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, 1996 0-21026
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)
(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
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3,665,548 common shares, no par value, outstanding at February 3, 1996.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,1996 Dec. 31, 1995
(Unaudited)
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ASSETS:
Current Assets:
Cash and Cash Equivalents $ 325,115 $ 1,853,974
Trade Receivables 7,496,293 9,842,909
Other Receivables 1,098,774 1,464,847
Inventories 23,319,925 18,336,892
Other Current Assets 1,006,327 876,569
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Total Current Assets 33,246,434 32,375,191
Fixed Assets - Net 14,553,031 14,534,176
Other Assets 2,155,483 2,171,207
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Total Assets $ 49,954,948 $ 49,080,574
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 6,605,002 $ 1,429,217
Current Maturities - Long Term Debt 1,659,390 4,392,341
Accrued Liabilities 975,748 1,099,539
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Total Current Liabilities 9,240,140 6,921,097
Long-Term Debt-less current maturities 16,110,449 16,553,890
Deferred Liabilities 1,235,424 2,036,457
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Total Liabilities 26,586,013 25,511,444
Shareholders' Equity:
Preferred Stock, Series A, no par value;
100,000 shares issued and 92,857 6,000 6,000
shares outstanding
Common Stock, no par value;
10,000,000 shares authorized;
3,782,500 shares issued and
3,665,548 shares outstanding 14,543,947 14,543,947
Common Stock in Treasury, at cost (1,226,059) (1,226,059)
Retained Earnings 10,045,047 10,245,242
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Total Shareholders' Equity 23,368,935 23,569,130
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Total Liabilities and Shareholders' Equity $ 49,954,948 $ 49,080,574
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The accompanying notes are an integral part of the financial statements
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
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Net Sales $ 10,260,665 $ 12,045,932
Cost of Goods Sold 7,434,072 9,393,796
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Gross Margin 2,826,593 2,652,136
Selling, General and Administrative
Expenses 2,616,115 1,970,898
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Income From Operations 210,478 681,238
Other Income And (Expenses):
Interest Expense (345,517) (634,309)
Other - net (115,204) 43,832
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Total other - net (460,721) (590,477)
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Income (Loss) Before Income Taxes (250,243) 90,761
Income Taxes (Benefit) (50,048) 18,152
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Net Income (Loss) ($ 200,195) $ 72,609
============ ============
Net Income (Loss) Per Share ($ 0.05) $ 0.02
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Weighted Average Number of Common Shares
and Equivalents Outstanding 3,665,548 3,758,405
============ ============
The accompanying notes are an integral part of the financial statements
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
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CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income (Loss) $ (200,195) $ 72,609
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization 575,057 500,736
Loss on Sale of Fixed Assets 89,414
Deferred Taxes and Other (801,033) (174,098)
Change in Assets and Liabilities:
Receivables 2,712,689 (126,473)
Inventories (4,983,033) (5,183,687)
Other Assets (114,034) 756,023
Accounts Payable 5,175,785 3,012,611
Accrued and Other Liabilities (123,791) 197,197
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Net Cash Provided By (Used In)
Operating Activities 2,330,860 (945,082)
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CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Fixed Assets (683,326) (1,186,107)
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CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Long Term Debt 2,033,395 1,242,475
Payments on Long Term Debt (5,199,787) (235,758)
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Net Cash Provided By (Used In)
Financing Activities (3,176,392) 1,006,717
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(DECREASE) IN CASH AND CASH (1,528,859) (1,124,472)
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,853,974 1,628,988
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 325,115 $ 504,516
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The accompanying notes are an integral part of the financial statements
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:
March 31, 1996 Dec. 31, 1995
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Raw materials $ 5,431,228 $ 3,437,802
Work-in Process 4,574,399 2,359,778
Manufactured finished goods 11,148,810 10,085,634
Factory outlet finished goods 2,165,488 2,453,678
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Total $23,319,925 $18,336,892
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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,
1996 1995
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Interest $379,291 $609,483
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Federal, state and local
income taxes $ 76,500 $ - 0 -
======== ========
4. Effective July 1, 1995, the Company changed its Fiscal Year from June
30 to December 31.
5. Recently Issued Accounting Standards - In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," which was effective
for the Company beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages, but does not require, compensation costs to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," which recognizes compensation costs
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based compensation awards to
employees and will disclose annually the required pro forma effect on net
earnings and earnings per share in a note to the financial statements.
In addition, the Company adopted SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" beginning January 1, 1996.
The adoption of this statement had no impact on the consolidated financial
statements.
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
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Three months
Ended
March 31,
1996 1995
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Net Sales 100.0% 100.0%
Cost of Goods Sold 72.4 78.0
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Gross Margin 27.6 22.0
Selling, General and
Administrative Expenses 25.5 16.4
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Income from Operations 2.1% 5.6%
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THREE MONTHS ENDED MARCH 31,1996 COMPARED TO THREE MONTHS ENDED MARCH 31,1995
Net Sales
Net sales decreased $1,785,267 or 14.8% to $10,260,665 for the quarter ended
March 31, 1996, from $12,045,932 for the same period a year ago. The decrease in
net sales was principally due to a $1,128,000 decrease in shipments resulting
from the termination of a contract in June 1995 to manufacture handsewn casual
footwear for a private label customer. In addition, sales to two of the
Company's larger customers decreased due to a generally difficult retail
environment during the quarter. Sales prices were approximately 3% higher than a
year ago.
Gross Margin
Gross margin increased $174,457, or 6.6%, to $2,826,593, for the period ended
March 31, 1996, versus $2,652,136 for the same period a year ago. As a
percentage of net sales, gross margin was 27.6% for the quarter ended March 31,
1996 compared to 22.0% in 1995. Gross margin and gross margin as a percentage of
sales increased in part due to the termination in June 1995 of the Company's
contract to manufacture casual handsewn footwear, a product with a low margin,
for a private label customer. In addition, gross margin was favorably impacted
in the current quarter due to a decrease in sales to two large customers that
are generally at lower margins. Also, production levels of the Company's plants
in the Dominican Republic and Puerto Rico were higher than a year ago and closer
to capacity during the quarter ended March 31, 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expense increased $645,217 or 32.7%, to
$2,616,115 for the period ended March 31, 1996, versus $1,970,898 for the same
period a year ago. As a percentage of net sales, selling, general and
administrative expense was 25.5% for the period ended March 31, 1996, versus
16.4% for the same period a year ago. Selling, general and administrative
expenses increased primarily due to increased sales management salaries and
advertising, and to a lesser extent increased professional expenses related to
the change of the fiscal year.
Interest Expense
Interest expense decreased $288,792 or 45.5%, to $345,517 for the period ended
March 31, 1996, versus $634,309 for the same period a year ago. Most of the
decrease in interest expense is a result of lower rates and lower outstanding
balances on the Company's revolving line of credit.
Income Taxes
Income Taxes decreased $68,200 to an income tax benefit of $50,048 for the
quarter ended March 31, 1996, versus an income tax expense of $18,152 for the
same period a year earlier. The Company's relatively low effective tax rate of
20% for both periods resulted from no foreign income taxes being assessed on the
income of its subsidiary in the Dominican Republic; to the favorable income tax
treatment afforded under the Internal Revenue Code 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 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.
At March 31, 1996, the Company had working capital of $24,006,294, versus
$25,454,094, at December 31, 1995. The Company has a 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, 1996, through May 31, 1996. On June 1, 1996, the maximum amount
increases to $35,000,000 until January 1, 1997, 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, 1996, the Company had borrowed
$13,765,000 against its available line of credit of $15,302,089 (based upon the
level of eligible accounts receivable and inventory).
Cash paid for capital expenditures during the quarter ended March 31, 1996 was
$683,000 which expenditures were funded through operating cash flows and through
long-term debt financing. The Company anticipates capital expenditures of less
than $1,200,000 for the next year as the Company has sufficient manufacturing
capacity to handle additional production needs. 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 believes it will be able to finance such additions through additional
long-term borrowings or through operating cash flows as appropriate.
Except for the historical information in this report , it includes
forward-looking statements that involve risks and uncertainties, including, but
not limited to, quarterly fluctuations in results, the management of growth, and
other risks detailed from time to time in the Company's Securities and Exchange
Commission filings, including the Company's Form 10-K for the Transition Period
ended December 31,1995. Actual results may differ materially from management
expectations.
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.
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 10, 1996 /s/ Mike Brooks
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Mike Brooks, President and Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1996 /s/ David Fraedrich
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David Fraedrich, Executive Vice President,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit Exhibit
Number Description Page
Number
10.1 Schedule identifying material details of stock option agreements
substantially identical to Exhibit 10.28 of the Registrant's Annual
Report on Form 10-K for the Transition Period ended December
31, 1995. ------
10.2 First Amended and Restated Revolving Credit Agreement, dated as of
September 22, 1996, among the Registrant, Rocky Shoes & Boots, Co.,
Five Star Enterprises, Ltd., Lifestyle Footwear, Inc., NBD Bank,
Bank One Columbus, NA, and NBD Bank, as Agent. ------
10.3 Second Amended and Restated Revolving Credit Agreement, dated as
of April 2, 1996, among the Registrant, Rocky Shoes & Boots, Co.,
Five Star Enterprises, Ltd., Lifestyle Footwear, Inc., Bank One
Columbus, NA, and Bank One Columbus, NA, as Agent. ------