##### Table of Contents



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, 2008
 Commission File Number 000-30138
 ROCKFORD CORPORATION
 (Exact Name of Registrant as Specified in its Charter)
 ARIZONA
    
    86-0394353(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)600 South Rockford Drive 
Tempe, Arizona
    
    85281(Address of Principal Executive Offices)
    
    (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 þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filero
    
    Accelerated filero
    
    Non-accelerated filero
    
    Smaller reporting companyþ(Do not check if a smaller reporting company)
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
 Indicate the number of shares of each of the issuers classes of common stock, as of the
latest practical date:
 As of April 28, 2008, there were 8,781,208 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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##### 



ROCKFORD CORPORATION AND SUBSIDIARIES
 TABLE OF CONTENTS
 Forward Looking Statements
    
    
    3Part I: Financial Information
    
    
    4Item 1. Financial Statements
    
    
    4Condensed Consolidated Balance Sheets December 31, 2007 and March 31, 2008 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations  (Unaudited) Three Months Ended March 31, 2007
and (Unaudited) 2008
    
    
    5Condensed Consolidated Statements of Cash Flows  (Unaudited) Three Months Ended March 31, 2007
and (Unaudited) 2008
    
    
    6Notes to Condensed Unaudited Consolidated Financial Statements  March 31, 2008
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Continuing Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15Part II: Other Information
    
    
    16Item 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 6. Exhibits and Reports on Form 8-K
    
    
    17Signatures
    
    
    18CertificationsEx   31.1Ex   31.2Ex   32EX-31.1EX-31.2EX-32
  2




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Forward-Looking Statements
    3




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 (In thousands except share data)
 December 31,
    
    
    March 31,2007
    
    
    2008(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, less allowances of $929 and $1,062 at December 31, 2007 and
March 31, 2008, respectively
    
    
    15,885
    
    
    
    18,870Inventories
    
    
    14,352
    
    
    
    11,942Prepaid expenses and other current assets
    
    
    1,224
    
    
    
    1,068Total current assets
    
    
    31,461
    
    
    
    31,880Property and equipment, net
    
    
    1,905
    
    
    
    1,886Other assets
    
    
    646
    
    
    
    554Total assets
    
    $
    34,012
    
    
    $
    34,320Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    $
    5,794
    
    
    $
    6,104Accrued salaries and incentives
    
    
    1,415
    
    
    
    1,357Accrued warranty and returns
    
    
    1,267
    
    
    
    1,224Other accrued expenses
    
    
    1,640
    
    
    
    2,186Current portion of capital lease and other long-term liabilities
    
    
    760
    
    
    
    562Asset-based credit facility
    
    
    3,475
    
    
    
    3,562Total current liabilities
    
    
    14,351
    
    
    
    14,995Notes payable, less unaccreted discount of $130 and $107 at December 31, 2007
and March 31, 2008, respectively
    
    
    9,582
    
    
    
    9,578Long-term portion of capital lease and other long-term liabilities
    
    
    133
    
    
    
    39Total liabilities
    
    
    24,066
    
    
    
    24,612Shareholders equity:Common stock, $.01 par value  Authorized shares  40,000,000 Issued shares
9,395,720 at December 31, 2007 and 9,395,720 shares at March 31, 2008
    
    
    94
    
    
    
    94Additional paid-in capital
    
    
    38,319
    
    
    
    38,369Accumulated deficit
    
    
    (27,569
    )
    
    
    (27,660
    )Less: Treasury stock, at cost (449,700 and 614,512 shares at December 31, 2007
and March 31, 2008, respectively)
    
    
    (898
    )
    
    
    (1,095
    )Total shareholders equity
    
    
    9,946
    
    
    
    9,708Total liabilities and shareholders equity
    
    $
    34,012
    
    
    $
    34,320
   4




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(In thousands, except per share data)
 Three months endedMarch 31,2007
    
    
    2008Net sales
    
    $
    26,372
    
    
    $
    18,445Cost of goods sold
    
    
    18,492
    
    
    
    12,088Gross profit
    
    
    7,880
    
    
    
    6,357Operating expenses:Sales and marketing
    
    
    3,464
    
    
    
    3,195General and administrative
    
    
    4,136
    
    
    
    2,405Research and development
    
    
    808
    
    
    
    641Total operating expenses
    
    
    8,408
    
    
    
    6,241Operating income (loss)
    
    
    (528
    )
    
    
    116Interest and other expense, net
    
    
    339
    
    
    
    207Loss before income taxes
    
    
    (867
    )
    
    
    (91
    )Income tax expense
    
    
    
    
    
    
    Net loss
    
    $
    (867
    )
    
    $
    (91
    )Net loss per common share:Basic
    
    $
    (0.09
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.09
    )
    
    $
    (0.01
    )Weighted average shares:Basic
    
    
    9,392
    
    
    
    8,883Diluted
    
    
    9,392
    
    
    
    8,883
  5




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(In thousands)
 Three months endedMarch 31,2007
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (867
    )
    
    $
    (91
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    415
    
    
    
    373Gain on sale of property and equipment
    
    
    (7
    )
    
    
    (30
    )Share based compensation expense
    
    
    63
    
    
    
    50Provision for doubtful accounts
    
    
    107
    
    
    
    75Provision for inventory
    
    
    446
    
    
    
    190Loss on legal settlement and special charges
    
    
    1,098
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,807
    )
    
    
    (3,060
    )Inventories
    
    
    529
    
    
    
    2,221Prepaid expenses and other
    
    
    (27
    )
    
    
    62Accounts payable
    
    
    4,388
    
    
    
    310Accrued salaries and incentives
    
    
    32
    
    
    
    (93
    )Accrued warranty and returns
    
    
    50
    
    
    
    (43
    )Other accrued expenses
    
    
    658
    
    
    
    536Net cash provided by operating activities
    
    
    1,078
    
    
    
    500Cash flow from investing activities:Purchases of property and equipment
    
    
    (255
    )
    
    
    (238
    )Proceeds from sale of property and equipment
    
    
    50
    
    
    
    34Net proceeds from divestiture of businesses
    
    
    100
    
    
    
    100Decrease in other assets
    
    
    9
    
    
    
    34Net cash used in investing activities
    
    
    (96
    )
    
    
    (70
    )Cash flow from financing activities:Proceeds from bank debt
    
    
    20,555
    
    
    
    16,076Payments on bank debt
    
    
    (20,789
    )
    
    
    (15,989
    )Payments on capital lease obligations
    
    
    (10
    )
    
    
    (12
    )Payments on other debt
    
    
    (750
    )
    
    
    (309
    )Purchase of treasury stock
    
    
    
    
    
    
    (196
    )Proceeds from exercise of stock options
    
    
    11
    
    
    
    Net cash used in financing activities
    
    
    (983
    )
    
    
    (430
    )Effect of exchange rate changes on cash
    
    
    1
    
    
    
    Net increase in cash flow
    
    
    
    
    
    
    Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
  6




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Rockford Corporation and Subsidiaries
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 March 31, 2008
 1. Basis of Presentation
 Unaudited Interim Financial Information
    2. Inventories
  December 31,
    
    
    March 31,2007
    
    
    2008(In thousands)Raw materials
    
    $
    3,564
    
    
    $
    2,544Work-in-progress
    
    
    246
    
    
    
    247Finished goods
    
    
    10,542
    
    
    
    9,151$
    14,352
    
    
    $
    11,942
 3. Loss Per Share
  Three Months Ended March 31,2007
    
    
    2008(In thousands, except per share data)Numerator:Net loss
    
    $
    (867
    )
    
    $
    (91
    )Plus:Income impact of assumed conversion of convertible debt
    
    
    
    
    
    
    Net loss available to shareholders
    
    $
    (867
    )
    
    $
    (91
    )Denominator:Denominator for basic net income (loss) per share
    
    
    9,392
    
    
    
    8,883Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Dilutive potential common shares
    
    
    
    
    
    
    Denominator for diluted net income (loss) per share
    
    
    9,392
    
    
    
    8,883Loss per common share:Net lossBasic
    
    $
    (0.09
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.09
    )
    
    $
    (0.01
    )
 7




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Rockford Corporation and Subsidiaries
 Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)
    Three Months ended March 31st2007
    
    2008Outstanding options
    
    
    1,183
    
    
    
    1,669Average exercise price
    
    $
    5.20
    
    
    $
    4.16
 4. Notes Payable and Long-Term Debt
  Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a
Subjective Acceleration Clause and a Lock-Box Arrangement
  8




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Rockford Corporation and Subsidiaries
 Notes to Condensed Consolidated Financial Statements (Unaudited)(Continued)
 5. Income Taxes
   6. Special Charges
   Three months endedMarch 31, 2008Liability at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability atDecember 31,
    
    Reserve
    
    
    
    
    
    Adjustments
    
    March 31,2007
    
    Recorded
    
    Payments
    
    To Reserve
    
    2008Post Employment Costs:
    
    $
    584
    
    
    $
    
    
    
    $
    (125
    )
    
    $
    22
    
    
    $
    481
 7. Stock Purchase Program
  9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Continuing Operations
  Overview
      10




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Results of Operations
  Three months endedMarch 31,2007
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    70.1
    
    
    
    65.5Gross profit
    
    
    29.9
    
    
    
    34.5Operating expenses:Sales and marketing
    
    
    13.1
    
    
    
    17.3General and administrative
    
    
    15.7
    
    
    
    13.1Research and development
    
    
    3.1
    
    
    
    3.5Total operating expenses
    
    
    31.9
    
    
    
    33.9Operating income (loss)
    
    
    (2.0
    )
    
    
    0.6Interest and other expense, net
    
    
    1.3
    
    
    
    1.1Loss before income tax
    
    
    (3.3
    )
    
    
    (0.5
    )Income tax expense
    
    
    
    
    
    
    Net loss
    
    
    (3.3
    )%
    
    
    (0.5
    )%
     Geographic Distribution of Sales
  Three months endedMarch 31,2007
    
    
    2008(In thousands)Region:(1)United States
    
    $
    22,033
    
    
    $
    15,115Other Americas
    
    
    1,820
    
    
    
    1,476Europe
    
    
    1,599
    
    
    
    1,049Asia
    
    
    920
    
    
    
    805Total sales
    
    $
    26,372
    
    
    $
    18,445
 
 (1)
    
    Sales are attributed to geographic regions based on the location of customers. No single
foreign country accounted for greater than 10% of sales. 11




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In the following discussion, certain increases or decreases may differ due to rounding
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Net Sales
  Gross Profit
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Research and Development Expenses
 Operating Income (Loss)
 Interest and Other Expense, Net
 Income Tax Expense.
 12




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Liquidity and Capital Resources
       
    
    Rockford had no cash and cash equivalents at March 31, 2008 and December 31, 2007. Due to
the daily sweep of cash by Wachovia Capital, described below, Rockford has reclassified cash
and cash equivalents to net against its current debt balance.
    
    Rockfords net accounts receivable were $18.9 million at March 31, 2008 compared to $15.9
million at December 31, 2007. The increase in accounts receivable balances is primarily due
to increased sales late in the first quarter of 2008 and higher royalty receivables compared
to the fourth quarter of 2007.
    
    Rockfords inventory position decreased from $14.4 million at the end of 2007 to $11.9
million at March 31, 2008. This inventory decrease was primarily due to outsourcing,
improved inventory turns, and the reduction of end of life inventory.
    
    Accounts payable increased $0.3 million, from $5.8 million at December 31, 2007 to $6.1
million at March 31, 2008. This increase was primarily due to the timing of inventory
purchases resulting from increased sales late in the first quarter of 2008 compared to the
fourth quarter of 2007.
  13




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Balance Sheet Classification of Borrowings Outstanding under Revolving Credit
Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement
   Contractual Obligations
  Critical Accounting Policies and Estimates
 Income Taxes.
 Inflation.
 14




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
     
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Inherent Limitations on Effectiveness of Controls
  15




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Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
 Total number of sharespurchased as part of
    
    
    Maximum number of sharesTotal number of
    
    
    Average price paid
    
    
    publicly announced
    
    
    that may yet be purchasedPeriod
    
    shares purchased
    
    
    per share
    
    
    plans or programs*
    
    
    under the plans or programsJanuary 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    20,300February 2008
    
    
    164,812
    
    
    
    1.19
    
    
    
    164,812
    
    
    
    305,488March 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305,488Total
    
    
    164,812
    
    
    $
    1.19
    
    
    
    164,812
  16




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Item 6. Exhibits and Reports on Form 8-K
  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 William R. Jackson.31.2
    
    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. Vasek.32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 +
    
    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.  
    
    March 13, 2008 report disclosing on Item 9 that Rockford had issued a news release
regarding Rockfords results of operations for the year ended December 31, 2007. This report
furnished a copy of the press release under Item 9 of Form 8-K.
    
    February 21, 2008 report disclosing on Item 9 that Rockford announced earning guidance
for fiscal 2007 and new stock buy back program.
 17




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SIGNATURES
  ROCKFORD CORPORATIONDate: April 28, 2008
    By:
    /s/ Richard G. VasekRichard G. VasekVice President of Finance,
Chief Financial Officer and Secretary
(Principal Financial Officer and Duly Authorized Officer) 18




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EXHIBIT INDEX
 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 William R. Jackson.31.2
    
    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. Vasek.32
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 +
    
    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. 19