UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 0-21026
ROCKY SHOES & BOOTS, INC.
(Exact name of registrant as specified in its charter)
     
Ohio
(State or Other Jurisdiction of
Incorporation or Organization) 		  31-1364046
(I.R.S. Employer
Identification No.)
39 E. Canal Street, Nelsonville, Ohio 45764
(Address of Principal Executive Offices, Including Zip Code)
(740) 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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES þ NO o
     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES þ NO o
     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,284,725 shares of Common Stock, no par value, were outstanding at July 31, 2005.
 
 

 

FORM 10-Q
ROCKY SHOES & BOOTS, INC.
TABLE OF CONTENTS
     
    PAGE
    NUMBER
   
 
   
   
 
   
  3
 
   
  4
 
   
  5
 
   
  6 –13
 
   
  14 – 20
 
   
  21
 
   
  21
 
   
   
 
   
  22
 
   
  22
 
   
  22
 
   
  22
 
   
  23
 
   
  23
 
   
  24
  EX-10.1
  EX-31.1
  EX-31.2
  EX-32.1
  EX-32.2

2

PART 1 — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                         
    June 30, 2005   December 31, 2004   June 30, 2004
    Unaudited       Unaudited
ASSETS:
                       
 
                       
CURRENT ASSETS:
                       
Cash and cash equivalents
  $ 1,015,645     $ 5,060,859     $ 492,408  
Trade receivables — net
    56,654,184       27,182,198       27,422,370  
Other receivables
    1,365,390       1,114,959       863,709  
Inventories
    85,410,975       32,959,124       38,641,868  
Deferred income taxes
    1,297,850       230,151       959,810  
Income tax receivable
            2,264,531        
Prepaid expenses
    1,530,587       588,618       1,105,070  
 
                       
Total current assets
    147,274,631       69,400,440       69,485,235  
FIXED ASSETS — net
    23,139,177       20,179,486       19,055,324  
DEFERRED PENSION ASSET
    1,347,824       1,347,824       1,499,524  
IDENTIFIED INTANGIBLES
    47,232,076       2,561,427       2,677,892  
GOODWILL
    20,432,550       1,557,861       1,557,861  
OTHER ASSETS
    4,293,066       1,658,616       436,929  
 
                       
TOTAL ASSETS
  $ 243,719,324     $ 96,705,654     $ 94,712,765  
 
                       
LIABILITIES AND SHAREHOLDERS’ EQUITY:
                       
 
                       
CURRENT LIABILITIES:
                       
Accounts payable
  $ 17,626,282     $ 4,349,248     $ 6,829,747  
Current maturities — long term debt
    6,384,242       6,492,020       518,226  
Accrued expenses:
                       
Income taxes
    814,831               45,064  
Taxes — other
    587,405       422,692       491,828  
Salaries and wages
    2,094,912       1,295,722       988,107  
Plant closing costs
                    63,228  
Other
    4,338,834       1,228,708       636,805  
 
                       
Total current liabilities
    31,846,506       13,788,390       9,573,005  
LONG TERM DEBT – less current maturities
    104,336,905       10,044,544       21,493,872  
DEFERRED INCOME TAXES
    18,527,196       1,205,814       262,907  
DEFERRED LIABILITIES
    1,326,347       296,108       1,962,160  
 
                       
TOTAL LIABILITIES
    156,036,954       25,334,856       33,291,944  
 
                       
SHAREHOLDERS’ EQUITY:
                       
Common stock, no par value; 10,000,000 shares authorized; issued and outstanding June 30, 2005 - 5,284,725; December 31, 2004 - 4,694,670; June 30, 2004 - 4,587,476
    50,623,315       38,399,114       36,396,070  
Accumulated other comprehensive loss
    (889,564 )     (1,077,586 )     (1,950,400 )
Retained earnings
    37,948,619       34,049,270       26,975,151  
 
                       
Total shareholders’ equity
    87,682,370       71,370,798       61,420,821  
 
                       
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 243,719,324     $ 96,705,654     $ 94,712,765  
 
                       
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   Six Months Ended
    June 30,   June 30,
    2005   2004   2005   2004
NET SALES
  $ 65,519,637     $ 27,433,987     $ 127,017,721     $ 49,316,076  
 
                               
COST OF GOODS SOLD
    39,796,398       19,657,778       77,086,610       35,921,263  
 
                               
 
                               
GROSS MARGIN
    25,723,239       7,776,209       49,931,111       13,394,813  
 
                               
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    19,484,789       5,396,376       40,146,472       10,724,067  
 
                               
 
                               
INCOME FROM OPERATIONS
    6,238,450       2,379,833       9,784,639       2,670,746  
 
                               
OTHER INCOME AND (EXPENSES):
                               
Interest expense
    (2,115,578 )     (274,868 )     (3,994,170 )     (533,441 )
Other — net
    126,887       24,182       117,639       98,388  
 
                               
Total other — net
    (1,988,691 )     (250,686 )     (3,876,531 )     (435,053 )
 
                               
INCOME BEFORE INCOME TAXES
    4,249,759       2,129,147       5,908,108       2,235,693  
 
                               
INCOME TAX EXPENSE
    1,444,864       681,325       2,008,759       715,420  
 
                               
 
                               
NET INCOME
  $ 2,804,895     $ 1,447,822     $ 3,899,349     $ 1,520,273  
 
                               
NET INCOME PER SHARE
                               
Basic
  $ 0.53     $ 0.32     $ 0.75     $ 0.34  
Diluted
  $ 0.50     $ 0.29     $ 0.70     $ 0.31  
 
                               
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
                               
Basic
    5,244,395       4,557,954       5,204,107       4,492,989  
 
                               
Diluted
    5,625,169       5,003,956       5,589,643       4,949,805  
 
                               
See notes to the interim unaudited condensed consolidated financial statements.

4

 
ROCKY SHOES & BOOTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    Six Months Ended
    June 30,
    2005   2004
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 3,899,349     $ 1,520,273  
Adjustments to reconcile net income to net cash used in operating activities:
               
Depreciation and amortization
    2,523,105       1,558,687  
Deferred compensation and pension
    553,158        
Deferred income taxes
    (16,118 )     334,567  
Loss on disposal of fixed assets
    37,431        
Stock issued as directors’ compensation
    60,000       50,000  
Change in assets and liabilities, (net of effect of acquisition):
               
Receivables
    (290,197 )     (7,923,661 )
Inventories
    (17,778,307 )     (573,681 )
Other current assets
    2,048,502       (59,832 )
Other assets
    166,897       (214,951 )
Accounts payable
    7,721,322       3,837,559  
Accrued and other liabilities
    42,425       (2,845,538 )
 
               
 
               
Net cash used in operating activities
    (1,032,433 )     (4,316,577 )
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of fixed assets
    (2,660,940 )     (2,782,106 )
Acquisition of business
    (92,916,237 )        
 
               
 
               
Net cash used in investing activities
    (95,577,177 )     (2,782,106 )
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from revolving credit facility (net)
    47,988,443       4,241,638  
Proceeds from long-term debt
    48,000,000          
Repayments of long-term debt
    (1,803,860 )     (275,468 )
Debt financing costs
    (2,310,550 )        
Proceeds from exercise of stock options
    690,363       1,465,871  
 
               
 
               
Net cash provided by financing activities
    92,564,396       5,432,041  
 
               
 
               
DECREASE IN CASH AND CASH EQUIVALENTS
    (4,045,214 )     (1,666,642 )
 
               
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    5,060,859       2,159,050  
 
               
 
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 1,015,645     $ 492,408  
 
               
See notes to the interim unaudited condensed consolidated financial statements.

5

Table of Contents

ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
NOTES TO THE INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30,
2005 AND 2004
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 and six-month periods ended June 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the whole year. Accordingly, these consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
 
    The Company accounts for its stock option plans in accordance with APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for all stock option plans been determined consistent with the SFAS No. 123, “Accounting for Stock Based Compensation,” the Company’s net income and earnings per share would have resulted in the pro forma amounts as reported below.
                                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2005   2004   2005   2004
Net income as reported
  $ 2,804,895     $ 1,447,822     $ 3,899,349     $ 1,520,273  
 
                               
Deduct: Stock based employee compensation expense determined under fair value based method for all awards, net of tax
    231,708       276,830       463,416       429,845  
 
                               
 
                               
Pro forma net income
  $ 2,573,187     $ 1,170,992     $ 3,435,933     $ 1,090,428  
 
                               
 
                               
Earnings per share:
                               
Basic — as reported
  $ 0.53     $ 0.32     $ 0.75     $ 0.34  
Basic — pro forma
  $ 0.49     $ 0.26     $ 0.66     $ 0.24  
 
                               
Diluted — as reported
  $ 0.50     $ 0.29     $ 0.70     $ 0.31  
Diluted — pro forma
  $ 0.46     $ 0.23     $ 0.61     $ 0.22  
    The pro forma amounts are not representative of the effects on reported net income for future years.

6

2.   INVENTORIES
 
    Inventories are comprised of the following:
                         
    June 30, 2005   December 31, 2004   June 30, 2004
Raw materials
  $ 10,865,761     $ 4,711,014     $ 6,949,144  
Work-in-process
    1,191,299       564,717       1,469,094  
Finished goods
    72,955,072       26,565,240       28,878,360  
Factory outlet finished goods
    1,383,191       1,268,153       1,570,270  
Reserve for obsolescence or lower of cost or market
    (984,348 )     (150,000 )     (225,000 )
 
                       
 
                       
Total
  $ 85,410,975     $ 32,959,124     $ 38,641,868  
 
                       
3.   SUPPLEMENTAL CASH FLOW INFORMATION
 
    Cash paid for interest and federal, state and local income taxes was as follows:
                 
    Six Months Ended
    June 30,
    2005   2004
Interest
  $ 3,701,000     $ 503,000  
 
               
 
               
Federal, state and local income taxes
  $ 952,000     $ 2,580,000  
 
               
    The Company issued 484,261 common shares valued at $11,473,838, as part of the purchase of the EJ Footwear LLC, Georgia Boot LLC, and HM Lehigh Safety Shoe Co. LLC (the “EJ Footwear Group”) from SILLC Holdings LLC.
 
4.   PER SHARE INFORMATION
 
    Basic earnings per share (EPS) is computed by dividing net income applicable 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.
 
    A reconciliation of the shares used in the basic and diluted income per common share computation for the three months and six months ended June 30, 2005 and 2004 is as follows:

7

 

                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,