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 -------------- ------- 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 --- --- 3,707,528 common shares, no par value, outstanding at May 1, 1997. PART 1 - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,1997 Dec. 31, 1996 (Unaudited) ------------- ------------- 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 =========== ===========
The accompanying notes are an integral part of the financial statements. 2 ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, 1997 1996 ---- ---- Net Sales $12,262,073 $10,260,665 Cost of Goods Sold 8,985,198 7,434,072 ----------- ----------- 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 =========== ===========
The accompanying notes are an integral part of the financial statements 3 ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 1997 1996 ---- 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 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (531,828) (683,326) ----------- ----------- 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) ----------- ----------- 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 =========== ===========
The accompanying notes are an integral part of the financial statements 4 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, 1997 December 31, 1996 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 =========== ===========
3. SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and Federal, state and local income taxes was as follows:
Three Months Ended March 31, 1997 1996 Interest $478,266 $379,291 ======== ======== Federal, state and local income taxes $973,300 $ 76,500 ======== ========
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 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:
Three Months Ended March 31 1997 1996 Basic $0.05 $(0.05) ===== ====== Diluted $0.05 $(0.05) ===== ======
6 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, 1997 1996 Net Sales 100.0% 100.0% Cost of Goods Sold 73.3% 72.4% ------ ------ Gross Margin 26.7% 27.6% ------ ------ Selling, General and Administrative Expenses 21.0% 25.5% ------ ------ Income from Operations 5.7% 2.1% ====== ======
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 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 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 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 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 ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES FORM 10-Q EXHIBIT INDEX
Exhibit Exhibit Page Number Description Number 27 Financial Data Schedule --