<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number:
SEPTEMBER 30, 1997 0-21026
- ------------------ -------
ROCKY SHOES & BOOTS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1364046
---- ----------
(State of Incorporation) (IRS Employer Identification Number)
39 E. CANAL STREET
NELSONVILLE, OHIO 45764
-----------------------
(Address of principal executive offices)
(614) 753-1951
--------------
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former Fiscal year if
changed since last report.)
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 twelve (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 ninety (90) days.
Yes X No
--- ---
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
3,789,668 common shares, no par value, outstanding at October 20, 1997.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
(Unaudited)
-------------- -------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 159,449 $ 349,637
Trade Receivables 39,034,306 12,409,920
Other Receivables 985,780 678,293
Inventories 38,441,793 25,389,902
Other Current Assets 1,899,368 1,632,394
----------- -----------
Total Current Assets 80,520,696 40,460,146
Fixed Assets - Net 16,693,974 15,508,597
Other Assets 1,950,767 2,121,428
----------- -----------
Total Assets $99,165,437 $58,090,171
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $14,012,444 $ 3,036,705
Current Maturities - Long-Term Debt 1,371,098 3,609,645
Accrued Liabilities 4,287,884 3,205,215
----------- -----------
Total Current Liabilities 19,671,426 9,851,565
Long-Term Debt-less current maturities 46,879,079 19,520,029
Deferred Liabilities 2,473,861 2,343,488
----------- -----------
Total Liabilities 69,024,366 31,715,082
Shareholders' Equity:
Preferred Stock, Series A, no par value;
$.06 stated value;125,000 shares authorized; 5,400 6,000
issued 1997-90,000 shares;1996-100,000 shares
and outstanding 1997-82,857 shares;
1996-92,857 shares
Common Stock, no par value;
10,000,000 shares authorized; issued
1997-3,873,730 shares; 15,330,841 14,543,947
1996-3,782,500 shares; and
outstanding 1997-3,756,778 shares;
1996-3,665,548 shares
Stock held in Treasury, at cost (1,226,059) (1,226,059)
Retained Earnings 16,030,889 13,051,201
----------- -----------
Total Shareholders' Equity 30,141,071 26,375,089
----------- -----------
Total Liabilities and Shareholders' Equity $99,165,437 $58,090,171
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE> 3
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $31,561,742 $23,897,568 $65,830,000 $49,347,778
Cost of Goods Sold 22,817,169 18,342,533 47,527,279 36,602,849
----------- ----------- ----------- -----------
Gross Margin 8,744,573 5,555,035 18,302,721 12,744,929
Selling, General and Administrative 5,094,178 3,255,854 11,812,322 8,804,824
----------- ----------- ----------- -----------
Expenses
Income From Operations 3,650,395 2,299,181 6,490,399 3,940,105
Other Income And (Expenses):
Interest Expense (889,979) (679,444) (1,996,277) (1,422,450)
Other - net (69,510) 18,218 (78,645) (24,081)
----------- ----------- ----------- -----------
Total other - net (959,489) (661,226) (2,074,922) (1,446,531)
----------- ----------- ----------- -----------
Income Before Income Taxes 2,690,906 1,637,955 4,415,477 2,493,574
Income Taxes 917,287 268,767 1,435,789 465,560
----------- ----------- ----------- -----------
Net Income $ 1,773,619 $ 1,369,188 $ 2,979,688 $ 2,028,014
=========== =========== =========== ===========
Net Income Per Share $ 0.44 $ 0.36 $ 0.75 $ 0.54
=========== =========== =========== ===========
Weighted Average Number of Common
Shares and Equivalents Outstanding 4,045,637 3,781,284 3,975,444 3,770,692
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income $ 2,979,688 $ 2,028,014
Adjustments to Reconcile Net Income
to Net Cash Used In
Operating Activities:
Depreciation and Amortization 2,139,592 1,745,930
Loss on Sale of Fixed Assets -- 94,614
Deferred Taxes and Other 130,373 (376,448)
Change in Assets and Liabilities:
Receivables (26,931,873) (15,362,507)
Inventories (13,051,891) (13,065,891)
Other Assets (96,313) (342,525)
Accounts Payable 10,282,119 8,517,251
Accrued and Other Liabilities 1,082,669 2,063,011
------------ ------------
Net Cash Used In
Operating Activities (23,465,636) (14,698,551)
------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Fixed Assets (2,631,349) (2,027,854)
------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 34,287,911 26,014,718
Payments on Long-Term Debt (9,167,408) (9,906,844)
Proceeds from exercise of stock options
including related income tax effect 786,294 --
------------ ------------
Net Cash Provided By
Financing Activities 25,906,797 16,107,874
------------ ------------
(DECREASE) IN CASH AND CASH
EQUIVALENTS (190,188) (618,531)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 349,637 1,853,974
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 159,449 $ 1,235,443
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL REPORTING
In the opinion of management, the unaudited financial statements
include all normal recurring adjustments the Company considers
necessary for a fair presentation of such financial statements in
accordance with generally accepted accounting principles.
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
Raw Materials $ 9,702,250 $ 4,482,381
Work-in Process 5,359,276 5,192,326
Manufactured finished goods 20,956,823 13,891,772
Factory outlet finished goods 2,423,444 1,823,423
----------- -----------
Total $38,441,793 $25,389,902
=========== ===========
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1997 1996
---- ----
<S> <C> <C>
Interest $1,809,121 $1,494,895
========== ==========
Federal, state and local
income taxes $ 735,284 $ 102,500
========== ==========
</TABLE>
Accounts payable at September 30, 1997 and December 31, 1996 includes a
total of $736,614 and $42,994, respectively, relating to the purchase
of fixed assets.
4. SUBSEQUENT EVENTS
In October and November of 1997, the Company issued 1,570,000 common
shares for $18.50 per share resulting in net proceeds to the Company after
estimated expenses of aproximately $26,949,000, all of which were used to retire
long-term debt outstanding.
5
<PAGE> 6
Accordingly, certain long-term debt outstanding at September 30, 1997, that was
due currently has been classified as noncurrent in accordance with Statement of
Financial Accounting Standards (SFAS) No. 6, "Classification of Short-Term
Obligations Expected To Be Refinanced."
Supplemental net income per share assuming the shares were issued at
the beginning of such periods and the proceeds used to retire long-term debt are
$0.38 and $0.32 for the three months ended September 30, 1997 and 1996,
respectively, and $0.70 and $0.52 for the nine months ended September 30, 1997
and 1996, respectively.
5. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 128, "Earnings per Share" which is effective for periods ending
after December 15, 1997. SFAS No. 128 establishes new standards for computing
and presenting earnings per share. Under SFAS No. 128 basic and diluted earnings
per share, as defined therein, for the three month and nine month periods ended
September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic $0.47 $0.37 $0.80 $0.55
===== ===== ===== =====
Diluted $0.44 $0.36 $0.75 $0.54
===== ===== ===== =====
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which will require adoption no later than the Company's fiscal quarter
ending March 31, 1998. This new statement defines comprehensive income as "all
changes in equity during a period, with the exception of stock issuances and
dividends." The new pronouncement establishes standards for the reporting and
display of comprehensive income and its components in the financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which will require adoption
no later than 1998. SFAS No. 131 requires companies to report financial and
descriptive information about its reportable operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Based on current operations, the Company
does not believe the Statement will be applicable.
6
<PAGE> 7
PART 1 - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information derived
from the Company's Consolidated Financial Statements, expressed as a percentage
of net sales. The discussion that follows the table should be read in
conjunction with the Consolidated Financial Statements of the Company.
PERCENTAGE OF NET SALES
-----------------------
<TABLE>
<CAPTION>
Three months Nine months
Ended Ended
Sept. 30, Sept. 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 72.3% 76.8% 72.2% 74.2%
----- ----- ----- -----
Gross Margin 27.7% 23.2% 27.8% 25.8%
Selling, General and
Administrative Expenses 16.1% 13.6% 17.9% 17.8%
----- ----- ----- -----
Income from Operations 11.6% 9.6% 9.9% 8.0%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net Sales
Net Sales increased $7,664,174, or 32.1%, to $31,561,742 for the quarter ended
September 30, 1997, versus $23,897,568 for the same period in 1996. The increase
was a result of increased shipments of rugged outdoor footwear, handsewn casual
footwear, and to a lesser degree occupational footwear. The Company's customer
base continues to become more diversified with additional new accounts being
opened. Average selling prices were approximately 3% higher in the quarter ended
September 30, 1997, versus the same period a year ago.
7
<PAGE> 8
Gross Margin
Gross margin increased $3,189,538, or 57.4%, to $8,744,573 for the quarter ended
September 30, 1997, versus $5,555,035 for the same period a year ago. As a
percentage of net sales, gross margin was 27.7% for the quarter ended September
30, 1997 versus 23.2% for the same period a year ago. The increase in gross
margin as a percentage of net sales is primarily the result of higher production
levels in all of the Company's manufacturing plants and increased sales of new
products with higher gross margins. The gross margin for the 1996 period was
adversely impacted by a one-time sale of discounted product to a large customer
at a substantially reduced margin.
Selling, General and Administrative Expenses
Selling, general and administrative (S,G&A) expenses increased $1,838,324, or
56.5%, to $5,094,178 for the quarter ended September 30, 1997, versus $3,255,854
for the same period a year ago. As a percentage of net sales, S,G&A expenses
were 16.1% for the quarter ended September 30, 1997 versus 13.6% for the same
period a year ago. The increase was primarily the result of increased sales
commissions, advertising, and professional expenses.
Interest Expense
Interest expense increased $210,535, or 31.0%, to $889,979 for the quarter ended
September 30, 1997, versus $679,444 for the same period a year ago. The increase
is a result of additional borrowings and higher rates on the Company's revolving
line of credit, which is used to finance working capital needs to support
increased sales.
Income Taxes
Income taxes increased $648,520 to $917,287 for the quarter ended September 30,
1997, versus $268,767 for the same period a year ago. The Company's effective
tax rate was 34.1% for the quarter ended September 30, 1997, versus 16.4% for
the same period in 1996. Historically, the Company's relatively low effective
tax rates resulted from favorable tax treatment afforded from income earned by
the Company's subsidiary in Puerto Rico and local tax abatements available to
such subsidiary. The Company began to provide for income taxes on earnings from
its subsidiary in the Dominican Republic during the fourth quarter of 1996. This
accounts, in part, for the higher effective tax rate for the quarter ended
September 30, 1997, versus the same period a year ago. The Company's earnings in
the Dominican Republic are subject to federal income tax, but are exempt from
state and local taxation. The increase in the effective rate from the prior year
was also due to a higher portion of the Company's income in 1996 being earned in
Puerto Rico.
8
<PAGE> 9
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1996.
Net Sales
Net sales increased $16,482,222, or 33.4%, to $65,830,000 for the nine months
ended September 30, 1997, versus $49,347,778 for the same period a year ago. The
increase was a result of increased shipments of rugged outdoor footwear,
handsewn casual footwear, and to a lesser extent occupational footwear. The
company's customer base continues to become more diversified with additional new
accounts being opened. Average selling prices were approximately 3% higher for
the nine months ended September 30, 1997, compared to the same period a year
ago.
Gross Margin
Gross margin increased $5,557,792, or 43.6%, to $18,302,721 for the nine months
ended September 30, 1997, versus $12,744,929 for the same period a year ago. As
a percentage of net sales, gross margin was 27.8% for the nine months ended
September 30, 1997, versus 25.8% for the same period a year ago. The increase in
gross margin as a percentage of net sales is primarily the result of higher
production levels in all of the Company's manufacturing plants and increased
sales of new products with higher gross margins. The gross margin for the 1996
period was adversely impacted by a one-time sale of discounted product to a
large customer, at a substantially reduced margin.
Selling, General and Administrative Expenses
S,G&A expenses increased $3,007,498, or 34.2%, to $11,812,322 for the nine
months ended September 30, 1997, versus $8,804,824 for the same period a year
ago. The increase was a result of increased sales commissions, professional
services and advertising expenses. As a percentage of net sales, S,G&A expenses
were 17.9% for the nine months ended September 30, 1997, versus 17.8% for the
same period a year ago.
Interest Expense
Interest expense increased $573,827, or 40.3%, to $1,996,277 for the nine months
ended September 30, 1997, versus $1,422,450 for the same period a year ago. The
increase is a result of additional borrowings and higher rates on the Company's
revolving line of credit, which is used to finance working capital needs to
support increased sales.
Income Taxes
Income tax expense increased $970,229 to $1,435,789 for the nine months ended
September 30, 1997, versus $465,560 for the same period a year ago. The
Company's effective tax rate was 32.5% for the nine months ended September 30,
1997, versus 18.7% for the same period in 1996. Historically, the Company's
relatively low effective tax rates resulted from favorable tax treatment
afforded from income earned by the Company's subsidiary in Puerto Rico and local
tax abatements available to such subsidiary. The Company began to provide for
income taxes on earnings from its subsidiary in the Dominican Republic during
the fourth quarter of 1996. This accounts, in part, for
9
<PAGE> 10
the higher effective tax rate for the nine months ended September 30, 1997
versus the same period a year ago.
The increase in the effective tax rate from the prior year was also due to a
higher portion of the Company's income in 1996 being earned in Puerto Rico.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily funded its working capital requirements and capital
expenditures through borrowings under its line of credit and other indebtedness.
Working capital is used primarily to support changes in accounts receivable and
inventory as a result of the Company's seasonal business cycle and business
expansion. These requirements are generally lowest in January through March of
each year and highest in April through September of each year. In addition, the
Company requires financing for machinery, equipment, and facility additions, as
well as the introduction of new styles of footwear. At September 30, 1997, the
Company had working capital of $60,849,270, versus $30,608,581 at December 31,
1996.
The Company's line of credit provides for advances based on a percentage of
eligible accounts receivable and inventory with maximum borrowings. The maximum
dollar amount available under the line of credit was $45,000,000 until November
1, 1997, when it decreased to $42,000,000 until January 1, 1998, when it
decreases to $25,000,000. The maximum available under the line of credit
increases to $42,000,000 in April 1998. The line of credit changes to match the
Company's seasonal requirements for working capital. As of September 30, 1997,
the Company had borrowed $42,546,828 against its available line of credit of
$45,000,000, (based upon the level of eligible accounts receivable and
inventory). Amounts outstanding under the line of credit bear interest at the
lender's prime rate. The line of credit terminates on April 30, 1999.
In October and November of 1997, the Company issued 1,570,000 common shares for
$18.50 per share resulting in net proceeds to the Company after estimated
expenses of aproximately $26,949,000, all of which were used to retire long-term
debt outstanding.
Cash paid for capital expenditures during the nine months ended September 30,
1997 was $2,631,349. The Company anticipates capital expenditures for the next
year will be primarily for lasts, dies, and patterns for new styles of footwear,
retail in-store displays, and replacement machinery and equipment. The Company
has begun an approximate $750,000 expansion of its manufacturing facility in the
Dominican Republic and, after the expansion is complete, believes it will have
sufficient manufacturing capacity to handle additional production needs for the
next year. The Company anticipates capital expenditures for the year ended
December 31, 1997 will be approximately $3,700,000. The Company believes it will
be able to finance such additions and meet operating expenditure requirements
through December 31, 1998, through additional long-term borrowing or through
operating cash flows, as appropriate.
10
<PAGE> 11
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which are intended to be
covered by the safe harbors created thereby. Those statements include, but may
not be limited to, all statements regarding the intent, belief and expectations
of the Company and its management, such as statements concerning the Company's
customer base (paragraph 2), capital expenditures (paragraph 15), manufacturing
capacity (paragraph 15), and financing (paragraph 15). Investors are cautioned
that all forward-looking statements involve risks and uncertainties including,
without limitation, the factors set forth under the caption "Risk Factors" in
the Company's Registration Statement on Form S-2 (file no. 333-35391), the
caption " and other factors detailed from time to time in the Company's filings
with the Securities and Exchange Commission. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate. Therefore, there can be
no assurance that the forward-looking statements included in this quarterly
report will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
PART 1 - FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
11
<PAGE> 12
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The exhibits to this report begin at page ___.
(b) Reports on Form 8-K.
None.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKY SHOES & BOOTS, INC.
Date: 11/12/97 By: /s/ David Fraedrich
---------- --------------------------------------------
David Fraedrich, Executive Vice President,
Treasurer and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
<PAGE> 14
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT PAGE
DESCRIPTION NUMBER
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000895456
<NAME> ROCKY SHOES & BOOTS
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 159,449
<SECURITIES> 0
<RECEIVABLES> 40,103,138
<ALLOWANCES> 1,068,832
<INVENTORY> 38,441,793
<CURRENT-ASSETS> 80,520,696
<PP&E> 28,869,329
<DEPRECIATION> 12,175,355
<TOTAL-ASSETS> 99,165,437
<CURRENT-LIABILITIES> 19,671,426
<BONDS> 0
0
5,400
<COMMON> 15,330,841
<OTHER-SE> 14,804,830
<TOTAL-LIABILITY-AND-EQUITY> 99,165,437
<SALES> 65,830,000
<TOTAL-REVENUES> 65,891,299
<CGS> 47,527,279
<TOTAL-COSTS> 11,812,322
<OTHER-EXPENSES> 78,645
<LOSS-PROVISION> 133,678
<INTEREST-EXPENSE> 1,996,277
<INCOME-PRETAX> 4,415,477
<INCOME-TAX> 1,435,789
<INCOME-CONTINUING> 2,979,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,979,688
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
