FORM 10-Q/A No.1
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:
JUNE 30, 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)
NOT APPLICABLE
(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
--- ---
3,754,028 common shares, no par value, outstanding at July 31, 1997.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1997 Dec. 31,1996
(Unaudited)
----------- ------------
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 802,127 $ 349,637
Trade Receivables 20,036,952 12,409,920
Other Receivables 1,074,716 678,293
Inventories 40,715,959 25,389,902
Other Current Assets 2,062,181 1,632,394
------------ ------------
Total Current Assets 64,691,935 40,460,146
Fixed Assets - Net 16,304,167 15,508,597
Other Assets 2,156,011 2,121,428
------------ ------------
Total Assets $ 83,152,113 $ 58,090,171
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable $ 13,193,473 $ 3,036,705
Current Maturities - Long Term Debt 12,770,312 3,609,645
Accrued Liabilities 2,821,874 3,205,215
------------ ------------
Total Current Liabilities 28,785,659 9,851,565
Long-Term Debt-less current maturities 23,662,291 19,520,029
Deferred Liabilities 2,398,961 2,343,488
------------ ------------
Total Liabilities 54,846,911 31,715,082
Shareholders' Equity:
Preferred Stock, Series A, no par value;
issued 1997 - 90,000 shares; 1996 - 100,000 shares;
and outstanding 1997 - 82,857 shares; 1996 -
92,857 shares 5,400 6,000
Common Stock, no par value;
10,000,000 shares authorized;
issued 1997 - 3,856,480 shares; 1996 - 3,782,500
shares; and outstanding 1997 - 3,749,528 shares;
1996 - 3,665,548 shares 15,268,591 14,543,947
Stock held in Treasury, at cost (1,226,059) (1,226,059)
Retained Earnings 14,257,270 13,051,201
------------ ------------
Total Shareholders' Equity 28,305,202 26,375,089
------------ ------------
Total Liabilities and Shareholders' Equity $ 83,152,113 $ 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Net Sales $22,006,185 $15,189,545 $34,268,258 $25,450,210
Cost of Goods Sold 15,724,912 10,826,244 24,710,110 18,260,316
----------- ----------- ----------- -----------
Gross Margin 6,281,273 4,363,301 9,558,148 7,189,894
Selling, General and Administrative
Expenses 4,141,606 2,932,855 6,718,144 5,548,970
----------- ----------- ----------- -----------
Income From Operations 2,139,667 1,430,446 2,840,004 1,640,924
Other Income (Expense):
Interest Expense (641,031) (397,489) (1,106,298) (743,006)
Other - net (23,566) 72,905 (9,135) (42,299)
----------- ----------- ----------- -----------
Total other - net (664,597) (324,584) (1,115,433) (785,305)
----------- ----------- ----------- -----------
Income Before Income Taxes 1,475,070 1,105,862 1,724,571 855,619
Income Taxes 457,980 246,840 518,502 196,792
----------- ----------- ----------- -----------
Net Income $ 1,017,090 $ 859,022 $ 1,206,069 $ 658,827
=========== =========== =========== ===========
Net Income Per Share $ 0.26 $ 0.23 $ 0.31 $ 0.17
----------- ----------- ----------- -----------
Weighted Average Number of Common
Shares and Equivalents Outstanding 3,972,315 3,770,772 3,940,347 3,765,396
=========== =========== =========== ===========
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)
Six Months Ended
June 30,
1997 1996
---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Income $ 1,206,069 $ 658,827
------------ ------------
Adjustments to Reconcile Net Income
To Net Cash Used In
Operating Activities:
Depreciation and Amortization 1,362,973 1,136,937
Deferred taxes and other 55,473 (479,147)
Loss on sale of fixed assets 92,456
Change in Assets and Liabilities:
Receivables (8,023,455) (3,874,561)
Inventories (15,326,057) (12,263,474)
Other current assets (429,787) (41,233)
Other Assets (34,583) (163,089)
Accounts payable 9,452,128 10,614,714
Accrued and Other Liabilities (383,341) 743,191
------------ ------------
Net Cash Used In
Operating Activities: (12,120,580) (3,575,379)
------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of Fixed Assets (1,453,902) (1,514,010)
------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from Long Term Debt 20,392,250 10,165,000
Payments on Long Term Debt (7,089,322) (6,564,181)
Proceeds from exercise of stock options
including related income tax effect 724,044
------------ ------------
Net Cash Provided By
Financing Activities 14,026,972 3,600,819
------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 452,490 (1,488,570)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 349,637 1,853,974
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 802,127 $ 365,404
============ ============
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:
June 30, 1997 December 31, 1996
Raw materials $ 9,748,794 $ 4,482,381
Work-in Process 4,533,457 5,192,326
Manufactured finished goods 24,182,440 13,891,772
Factory outlet finished goods 2,251,268 1,823,423
----------- -----------
Total $40,715,959 $25,389,902
=========== ===========
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was as
follows:
Six Months Ended
June 30,
1997 1996
---------- --------
Interest $1,067,151 $857,812
========== ========
Federal, state and local
income taxes $1,184,300 $ 85,000
========== ========
Accounts payable at June 30, 1997 and December 31, 1996 includes a
total of $747,634 and $42,994, respectively, relating to the purchase
of fixed assets.
5
4. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
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 per share, as defined therein,
for the three month and six month periods ended June 30, 1997 and 1996 are as
follows:
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
----- ----- ----- ------
Basic $0.27 $0.23 $0.33 $0.18
===== ===== ===== =====
Diluted $0.27 $0.23 $0.33 $0.18
===== ===== ===== =====
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income," which
will require adoption no later than the Company's fiscal quarter ending March
31, 1998. This new statement defines comprehensive income as "all changes in
equity during a period, with the exception of stock issuances and dividends."
The new pronouncement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
In June 1997, FASB also issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which will require adoption no later than
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. Based on current operations the Company does not believe
the Statement will be applicable.
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 Six months
Ended Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- -----
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 71.5% 71.3% 72.1% 71.7%
----- ----- ----- -----
Gross Margin 28.5% 28.7% 27.9% 28.3%
Selling, General and
Administrative Expenses 18.8% 19.3% 19.6% 21.8%
----- ----- ----- -----
Income from Operations 9.7% 9.4% 8.3% 6.5%
===== ===== ===== =====
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net Sales
Net sales increased $6,816,640, or 44.9%, to $22,006,185 for the quarter ended
June 30, 1997, versus $15,189,545 for the same period in 1996. The increase was
primarily due to higher shipments of rugged outdoor and handsewn casual footwear
to the Company's expanding customer base. Backlog at June 30, 1997 was $32.3
million, an increase of 28% over the same date the prior year. Average selling
prices were approximately 4% higher in the quarter ended June 30, 1997 compared
to the same period in 1996.
7
Gross Margin
Gross margin increased $1,917,972, or 43.9%, to $6,281,273 for the quarter ended
June 30, 1997 versus $4,363,301 for the same period in 1996. As a percentage of
net sales, gross margin was 28.5% for the three months ended June 30, 1997,
versus 28.7% for the same period in 1996. The Company benefited from increased
selling prices and leveraging manufacturing overhead from increased production
in all three of the Company's manufacturing facilities. However, this increase
was offset by increased sales to customers who received volume discounts during
the quarter.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses increased $1,208,751, or
41.2%, to $4,141,606 for the quarter ended June 30, 1997, versus $2,932,855 for
the same period in 1996. The increase in S,G&A expenses was attributable to
increased sales commissions and selling and administrative salaries. As a
percentage of net sales, S,G&A expenses decreased to 18.8% for the quarter ended
June 30, 1997, compared with 19.3% for the same period in 1996.
The Company plans to increase its advertising expenses during the remainder of
1997 to support new product introductions, and increased market penetration of
its ROCKY(R) branded products. In July 1997, the Company began advertising on
selected cable television shows aimed at audiences which share the same
demographic proflie of the Company's typical customers. While S,G&A expenses may
increase in absolute dollars during the remainder of 1997, the Company does not
anticipate that S,G&A expenses will increase as a percentage of net sales for
1997 compared with 1996.
Interest Expense
Interest expense increased $243,542, or 61.3%, to $641,031 for the quarter ended
June 30, 1997, from $397,489 for the same period a year ago. Interest expense
increased due to additional borrowings and higher rates on the Company's
revolving line of credit, which is used to fund additional working capital needs
to support increased sales.
Income Taxes
Income taxes increased $211,140, or 85.5%, to $457,980 for the quarter ended
June 30, 1997, versus $246,840 for the same period a year ago. The Company's
effective tax rate was 31.0% for the quarter ended June 30, 1997, versus 22.3%
for the same period in 1996. The Company's relatively low effective tax rates
result from favorable tax treatment afforded from income earned by the Company's
subsidiary in Puerto Rico and local tax abatements available to such subsidiary.
The Company began to provide for income taxes on earnings from its subsidiary in
the Dominican Republic during the fourth quarter of 1996. This accounts for the
higher effective tax rate for the quarter ended June 30, 1997, versus the same
period a year ago. The Company's earnings in the Dominican Republic are subject
to federal income tax, but are exempt from state and local taxation.
8
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996.
Net Sales
Net Sales increased $8,818,048, or 34.6%, to $34,268,258 for the six months
ended June 30, 1997, from $25,450,210 for the same period a year ago. The
increase in net sales was primarily attributable to increased sales of rugged
outdoor and handsewn casual footwear to the Company's expanding customer base.
During the six months ended June 30, 1997, the Company added 270 new accounts,
which represents a 20% annualized increase. Average selling prices were
approximately 3.5% higher for the six months ended June 30, 1997 compared to
the same period in 1996.
Gross Margin
Gross margin increased $2,368,254, or 32.9%, to $9,558,148 for the six months
ended June 30, 1997, compared to $7,189,894 for the same period a year ago. As a
percentage of net sales, gross margin was 27.9% for the six months ended June
30, 1997, versus 28.3% for the same period in 1996. The Company benefited from
increased selling prices and leveraging manufacturing overhead from increased
production in all three of the Company's manufacturing facilities. However, this
increase was offset by increased sales to customers who received volume
discounts during the first half of 1997.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses increased $1,169,174, or
21.1%, to $6,718,144 for the six months ended June 30, 1997, compared to
$5,548,970 for the same period in 1996. The increase in S,G&A expenses was
primarily due to increased sales commissions and selling and administrative
salaries. As a percentage of net sales, S,G&A expense was 19.6% for the six
months ended June 30, 1997, versus 21.9% for the same period in 1996. The
decrease as a percentage of net sales was due to higher net sales without a
corresponding increase in S,G&A expenses.
Interest Expense
Interest expense increased $363,292, or 48.9% to $1,106,298 for the six months
ended June 30, 1997, versus $743,006 for the same period a year ago. Interest
expense increased due to additional borrowings and higher rates on the Company's
revolving line of credit, which is used to fund additional working capital needs
to support increased sales.
Income Taxes
Income taxes increased $321,710, or 163.5%, to $518,502 for the six months ended
June 30, 1997, versus $196,792 for the same period a year ago. The Company's
effective tax rate was 30.1% for the six months ended June 30, 1997, versus
23.0% for the same period in 1996. The Company's relatively low effective tax
rates result from favorable tax treatment afforded from income earned by the
Company's subsidiary in Puerto Rico and local tax abatements available to the
Company's subsidiary in Puerto Rico. The Company began to provide for income
taxes on earnings from its
9
subsidiary in the Dominican Republic during the fourth quarter of 1996. This
accounts for the higher effective tax rate for the six months ended June 30,
1997 versus the same period a year ago.
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 for machinery, equipment, and facility additions, as
well as the introduction of new styles of footwear. At June 30, 1997, the
Company had working capital of $35,906,276, versus $30,608,581 at December 31,
1996.
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 until January 1,
1998, when the line decreases to $25,000,000. The maximum available under the
line of credit increases to $42,000,000 in April 1998. The line of credit
changes to match the Company's seasonal requirements for working capital. As of
June 30, 1997, the Company had borrowed $30,465,000 against its available line
of credit of $30,757,041 (based upon the level of eligible accounts receivable
and inventory). Amounts outstanding under the line of credit bear interest at
the lender's prime rate. The line of credit terminates on April 30, 1999.
Cash paid for capital expenditures during the six months ended June 30, 1997 was
$1,453,902. The Company anticipates 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 has
begun an approximate $750,000 expansion of its manufacturing facility in the
Dominican Republic and, after the expansion is complete, believes it will have
sufficient manufacturing capacity to handle additional production needs for the
next year. The Company anticipates capital expenditures for the year ended
December 31, 1997 will be approximately $3,000,000. The Company believes it
will be able to finance such additions and meet operating expenditure
requirements through December 31, 1998, through additional long-term borrowing
or through operating cash flows as appropriate.
SAFE HARBOR STATEMENT UNDER THE PRIVATE LITIGATION REFORM ACT OF 1995
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, 1996. Actual results may differ materially from management
expectations.
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.
The Company held its Annual Meeting of Shareholders on May 20, 1997 for
the purpose of electing Class I Directors of the Company, to serve until the
1999 Annual Meeting of Shareholders or until their successors are elected and
qualified and to ratify the appointment of Deloitte & Touche LLP to serve as the
Company's independent public accountants for the fiscal year ending December 31,
1997.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
NUMBER OF SHARES VOTED
------------------------------------------------------------
WITHHOLD
FOR AUTHORITY TOTAL
--------------- --------------- ---------------
Mike Brooks 3,369,323 23,175 3,392,498
--------------- --------------- ---------------
Stanley I. Kravetz 3,362,423 30,075 3,392,498
--------------- --------------- ---------------
Robert D. Stix 3,354,873 37,625 3,392,498
--------------- --------------- ---------------
James L. Stewart 3,364,173 28,325 3,392,498
--------------- ---------------- ---------------
The appointment of Deloitte & Touche LLP as independent accountants was
approved by the following vote:
NUMBER OF SHARES VOTED
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAINED TOTAL
- --------------- --------------- ----------------- ---------------
3,373,323 15,375 3,800 3,392,498
- --------------- --------------- ----------------- ---------------
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 amended report to be signed on its behalf
by the undersigned thereunto duly authorized.
ROCKY SHOES & BOOTS, INC.
Date: 8/27/97 /s/ Mike Brooks
------------------ ----------------------------------------
Mike Brooks, President and Chief Executive
Officer (Principal Executive Officer)
Date: 8/27/97 /s/ David Fraedrich
------------------ ----------------------------------------
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
27 Financial Data Schedule