<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, 1998 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)
(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
----- -----
5,451,915 common shares, no par value, outstanding at May 1, 1998.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 1,203,205 $ 8,556,883
Trade Receivables 12,271,952 17,789,329
Other Receivables 574,598 475,593
Inventories 41,601,557 32,894,236
Deferred Income Taxes 1,547,755 1,474,799
Other Current Assets 1,474,799 850,018
----------- -----------
Total Current Assets 58,673,866 62,040,858
Fixed Assets - Net 18,123,354 17,608,454
Other Assets 1,294,732 1,305,526
----------- -----------
Total Assets $78,091,952 $80,954,838
=========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 5,344,873 $ 2,414,936
Current Maturities - Long Term Debt 1,127,096 1,173,840
Accrued Liabilities 1,848,362 2,464,511
----------- -----------
Total Current Liabilities 8,320,331 6,053,287
Long-Term Debt-less current maturities 7,893,042 13,406,962
Deferred Liabilities 2,375,955 2,298,059
----------- -----------
Total Liabilities 18,589,328 21,758,308
Shareholders' Equity:
Preferred Stock, Series A, no par value;
1998-no shares issued and outstanding;
1997-100,000 shares issued and
82,857 shares outstanding 5,400
Common Stock, no par value;
10,000,000 shares authorized; issued
1998-5,444,025 shares; 1997-5,476,620
shares and outstanding 1998-5,444,025
shares; 1997-5,359,668 shares 41,398,406 42,604,658
Common Stock in Treasury, at cost (1,226,059)
Retained Earnings 18,104,218 17,812,531
------------ ------------
Total Shareholders' Equity 59,502,624 59,196,530
------------ ------------
Total Liabilities and shareholders' Equity $78,091,952 $80,954,838
============ ============
</TABLE>
<PAGE> 3
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net Sales $12,956,930 $12,262,073
Cost of Goods Sold 9,375,903 8,985,198
----------- -----------
Gross Margin 3,581,027 3,276,875
Selling, General and Administrative
Expenses 3,071,607 2,576,538
----------- -----------
Income From Operations 509,420 700,337
Other Income And (Expenses):
Interest Expense (192,492) (465,267)
Other - net 78,679 14,431
----------- -----------
Total other - net (113,813) (450,836)
----------- -----------
Income Before Income Taxes 395,607 249,501
Income Taxes 103,920 60,522
----------- -----------
Net Income $ 291,687 $ 188,979
=========== ===========
Net Income Per Share:
Basic $ 0.05 $ 0.05
----------- -----------
Diluted $ 0.05 $ 0.05
----------- -----------
Weighted Average Number of Shares
Outstanding:
Basic 5,413,809 3,687,034
=========== ===========
Diluted 5,611,078 3,896,273
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE> 4
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income $ 291,687 $ 188,979
Adjustments to Reconcile Net Income
to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 994,475 684,260
Deferred Taxes and Other 77,896 75,573
Changes in Assets and Liabilities:
Receivables 5,418,372 2,920,870
Inventories (8,707,321) (9,582,059)
Other current assets (697,737) (141,660)
Other Assets 6,640 (5,556)
Accounts Payable 2,570,228 7,362,659
Accrued and Other Liabilities (616,149) (1,351,658)
------------ -----------
Net Cash Provided By (Used In)
Operating Activities (661,909) 151,408
------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Fixed Assets (1,145,510) (531,828)
------------ -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Long Term Debt 7,200,000 5,960,000
Payments on Long Term Debt (12,760,665) (5,993,270)
Proceeds from exercise of stock options
including related income tax benefit 14,406 361,778
------------ -----------
Net Cash Provided By (Used In) (5,546,259) 328,508
------------ -----------
Financing Activities
DECREASE IN CASH AND CASH (7,353,678) (51,912)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, 8,556,883 349,637
BEGINNING OF PERIOD ------------ -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,203,205 $ 297,725
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<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, 1998 December 31, 1997
<S> <C> <C>
Raw materials $10,045,345 $ 6,210,161
Work-in Process 5,342,424 3,348,275
Manufactured finished goods 23,662,114 21,140,951
Factory outlet finished goods 2,551,674 2,194,849
Total $41,601,557 $32,894,236
=========== ===========
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was
as follows:
Three Months Ended
March 31,
1998 1997
---- ----
Interest $224,923 $478,266
======== ========
Federal, state and local
income taxes $238,570 $973,300
======== ========
Accounts payable at March 31, 1998 and December 31, 1997 include a total of
$492,726 and $133,017, respectively relating to the purchase of fixed assets.
4
<PAGE> 6
4. PER SHARE INFORMATION
A reconciliation of the shares used in the basic and diluted income per share
computation for the quarter ended March 31, 1998 and 1997 is as follows:
Three Months Ended March 31,
1998 1997
---- ----
Basic-Weighted
average shares outstanding 5,413,809 3,687,034
Dilutive securities:
Preferred Stock 29,460 92,857
Stock options 167,809 116,382
---------- ----------
Diluted-weighted
average shares outstanding 5,611,078 3,896,273
========== ==========
5. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the financial Accounting Standard Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" which
requires adoption in 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. The Company has not yet determined what,
if any, impact the adoption of this Statement will have on its financial
statements
5
<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
Three months
Ended
March 31,
1998 1997
---- ----
Net Sales 100.0% 100.0%
Cost of Goods Sold 72.4% 73.3%
------ ------
Gross Margin 27.6% 26.7%
Selling, General and
Administrative Expenses 23.7% 21.0%
------ ------
Income from Operations 3.9% 5.7%
====== ======
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
Net Sales
Net sales for the three months ended March 31, 1998 increased $694,857, or 5.7%,
to $12,956,930, versus $12,262,073 for the same period a year ago. The increased
sales were a result of increased shipments of rugged outdoor and occupational
footwear. Sales prices were approximately 2% higher than a year ago.
6
<PAGE> 8
Gross Margin
Gross margin increased $304,152, or 9.3%, to $3,581,027, for the three months
ended March 31, 1998, versus $3,276,875 for the same period a year ago. As a
percentage of net sales, gross margin was 27.6%, versus 26.7% for the same
period a year ago. The increase in gross margin was a result of increased
shipments of products with higher margin.
Selling, General and Administrative Expenses
Selling, general and administrative expense ("SG&A") increased $495,069, or
19.2%, to $3,071,607 for the three months ended March 31, 1998, versus
$2,576,538 for the same period a year ago. As a percentage of net sales SG&A was
23.7%, versus 21.0% for the same period a year ago. The increase was primarily a
result of increased salaries and fringe benefit costs.
Interest Expense
Interest expense decreased $272,775 to $192,492 for the three months ended March
31, 1998, versus $465,267 for the same period a year ago. Interest expense
decreased due to lower outstanding balances on the Company's bank line of
credit. The Company successfully completed a follow on common stock offering in
October 1997, the net proceeds of which were $26.9 million, which was used to
reduce outstanding debt.
Income Taxes
Income taxes increased $43,398 to $103,920 for the quarter ended March 31, 1998,
versus $60,522 for the previous year. The Company's relatively low effective tax
rate of 26.3% 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.
Liquidity and Capital Resources
The Company has principally funded its working capital requirements and capital
expenditures through borrowings under its line of credit and other indebtedness,
and in fiscal 1997, through issuance of additional shares of common stock.
Working capital is primarily used 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 the months of January
through March of each year and highest during the months of May through October
of each year. In addition, the Company requires financing to support additions
to machinery, equipment and facilities as well as the introduction of footwear
styles.
At March 31, 1998, the Company had working capital of $50,353,535 versus
$55,987,571, at December 31, 1997. During the fourth quarter of 1997, the
Company received $26.9 million of net proceeds from a follow-on common stock
offering and the exercise of the underwriters' over-allotment option in
connection therewith. The proceeds were used to reduce outstanding debt and for
working capital.
7
<PAGE> 9
The company has a revolving line of credit which provides for advances based on
a percentage of eligible accounts receivable and inventory with maximum
borrowing limits of $25,000,000 until May 16, 1998, when the line increases to
$42,000,000. The line of credit reduces again to $25,000,000 on January 1, 1999.
The line of credit expires April 30, 1999. Changes in the line of credit during
the year match the Company's seasonal requirements for working capital. As of
March 31, 1998, the Company had borrowed $5,340,000 against its available line
of credit of $29,616,361.
Capital expenditures for 1998 are expected to be approximately $4,500,000 for
machinery and equipment to support increased production and for lasts, dies and
patterns for new footwear styles. The Company believes it will be able to
finance such additions and meet operating expenditure requirements in 1998
through available cash on hand, additional long-term borrowing and operating
cash flows.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, 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. Investors are cautioned that such statements involve risks and
uncertainties, including, but not limited to, the changes in consumer demand,
seasonality, impact of weather, competition, reliance on suppliers, changing
retailing trends, reliance on foreign manufacturing, changes in tax rates,
limited protection of proprietary technology, and other risks, uncertainties and
factors described in the Company's most recent Annual Report on Form 10-K and
other filings from time from time to time with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or revise
any forward-looking statements.
8
<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
27. Financial Data Schedule
(b) Reports on Form 8-K.
None.
9
<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.
Date: May 14, 1998 /s/ David Fraedrich
---------------------------------------------
David Fraedrich, Executive Vice President,
Treasurer and Chief Financial Officer*
(Principal Financial and Accounting Officer)
* In his capacity as Executive Vice President, Treasurer, and Chief Financial
Officer, Mr. Fraedrich is duely authorized to sign this report on behalf of
the Registrant.
10
<PAGE> 12
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit Exhibit
Number Description
27 Financial Data Schedule
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000895456
<NAME> ROCKY SHOES & BOOTS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,203,205
<SECURITIES> 0
<RECEIVABLES> 13,841,944
<ALLOWANCES> 995,394
<INVENTORY> 41,601,557
<CURRENT-ASSETS> 58,673,866
<PP&E> 32,062,988
<DEPRECIATION> 13,939,634
<TOTAL-ASSETS> 78,091,952
<CURRENT-LIABILITIES> 8,320,331
<BONDS> 0
0
0
<COMMON> 41,398,406
<OTHER-SE> 18,104,218
<TOTAL-LIABILITY-AND-EQUITY> 78,091,952
<SALES> 12,956,930
<TOTAL-REVENUES> 12,956,930
<CGS> 9,375,903
<TOTAL-COSTS> 12,447,510
<OTHER-EXPENSES> 7,511
<LOSS-PROVISION> 36,744
<INTEREST-EXPENSE> 192,492
<INCOME-PRETAX> 395,607
<INCOME-TAX> 103,920
<INCOME-CONTINUING> 291,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 291,687
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
