cutting other costs. Some of these alternatives might not prove to be available on
acceptable terms; others may substantially interfere with Rockfords business and prospects.
Rockford cannot give assurance that satisfactory actions could be put into effect on reasonable
terms. If it needs to take some or all of these actions, but is not able to do so, Rockford may not
be able to satisfy its liquidity needs. Under such circumstances, Rockford might not be able to
continue its business as currently anticipated. Rockfords inventory position decreased from $34.0 million at the end of 2004 to $29.1 million
at March 31, 2005. This inventory decrease was due to higher sales and improved inventory turns. Rockford had working capital of $25.5 million at March 31, 2005, compared to $25.3 million at
December 31, 2004. The significant components of working capital at March 31, 2005 include:  
    Rockford had no cash and cash equivalents at March 31, 2005 versus $0.4 million as at
December 31, 2004. Due to the daily sweep of cash by Congress, described below, Rockford has
reclassified cash and cash equivalents to net against its current debt balance.
    Rockfords net accounts receivable were $36.5 million at March 31, 2005 compared to $33.2
million at December 31, 2004. The increase in accounts receivable balances is primarily due
to higher sales and a late payment of approximately $1.5 million from a large customer
related to a conversion to electronic data interchange. The late payment was received early
in May 2005.
    Net inventory decreased $4.9 million, from $34.0 million at December 31, 2004 to $29.1
million at March 31, 2005; and




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
    Accounts payable decreased $3.8 million, from $15.6 million at December 31, 2004 to $11.8
million at March 31, 2005. This decrease was primarily due to reestablishing normalized
vendor payment terms compared to the extended vendor payment terms experienced at December
31, 2004. The Congress credit facility requires that Rockford maintain blocked lock box accounts,
whereby Congress takes possession of all cash receipts on a daily basis and these amounts are
applied to reduce Rockfords outstanding debt. In accordance with EITF 95-22: Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a
Subjective Acceleration Clause and a Lock-Box Arrangement, Rockford has recorded the $19.1 million
and $15.5 million outstanding balance as at March 31, 2005 and December 31, 2004, respectively, on
the Congress credit facility as short-term. Rockford expects to maintain the facility for the
entire three-year term. Investing activities used cash of $0.2 million for the three months ended March 31, 2005
versus a use of $2.2 million cash for the three months ended March 31, 2004. The reductions in
spending are primarily due to higher capital expenditures in the first quarter of 2004 due to the
launch of the new Rockford Fosgate product line. Capital expenditures, the primary use of cash from
investing activities, were $0.2 million for the three months ended March 31, 2005 versus $1.4
million for the three months ended March 31, 2004. Rockford continues to work to improve management
of its capital spending and has imposed increased payback requirements for approval of capital
spending. Rockfords capital spending is primarily in tooling for specific product lines, general
machinery and equipment to support manufacturing and computer hardware and software to support
operations. Rockford does not anticipate significant changes in its future capital spending
requirements, other than reductions resulting from its divestiture of non-core businesses and
elimination of the capital spending required for those businesses. As of March 31, 2005, Rockford
was not involved in any unconsolidated VIE transactions. Contractual Obligations as of March 31, 2005 Rockford had certain cash obligations at March 31, 2005 due as follows (dollars in thousands) Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsCurrent portion of long-term debt
    
    $
    23,817
    
    
    $
    3,329
    
    
    $
    20,488
    
    
    
    
    
    
    
    Long term notes payable
    
    $
    14,893
    
    
    $
    563
    
    
    $
    1,689
    
    
    $
    12,641
    
    
    
    Operating Leases
    
    $
    6,403
    
    
    $
    2,356
    
    
    $
    4,041
    
    
    $
    6
    
    
    
    
 There have not been material changes in Rockfords Operating Leases since December 31, 2004. Rockford did not have any material outstanding noncancelable purchase obligations at March 31,
2005. Several of its sourcing agreements require Rockford to place monthly purchase orders, but do
not require a minimum purchase quantity or dollar amount. Rockford does not anticipate significant
liability in connection with these contractual requirements. Critical Accounting Policies and Estimates The methods, estimates and judgments Rockford uses in applying its accounting policies have a
significant impact on the results reported in its consolidated financial statements. Rockford
evaluates its estimates and judgments on an on-going basis. Rockford bases its estimates on
historical experience and assumptions that Rockford believes to be reasonable under the
circumstances. Rockfords experience and assumptions form the basis for its judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may vary from what Rockford anticipates and different assumptions or estimates about the
future could change its reported results. Rockford believes the following accounting policies are
the most critical to Rockford, in that they are important to the portrayal of Rockfords financial
statements and they require Rockfords most difficult, subjective or complex judgments in the
preparation of its consolidated financial statements: Revenue Recognition.Rockford recognizes revenue pursuant to Staff Accounting Bulletin Nos.
101 and 104, Revenue Recognition in Financial Statements.Accordingly, Rockford recognizes revenue
and records sales, net of related discounts, when all of the following criteria are met:  
    Persuasive evidence of an arrangement exists;
    Ownership has transferred to the customer;




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
    The price to the customer is fixed or determinable; and
    Collectibility is reasonably assured. Rockford sells almost all of its products F.O.B. place of shipment, so that upon shipment of
products, the above criteria are met and revenue is recognized. Rockford also records reductions to revenue for estimated customer returns and additional
sales incentive offerings, such as growth and volume incentive rebates and prompt pay discounts,
based on historical rates. Should a greater proportion of customers return product or redeem
incentives than estimated, Rockford may need to make additional reductions to revenue. Intangible Assets.On January 1, 2002, Rockford adopted SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets.When Rockford accounts for acquired
businesses as purchases, it allocates purchase prices to the assets, definite-lived intangible
assets, and liabilities acquired based on the estimated fair values on the respective acquisition
dates. Based on these values, Rockford allocates any excess purchase price over the fair value of
the net assets acquired to goodwill. As at March 31, 2005, Rockford has written off all remaining
goodwill because of its impairment as outlined in the notes to Rockfords financial statements for
the year ended December 31, 2004. Allowance for Doubtful Accounts.Rockford maintains an allowance for doubtful accounts, based
on historical rates, for estimated losses resulting from the inability of its customers to make
required payments. The assessment of customers ability to pay generally includes direct contact
with the customer, investigation into customers financial status, as well as consideration of
customers payment history. If the financial condition of Rockfords customers were to deteriorate,
resulting in an impairment of their ability to make payments, Rockford might need to make
additional allowances. Inventory.Rockford carries inventory at the lower of cost or market, computed using the
weighted average method. For purposes of the lower of cost or market calculations, Rockford writes
down obsolete or unmarketable inventory in amounts equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future demand and market
conditions. Rockford reviews information such as quantity on hand versus forecasted use and
inventory aging listings to assist in this assessment. If actual future demand or market conditions
are less favorable than projected, Rockford may need to take additional inventory write-downs. Any
write-downs are reflected in cost of sales in the period incurred. Warranty.Rockford maintains a warranty reserve, based on historical rates, for costs
associated with the repair or replacement of product that fails to meet its standard warranty
against defects in material and workmanship. Should actual product failure rates differ from its
estimates, Rockford would need to make revisions to its estimated accruals. Income Taxes.Rockford must make certain estimates and judgments in determining income tax
expense for financial statement purposes. These estimates and judgments occur in the calculation of
certain tax assets and liabilities, which arise from differences in the timing of recognition of
revenue and expense for tax and financial statement purposes. Rockford must assess the likelihood
that it will be able to recover Rockfords deferred tax assets. If recovery is not likely, Rockford
must increase its provision, or decrease its benefit, by recording a valuation allowance against
the deferred tax assets that Rockford estimates will not ultimately be recoverable. Based on
Rockfords review of its deferred tax assets in connection with its realignment announced in
September 2004 and at December 31, 2004, it determined that a valuation allowance in the amount of
$14.4 million was required and has reserved against substantially all of its deferred tax assets. Inflation.Inflation has not had a significant impact on Rockfords operations since it
operates in a market that requires continuing price decreases and Rockford has historically been
able to insist on continuing price decreases from its suppliers. Rising metal prices and increasing
transportation costs may have an impact on Rockfords operations in 2005, if Rockford is not able
to secure concessions from its suppliers. New Accounting Standards In December 2004 the FASB issued, and in April 2005 amended, Statement No. 123 (FAS 123R),
Share-Based Payment,effective for fiscal years beginning after June 15, 2005. FAS 123R
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,and will require
companies to recognize compensation expense, using a fair-value based method, for costs related to
share-based payments including stock options and stock issued under employee stock purchase plans.
Rockford will be required to implement FAS 123R no later than the quarter that begins January 1,
2006. Rockfords adoption will be applied on a modified




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prospective basis and measured and recognized on January 1, 2006. Rockford is currently
evaluating option valuation methodologies and assumptions in light of FAS 123R, and therefore
cannot estimate the impact of Rockfords adoption of FAS 123R at this time. These methodologies and
assumptions may be different than those currently employed by Rockford in applying FAS 123,
outlined in note 1 to Rockfords financial statements. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB 43,
Chapter 4.SFAS No. 151 will require that abnormal amounts of idle capacity and spoilage costs be
excluded from the cost of inventory and expensed when incurred. This standard also provides
guidance for the allocation of fixed production overhead costs. This standard is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. Rockford will adopt
this standard in fiscal 2006. Rockford has not yet determined the impact, if any, this Statement
will have on Rockfords financial statements. In December 2004, the FASB issued SFAS 153, Exchanges of Non-monetary Assets, an amendment of
APB No. 29, Accounting for Non-monetary Transactions.SFAS 153 requires exchanges of productive
assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the
asset received nor the asset surrendered has a fair value that is determinable within reasonable
limits or (2) the transactions lack commercial substance. SFAS 153 is effective for non-monetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Rockford does not expect
the adoption of this standard to have a material effect on its financial position, results of
operations or cash flows. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk Rockfords primary market risk exposures are in the areas of interest rate risk and foreign
currency exchange rate risk. Its holdings of cash equivalents are subject to interest rate
fluctuations, but Rockford believes this risk is immaterial due to the short-term nature of these
investments and the essentially zero cash balances it carries. The outstanding balances on its
credit facilities are also subject to interest rate fluctuations. The value of the U.S. dollar affects Rockfords financial results. Changes in exchange rates
may positively or negatively affect revenues, gross margins, operating expenses and shareholders
equity as expressed in U.S. dollars. Historically, Rockfords exposure to currency exchange rate
fluctuations were modest because it sold its products primarily in U.S. dollars and held only a
small percentage of its assets outside the U.S. However, Rockford conducts a growing portion of its
business in foreign currencies and it is increasing its billings in local currencies in Canada and
Europe. In recent years, Rockford has sourced an increasing percentage of its products, or of raw
materials and parts for its products, from outside the United States. Most of these raw materials
and parts are sourced in Asia, principally in China. Although most of these purchases are
denominated in dollars, an extended decline in the value of the dollar may affect the terms and
prices on which Rockford is able to purchase from its foreign suppliers and may, therefore,
increase Rockfords costs. During 2003, Rockfords Board of Directors approved and Rockford began to implement a new
foreign currency hedging policy. The goal of the program was to provide stability to the U.S.
dollar values of non-function currency cash flows. Although it is impossible to eliminate all
currency risk, implementation of this program was intended to mitigate the risk of significant
changes in earnings due to short-term foreign exchange fluctuations. Rockford did not engage in any
hedging activity during 2004 and the first quarter of 2005 because it determined that it had more
important uses for its available cash. At March 31, 2005, Rockford did not have any outstanding
forward contracts. 
 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Rockfords principal executive officer and principal financial officer are responsible for
establishing and maintaining adequate internal control over its financial reporting. They have
reviewed Rockfords disclosure controls and procedures during the last 30 days in order to comply
with the SECs requirements for certification of this Form 10-Q. Rockford is a non-accelerated
filer and, accordingly, it is required to comply with the SECs enhanced requirements for
certification and attestation of internal control over financial reporting for its Form 10-K for
its fiscal year ending December 31, 2006. Rockford is currently evaluating what changes will be needed to meet the enhanced reporting
relating to internal controls required by the Sarbanes Oxley Act and subsequent SEC regulations.
Rockford is currently in the process of establishing an enhanced internal control process. During
the first quarter of 2005, and after the first quarter through the date of filing this report,
Rockford did not make




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any substantial changes in its internal review of Rockfords financial reporting other than
the correction of the matters discussed below. Based on their review of Rockfords disclosure controls and policies, Rockfords principal
executive officer and principal financial officer concluded that its disclosure controls and
procedures were deficient as discussed below. Material Weaknesses of Disclosure Controls and Procedures Preparation of Annual Report for the Year Ended December 31, 2004 Rockford has concluded, in connection with the preparation of its Annual Report for the year
ended December 31, 2004, that it was subject to a material weakness in its disclosure controls and
procedures, in that the internal controls were not sufficient to ensure the information required to
be disclosed in Rockfords reports was accurate and was recorded, processed, summarized and
reported within the requisite time periods. Deficiencies resulted from substantial management and
staff turnover, particularly in the general accounting and finance areas, during the fourth quarter
of 2004 and first quarter of 2005. This turnover caused a loss of operations and process knowledge
that interfered with the preparation of the Annual Report. In connection with the preparation of Rockfords consolidated financial statements for the
year ended December 31, 2004, significant internal control deficiencies became evident to
management. In the aggregate, a material weakness resulted from control deficiencies that included
inadequate staffing and supervision, leading to the untimely identification and resolution of
certain accounting matters; failure to perform timely reviews, substantiation and evaluation of
certain general ledger account balances; and lack of procedures or expertise needed to prepare all
required disclosures. A material weakness is a significant deficiency in one or more of the
internal control components that alone or in the aggregate precludes the internal controls from
reducing to an appropriate low level the risk that material misstatements in the financial
statements will not be prevented or detected on a timely basis. Rockfords registered public accounting firm, Ernst & Young LLP, advised management and the
audit committee of the board of directors that the financial reporting deficiencies described above
are considered to be a material weakness in Rockfords internal controls which constitutes a
reportable condition under standards established by the American Institute of Certified Public
Accountants. The Audit Committee, board of directors, management and Ernst & Young discussed these
weaknesses and Rockford has assigned the highest priority to their correction. Even before the discussion of the material weakness, Rockford was actively seeking to hire
appropriate replacement personnel who could restore the required expertise lost as a result of
turnover in 2004 and 2005. In 2005, Rockford has added financial resources and expertise, both
through internal hiring and using outside consultants, that will provide hands-on oversight of the
monthly financial closing, data analysis, and account reconciliation. Management and the audit
committee are committed to addressing and resolving the weaknesses fully and believe that
additional financial resources and expertise will correct the material weakness. Rockford believes
that it has hired personnel who will be able to restore the required expertise and that these new
personnel, and added oversight of its financial processes, have substantially
mitigated this material weakness in connection with the preparation
of Rockfords first quarter
financial statements. Accounts Payable Reconciliation for the Year Ended December 31, 2003 During the first quarter of 2004, Rockford identified a material weakness in procedures for
reconciling accounts payable at the end of each reporting period. The material weakness arose as a
result of a reconciliation process that failed to reconcile the accounts payable module of
Rockfords Oracle information system, which includes all pending invoices, with the general ledger
accounts payable. Before the first quarter of 2004, the reconciliation process for each period
focused on the general ledger balances and did not reconcile the general ledger to the Oracle
accounts payable module. Timing issues resulting from the approval process for accounts payable
caused the general ledger accounts payable not to reflect all of the accounts payable that had been
entered into the accounts payable module in Oracle. The reconciliation process did not identify
this discrepancy. As a result, the general ledger and financial statements did not reflect all of
the accounts payable that the Oracle module showed at the end of each period nor did they reflect
certain corresponding assets. Rockford reviewed its financial statements for prior periods and believes that the
reconciliation failures did not have a material effect on reported earnings in any quarter for the
last four fiscal years, going back through fiscal 2000. As a result, Rockford did not restate
results for any prior periods. Rockford also concluded that the underlying business processes were
properly using the Oracle payables module and that, upon approval through normal business
processes, the payables shown in the Oracle payables module were being paid in accordance with
their terms and reflected in the general ledger and financial statements.




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##### Table of Contents



For the first quarter of 2004, and going forward, Rockford implemented additional
reconciliation procedures to assure that the accounts payable reported on the general ledger
reconcile to the information contained in the Oracle accounts payable module for the end of each
period reported. As at March 31, 2004, the balance sheet reflected an increase in accounts payable
of $4.7 million, an increase in inventory in-transit of $3.7 million, and an increase in other
assets or offsets to other accrual accounts of $0.5 million as a result of this reconciliation. The
after tax impact on operating results for the quarter was $0.3 million, or $0.03 per share.
Rockford believes each of these items reflects a one-time adjustment and that going forward the
reconciliation process will not have a material impact on results of operations. Rockfords independent registered public accounting firm, Ernst & Young LLP, advised
management and the audit committee of the board of directors that the reconciliation failure
described above is considered to be a material weakness in Rockfords internal controls and
constitutes a reportable condition under standards established by the American Institute of
Certified Public Accountants. The audit committee, board of directors, management and Ernst & Young
discussed this weakness. Rockford assigned the highest priority to the correction of this weakness
and implemented new reconciliation procedures effective with the first quarter 2004 closing.
Management and the audit committee are committed to addressing and resolving this weakness fully
and believe that the new reconciliation process has corrected this weakness. Rockford believes the
weakness resulted from a failure to identify and fully understand the interaction between different
parts of the Oracle information system, rather than from a failure in the ability or intent of
Rockfords personnel, and has taken steps to correct these failures. Rockford continues to evaluate
other parts of the Oracle system, but has not identified and does not expect to find other
significant weaknesses in Rockfords understanding of the system that will have as significant an
effect on Rockfords financial reporting efforts.




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##### Table of Contents



Part II. Other Information 
 Item 1. Legal Proceedings. Since the date of our Annual Report for the year 2004, filed with the SEC on April 15, 2005,
there have been no additional material developments in connection with the patent claim or
litigation with a former distributor as described in the Legal Proceedings section of our Annual
Report. We are and may continue to be a party to various lawsuits and arbitrations from time to time.
As at April 15, 2005, we were not a party to any legal proceedings that we believe are material,
other than the effect of the expenses associated with the lawsuits described in our Annual Report. 
 Item 6. Exhibits and Reports on Form 8-K




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##### Table of Contents



(a) Exhibits ExhibitNumber
    
    Description of Document3.1
    
    Articles of Incorporation+3.2
    
    Restated Bylaws as amended through July 27, 2000++3.3
    
    Amendment to Articles of Incorporation filed on January 12, 1988+3.4
    
    Amendment to Articles of Incorporation filed on May 12, 1999+3.5
    
    Amendment to Articles of Incorporation filed on May 17, 1999+3.7
    
    Amendment to Articles of Incorporation filed on July 1, 1999+4.1
    
    Specimen Common Stock Certificate+4.2
    
    Reference is made to the Articles of Incorporation, as amended, and the Restated Bylaws, as
amended, filed as Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.7 for a description of the rights of
the holders of Common Stock.31.1
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 for W. Gary Suttle31.2
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 for Richard G. Vasek32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200299.9
    
    Risk Factors That May Affect Rockfords Operating Results, Business Prospects and Stock Price+++
   +
    
    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.+++
    
    Previously filed on April 15, 2005, with our Annual Report on Form 10-K for the year ended December 31, 2004. (b) During the period from January 1, 2005, through March 31, 2005, Rockford did not file any
reports on Form 8-K.




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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 CORPORATIONDate: May 12, 2005
    
    By:
    
    /s/ Richard G. VasekRichard G. VasekVice President of Finance,Chief Financial Officer andSecretary(Principal Financial Officerand Duly Authorized Officer)