<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:
MARCH 31, 1997 0-21026
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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
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(Registrant's telephone number, including area code)
(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
--- ---
3,707,528 common shares, no par value, outstanding at May 1, 1997.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,1997 Dec. 31, 1996
(Unaudited)
------------- -------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 297,725 $ 349,637
Trade Receivables 9,266,864 12,409,920
Other Receivables 900,479 678,293
Inventories 34,971,961 25,389,902
Other Current Assets 1,774,054 1,632,394
----------- -----------
Total Current Assets 47,211,083 40,460,146
Fixed Assets - Net 15,539,912 15,508,597
Other Assets 2,126,984 2,121,428
----------- -----------
Total Assets $64,877,979 $58,090,171
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $10,583,111 $ 3,036,705
Current Maturities - Long Term Debt 1,603,644 3,609,645
Accrued Liabilities 1,853,557 3,205,215
----------- -----------
Total Current Liabilities 14,040,312 9,851,565
Long-Term Debt-less current maturities 21,492,760 19,520,029
Deferred Liabilities 2,419,061 2,343,488
----------- -----------
Total Liabilities 37,952,133 31,715,082
Shareholders' Equity:
Preferred Stock, Series A, no par value;
100,000 shares issued
and 92,857 shares outstanding 6,000 6,000
Common Stock, no par value;
10,000,000 shares authorized;
issued 1997-3,822,605 shares; 1996-
3,782,500 shares and outstanding
1997-3,705,653 shares; 1996-3,665,548
shares 14,905,725 14,543,947
Common Stock in Treasury, at cost (1,226,059) (1,226,059)
Retained Earnings 13,240,180 13,051,201
----------- -----------
Total Shareholders' Equity 26,925,846 26,375,089
----------- -----------
Total Liabilities and Shareholders' Equity $64,877,979 $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
March 31,
1997 1996
---- ----
<S> <C> <C>
Net Sales $12,262,073 $10,260,665
Cost of Goods Sold 8,985,198 7,434,072
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Gross Margin 3,276,875 2,826,593
Selling, General and Administrative
Expense 2,576,538 2,616,115
----------- -----------
Income From Operations 700,337 210,478
Other Income And (Expenses):
Interest Expense (465,267) (345,517)
Other - net 14,431 (115,204)
----------- -----------
Total other - net (450,836) (460,721)
Income (Loss) Before Income Taxes 249,501 (250,243)
Income Taxes (Benefit) 60,522 (50,048)
----------- -----------
Net Income (Loss) $ 188,979 ($200,195)
=========== ===========
Net Income (Loss) Per Share $ 0.05 ($0.05)
=========== ===========
Weighted Average Number of Common Shares
and Equivalents Outstanding 3,908,378 3,665,548
=========== ===========
</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>
Three Months Ended
March 31,
1997 1996
----
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income (Loss) $ 188,979 $ (200,195)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By
Operating Activities:
Depreciation and Amortization 684,260 575,057
Loss on Sale of Fixed Assets 89,414
Deferred Taxes and Other 75,573 (801,033)
Change in Assets and Liabilities:
Receivables 2,920,870 2,712,689
Inventories (9,582,059) (4,983,033)
Other current assets (141,660)
Other Assets (5,556) (114,034)
Accounts Payable 7,362,659 5,175,785
Accrued and Other Liabilities (1,351,658) (123,791)
----------- -----------
Net Cash Provided By
Operating Activities 151,408 2,330,859
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CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Fixed Assets (531,828) (683,326)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Long Term Debt 5,960,000 2,033,395
Payments on Long Term Debt (5,993,270) (5,199,787)
Proceeds from exercise of stock options
including related income tax effect 361,778
----------- -----------
Net Cash Provided By (Used In)
Financing Activities 328,508 (3,176,392)
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DECREASE IN CASH AND CASH (51,912) (1,528,859)
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 349,637 1,853,974
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 297,725 $ 325,115
=========== ===========
</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>
March 31, 1997 December 31, 1996
<S> <C> <C>
Raw materials $ 7,435,970 $ 4,482,381
Work-in Process 5,543,169 5,192,326
Manufactured finished good 19,758,578 13,891,772
Factory outlet finished goods 2,234,244 1,823,423
----------- -----------
Total $34,971,961 $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>
Three Months
Ended
March 31,
1997 1996
<S> <C> <C>
Interest $478,266 $379,291
======== ========
Federal, state and local
income taxes $973,300 $ 76,500
======== ========
</TABLE>
Accounts payable at March 31, 1997 and December 31, 1996 include a total of
$226,741 and $42,994, respectively relating to the purchase of fixed assets.
5
<PAGE> 6
4. In February 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (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 dilutive earnings (loss) per share, as
defined therein, for the quarters ended March 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
1997 1996
<S> <C> <C>
Basic $0.05 $(0.05)
===== ======
Diluted $0.05 $(0.05)
===== ======
</TABLE>
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.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
Three months
Ended
March 31,
1997 1996
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Goods Sold 73.3% 72.4%
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Gross Margin 26.7% 27.6%
------ ------
Selling, General and
Administrative Expenses 21.0% 25.5%
------ ------
Income from Operations 5.7% 2.1%
====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31,1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net Sales
Net sales increased $2,001,408 or 19.5% to $12,262,073 for the quarter ended
March 31, 1997, from $10,260,665 for the same period a year ago. The increase
in net sales was primarily a result of increased shipments of rugged outdoor
footwear and handsewn casual footwear. The Company's customer base is becoming
more diversified with additional smaller customers and positive results are
being achieved regarding increased market penetration. Sales prices were
approximately 3% higher in 1997 than 1996.
Gross Margin
Gross margin increased $450,282, or 15.9%, to $3,276,875, for the period ended
March 31, 1997, versus $2,826,593 for the same period a year ago. As a
percentage of net sales, gross margin was 26.7% for the quarter ended March 31,
1997 compared to 27.6% in 1996. All three
7
<PAGE> 8
of the Company's manufacturing plants benefited from increased production
levels during the first three months of 1997 and 1996, respectively. However,
this increase was more than offset by increased sales to customers who receive
volume discounts in the first quarter of 1997.
Selling, General and Administrative Expenses
Selling, general and administrative (S,G&A) expense declined in total dollars
and as a percentage of net sales for the three months ended March 31, 1997
versus the prior year. S,G&A decreased $39,577, or 1.5 percent, to $2,576,538,
or 21.0% of net sales for the quarter ended March 31, 1997, versus $2,616,115,
or 25.5% of net sales, for the same period a year ago. The decrease was
primarily attributable to lower advertising expenses, which more than offset
increased sales commission expense.
The Company plans to increase the general level of advertising expense during
the remainder of 1997 to support new product introductions and increased market
penetration of its ROCKY(R) branded products. While S,G&A expense may increase
in absolute dollars during the remainder of this year, the Company anticipates
that S,G&A expense is not expected to increase as a percentage of net sales
compared with last year.
Interest Expense
Interest expense rose $119,750 or 34.6 percent, to $465,267 for the three
months ended March 31, 1997, versus $345,517 for the same period last year.
Interest expense increased due to additional borrowings and higher rates on the
Company's revolving line of credit, which is used to finance working capital
needs and to support increased sales.
Income Taxes
Income Taxes increased $110,570 to $60,522 for the quarter ended March 31,
1997, versus a tax benefit of ($50,048) the previous year. The Company's
relatively low effective tax rate of 24.2% resulted from favorable income tax
treatment afforded for income earned by the Company's subsidiary in Puerto Rico
and local tax abatements available to the Company's subsidiary in Puerto Rico.
In the fourth quarter of 1996 the Company began to provide for income taxes on
profits repatriated from its foreign subsidiary in the Dominican Republic. In
future periods, the Company will pay a higher effective tax rate since the
repatriation of earnings from its subsidiary in the Dominican Republic is
subject to Federal income tax, but is exempt from state and local taxation.
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 to support additions to machinery,
equipment, and facilities, as well as the introduction of new styles of
footwear.
8
<PAGE> 9
At March 31, 1997, the Company had working capital of $33,170,771 versus
$30,608,581, at December 31, 1996. Subsequent to March 31, 1997 the Company
negotiated a new revolving line of credit with its bank which provides for
advances based on a percentage of eligible accounts receivable and inventory
with maximum borrowings of $25,000,000, from January 1, 1997, through May 31,
1997. On June 1, 1997, the maximum amount increases to $42,000,000 until
January 1, 1998, when the line again decreases to $25,000,000. The changes in
the line of credit match the Company's seasonal requirements for working
capital. As of March 31, 1997, the Company had borrowed $19,925,000 against its
available line of credit of $23,992,624 (based upon the level of eligible
accounts receivable and inventory).
Cash paid for capital expenditures during the quarter ended March 31, 1997 was
$531,828 which expenditures were funded through operating cash flows and
through long-term debt financing. The Company anticipates capital expenditures
of less than $3,000,000 for 1997, the majority of which will be for machinery
and equipment to build manufacturing capacity to meet increased demand for the
Company's products. The Company believes it has sufficient manufacturing and
sourcing capacity to handle increased production needs for 1997. Additional
capital expenditures for 1997 will include lasts, dies, and patterns for new
styles of footwear, and retail in-store displays. The Company believes it will
be able to finance such additions through additional long-term borrowings or
through operating cash flows as appropriate.
Inflation
The Company cannot determine the precise effects of inflation; however,
inflation continues to have an influence on the cost of raw materials, salaries
and employee benefits. The Company attempts to minimize or offset the effects
of inflation through increased selling prices, productivity improvements, and
reduction of costs.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Except for the historical information in this report , this report includes
forward-looking statements that involve risks and uncertainties, including, but
not limited to, economic and competitive factors affecting the Company's
operations, markets, products, prices and other factors discussed from time to
time in the Company's Securities and Exchange Commission filings, including the
Company's Form 10-K for the year ended December 31,1996. Actual results may
differ materially from management expectations.
9
<PAGE> 10
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.
10
<PAGE> 11
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: 5/13/97 /s/ MIKE BROOKS
-------------------------------------------------
Mike Brooks, President and Chief Executive Officer
(Principal Executive Officer)
Date: 5/13/97 /s/ DAVID FRAEDRICH
-----------------------------------------
David Fraedrich, Executive Vice President,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE> 12
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit Page
Number Description Number
<S> <C> <C>
27 Financial Data Schedule --
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S
FORM 10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY IN REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000895456
<NAME> ROCKY SHOES & BOOTS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 297,725
<SECURITIES> 0
<RECEIVABLES> 10,903,201
<ALLOWANCES> 535,858
<INVENTORY> 34,971,961
<CURRENT-ASSETS> 47,211,083
<PP&E> 26,259,935
<DEPRECIATION> 10,720,023
<TOTAL-ASSETS> 64,877,979
<CURRENT-LIABILITIES> 14,040,312
<BONDS> 21,492,760
0
6,000
<COMMON> 14,905,725
<OTHER-SE> 12,014,121
<TOTAL-LIABILITY-AND-EQUITY> 64,877,979
<SALES> 12,262,073
<TOTAL-REVENUES> 12,262,073
<CGS> 8,985,198
<TOTAL-COSTS> 8,985,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,528
<INTEREST-EXPENSE> 465,267
<INCOME-PRETAX> 249,501
<INCOME-TAX> 60,522
<INCOME-CONTINUING> 188,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,979
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
