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, 2000 0-21026
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ROCKY SHOES & BOOTS, INC.
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(Exact name of registrant as specified in its charter)
OHIO 31-1364046
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(State of Incorporation) (IRS Employer Identification Number)
39 E. CANAL STREET
NELSONVILLE, OHIO 45764
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(Address of principal executive offices)
(740) 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____
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4,489,215 common shares, no par value, outstanding at May 1, 2000
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999 5
Notes to Interim Unaudited Condensed Consolidated Financial
Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8 - 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Item 7. Changes and Disagreements with Accountants and Financial
Disclosure 12
SIGNATURES 13
EXHIBIT INDEX 14
2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000 Dec. 31, 1999
Unaudited
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,859,881 $ 2,330,324
Trade receivables - net 12,989,762 18,712,588
Other receivables 4,193,023 5,227,394
Inventories 39,715,162 32,573,067
Deferred income taxes 1,017,331 1,017,331
Prepaid expenses 2,216,028 1,222,914
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Total current assets 63,991,187 61,083,618
FIXED ASSETS - net 26,109,375 26,132,222
OTHER ASSETS 2,117,053 2,117,514
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TOTAL ASSETS $92,217,615 $89,333,354
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LIABILITIES AND
SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts Payable $ 5,465,413 $ 2,128,112
Current Maturities - Long Term Debt 3,276,351 8,599,897
Accrued Taxes - Other 632,910 412,721
Accrued Salaries and Wages 707,884 569,203
Accrued Other 534,709 905,783
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Total Current Liabilities 10,617,267 12,615,716
LONG TERM DEBT - Less current maturities 31,841,303 25,176,918
DEFERRED LIABILITIES 1,145,483 1,311,590
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Total liabilities 43,604,053 39,104,224
SHAREHOLDERS' EQUITY:
Common Stock, no par value;
10,000,000 shares authorized;
issued and outstanding 2000 - 4,489,215 shares;
1999 - 4,489,215 shares 35,284,159 35,284,159
Retained Earnings 13,329,403 14,944,971
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Total Shareholders' Equity 48,613,562 50,229,130
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $92,217,615 $89,333,354
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See notes to the interim unaudited condensed consolidated financial statements.
3
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
---- ----
NET SALES $ 14,842,111 $ 13,622,730
COST OF GOODS SOLD 11,598,351 10,444,060
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GROSS MARGIN 3,243,760 3,178,670
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,986,910 3,344,511
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LOSS FROM OPERATIONS (1,743,150) (165,841)
OTHER INCOME AND (EXPENSES):
Interest expense (658,060) (506,805)
Other - net 108,503 132,933
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Total other - net (549,557) (373,872)
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LOSS BEFORE INCOME TAXES (2,292,707) (539,713)
INCOME TAX BENEFIT (677,139) (217,740)
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NET LOSS $ (1,615,568) $ (321,973)
============= ============
NET LOSS PER SHARE
Basic ($0.36) ($0.06)
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Diluted ($0.36) ($0.06)
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WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic 4,489,215 4,999,544
========== =========
Diluted 4,489,215 4,999,544
========== =========
See notes to the interim unaudited condensed consolidated financial statements.
4
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,615,568) $ (321,973)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,122,019 858,342
Deferred compensation and pension - net (166,108) 18,297
Gain on sale of fixed assets (9,468)
Change in assets and liabilities:
Receivables 6,757,197 1,947,714
Inventories (7,142,095) (4,122,309)
Other current assets (993,114) (555,908)
Prepaid expenses (7,288) 1,588
Accounts payable 3,433,758 3,883,660
Accrued and other liabilities (12,204) (42,515)
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Net cash provided by operating activities 1,367,129 1,666,896
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,344,343) (3,341,935)
Proceeds from sale of fixed assets 165,932
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Net cash used in investing activities (1,178,411) (3,341,935)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long Term Debt 19,675,000
Payments on Long Term Debt (18,334,161) (2,253,918)
Purchase Treasury Stock (1,724,481)
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Net cash provided by (used in) financing 1,340,839 (3,978,399)
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activities
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,529,557 (5,653,438)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,330,324 7,232,876
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,859,881 $ 1,579,438
============ ============
See notes to the interim unaudited condensed consolidated financial statements.
5
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL REPORTING
In the opinion of management, the accompanying interim unaudited
condensed consolidated financial statements reflect all adjustments
which are necessary for a fair presentation of the financial results.
All such adjustments reflected in the unaudited interim consolidated
financial statements are considered to be of a normal and recurring
nature. The results of the operations for the three month periods ended
March 31, 2000 and 1999 are not necessarily indicative of the results
to be expected for the whole year. Accordingly, these financial
statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report to the
Shareholders on Form 10-K for year ended December 31, 1999.
2. INVENTORIES
Inventories are comprised of the following:
March 31, 2000 December 31, 1999
Raw materials $7,124,711 $4,133,520
Work-in Process 4,070,441 2,128,738
Manufactured finished good 25,964,906 24,110,469
Factory outlet finished goods 2,630,104 2,645,340
Reserve for obsolescence or lower of cost
or market (75,000) (445,000)
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Total $39,715,162 $32,573,067
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3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was as follows:
Three Months Ended
March 31,
2000 1999
---- ----
Interest $694,853 $520,283
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Federal, state and local
income taxes $45,100 $235,000
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Accounts payable at March 31, 2000 and December 31, 1999 include a total of
$93,202 and $189,659, respectively, relating to the purchase of fixed assets.
6
4. PER SHARE INFORMATION
Basic earnings per share (EPS) is computed by dividing net income
available to common shareholders by the basic weighted average number
of common shares outstanding during each period. The diluted earnings
per share computation includes common share equivalents, when dilutive.
There are no adjustments to net income necessary in the calculation of
basic and diluted earnings per share.
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 Interim Unaudited Condensed Consolidated Financial
Statements, expressed as a percentage of net sales. The discussion that follows
the table should be read in conjunction with the Interim Unaudited Condensed
Consolidated Financial Statements of the Company.
PERCENTAGE OF NET SALES
Three Months Ended
March 31,
2000 1999
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Net Sales 100.0% 100.0%
Cost of Goods Sold 78.1% 76.7%
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Gross Margin 21.9% 23.3%
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Selling, General and
Administrative Expenses 33.6% 24.5%
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Income from Operations (11.7%) (1.2%)
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999
Net Sales
Net sales for three months ended March 31, 2000 increased $1,219,381, or 9.0%,
to $14,842,111 versus $13,622,730 for the same period a year ago. The increase
in net sales was primarily due to increased sales of work/occupational footwear.
In addition, prices were approximately 2% higher than during the same period of
the previous year.
Gross Margin
Gross margin increased $65,090, or 2.0%, to $3,243,760 for the three months
ended March 31, 2000 versus $3,178,670 for the same period a year ago. As a
percentage of net sales, gross margin was 21.9% versus 23.3% for the same period
a year ago. The decrease in gross margin, as a percentage of net sales, was due
to the movement of part of the Company's production from the Nelsonville, Ohio
facility to its plant in Puerto Rico. In addition, the Company produced less
footwear in the first quarter 2000 than during the comparable period last year
due to the implementation of production changes in its factories and to maintain
strong management of inventory.
8
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased $1,642,399, or
49.1%, to $4,986,910 for the three months ended March 31, 2000, versus
$3,344,511 for the same period a year ago. As a percentage of net sales, SG&A
was 33.6%, versus 24.5% for the same period a year ago. The increase was
primarily the result of increased sales salaries and related expenses for sales
persons added following first quarter 1999, tradeshow expenses, and costs
associated with developing the Company's key footwear categories. There were
also additional depreciation expenses for the finished goods distribution
center, which was completed in the fourth quarter of 1999. The Company's SG&A
expenses as a percentage of net sales are expected to decrease throughout the
remainder of 2000.
The increased selling expenses for first quarter of 2000 were partially
responsible for generating a record backlog of orders. The Company's order
backlog at March 31, 2000 was $35.0 million versus $23.2 million on the same
date last year. Order backlogs are subject to timing differences, cancellations,
changes, and are not necessarily reflective of future sales or sales trends.
Interest Expense
Interest expense increased $151,255, or 29.8% to $658,060 for the three months
ended March 31, 2000, versus $506,805 for the same period in 1999. The increase
is a result of rising interest rates and the completion of mortgage financing
for the Company's new distribution center, warehouse, and corporate office
building.
Income Taxes
Income tax benefit for the three months ended March 31, 2000 increased to
$677,139 compared to an income tax benefit of $217,740 for the same period a
year ago. The Company's effective tax benefit rate of 29.5% for the three months
ended March 31, 2000 reflects favorable tax treatment in Puerto Rico and the
Dominican Republic. The income tax benefit for first quarter 2000 and first
quarter 1999 is primarily generated from the Company's domestic operations.
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.
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 new styles
of footwear. At March 31, 2000, the Company had working capital of $53,373,920
versus $48,467,902, at December 31, 1999.
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 is $42,000,000. As of March 31,
2000, the Company had borrowed $27,200,000 against its available line of credit
of $29,100,000.
During the quarter, the Company completed mortgage financing with GE Capital for
three of its facilities totaling $6,300,000, with monthly payments of $63,100 to
2014. The proceeds were
9
used to reduce borrowings under the revolving line of credit facility.
The Company's cash flow from operations decreased to $1,367,000 in first quarter
2000 from $1,667,000 for the same period in the prior year. The primary cause of
the cash generated from operations for the first quarters of 2000 and 1999 was
due to a reduction in accounts receivable and an increase in accounts payable
which was partially offset by increased inventory. All of the responsible
balance sheet fluctuations are normal and reflect the seasonal nature of the
Company's business.
The principal use of cash flows in investing activities for the first quarters
of both 2000 and 1999 has been for investment in property, plant, and equipment.
In the first quarter of 2000, property, plant, and equipment expenditures were
$1,344,000 or $1,998,000 below expenditures for the same period in 1999. The
reduction resulted from the completion of the Company's new distribution center
effective as of the end of 1999.
The Company's cash flows from financing activities reflect the net increase or
decrease in borrowings under its revolving credit facility and its new long-term
mortgage facility to finance its working capital requirements and other
operating capital expenditures. In addition, in the first quarter of 1999, the
Company acquired treasury stock in the amount of $1,724,481.
In March 2000 the Company obtained a waiver from the bank with respect to
noncompliance concerning certain covenants of its credit facility. The Company
and the bank have had discussions with respect to the possible modification and
adjustment of certain terms of the agreement. The Company and the bank expect
these discussions to continue in the near future. Based on the Company's
projected results of operations for 2000 and the possible modifications of
certain covenants, management believes it is probable that the Company will be
in compliance with the covenants in 2000. However, if the Company's performance
falls below the projected results of operations for 2000, the Company's
liquidity and ability to obtain further financing to fund future operating and
capital requirements could be negatively impacted.
Capital expenditures for 2000 are expected to be approximately $2,000,000 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 2000
through available cash on hand, additional long-term borrowings and operating
cash flows.
Inflation
The Company cannot determine the precise effects of inflation; however,
inflation continues to have an influence on the cost of materials, salaries, and
employee benefits. The Company attempts to 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.
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, changes in consumer demand,
10
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 to time with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since December 31, 1999.
11
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.
Item 7. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
12
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: May 15, 2000 /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 duly authorized to sign this report
on behalf of the Registrant.
13
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit Exhibit
Number Description
27 Financial Data Schedule
14