þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Ohio | No. 31-1364046 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
Title of each class | Name of each exchange on which registered | |
Common Shares, without par value | The NASDAQ Stock Market, Inc. | |
Preferred Stock Purchase Rights | The NASDAQ Stock Market, Inc |
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PART I
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Item 1. | 3 | |||||||
Item 1A. | 11 | |||||||
Item 1B. | 16 | |||||||
Item 2. | 16 | |||||||
Item 3. | 16 | |||||||
Item 4. | 16 | |||||||
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PART II
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Item 5. | 17 | |||||||
Item 6. | 19 | |||||||
Item 7. | 19 | |||||||
Item 7A. | 29 | |||||||
Item 8. | 29 | |||||||
Item 9. | 29 | |||||||
Item 9A. | 30 | |||||||
Item 9B. | 33 | |||||||
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PART III
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Item 10. | 33 | |||||||
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Item 13. | 33 | |||||||
Item 14. | 33 | |||||||
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PART IV
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Item 15. | 34 | |||||||
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SIGNATURES |
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39 | ||||||
EX-3.1 | ||||||||
EX-3.2 | ||||||||
EX-21 | ||||||||
EX-23 | ||||||||
EX-24 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32 | ||||||||
EX-99.1 | ||||||||
EX-99.2 |
2
| extending our lines of footwear into additional markets with the introduction of footwear models for the work and western markets; | ||
| expanding our product offerings into complementary apparel to leverage the strength of our Rocky Outdoor Gear brand and offer our consumers a broader, head-to-toe product assortment; and | ||
| closing our continental U.S. manufacturing facility and sourcing a greater portion of our products from third party facilities overseas. |
3
| Strong portfolio of brands. We believe the Rocky Outdoor Gear, Georgia Boot, Durango, Lehigh and Dickies brands are well recognized and established names that have a reputation for performance, quality and comfort in the markets they serve: outdoor, work, duty and western. We plan to continue strengthening these brands through product innovation in existing footwear markets, by extending certain of these brands into our other target markets and by introducing complementary apparel and accessories under our owned brands. | ||
| Commitment to product innovation. We believe a critical component of our success in the marketplace has been a result of our continued commitment to product innovation. Our consumers demand high quality, durable products that incorporate the highest level of comfort and the most advanced technical features and designs. We have a dedicated group of product design and development professionals, including well recognized experts in the footwear and apparel industries, who continually interact with consumers to better understand their needs and are committed to ensuring our products reflect the most advanced designs, features and materials available in the marketplace. | ||
| Long-term retailer relationships. We believe that our long history of designing, manufacturing and marketing premium quality, branded footwear has enabled us to develop strong relationships with our retailers in each of our distribution channels. We reinforce these relationships by continuing to offer innovative footwear products, by continuing to meet the individual needs of each of our retailers and by working with our retailers to improve the visual merchandising of our products in their stores. We believe that strengthening our relationships with retailers will allow us to increase our presence through additional store locations and expanded shelf space, improve our market position in a consolidating retail environment and enable us to better understand and meet the evolving needs of both our retailers and consumers. | ||
| Diverse product sourcing and manufacturing capabilities. We believe our strategy of utilizing both company operated and third party facilities for the sourcing of our products offers several advantages. Operating our own facilities significantly improves our knowledge of the entire production process, which allows us to more efficiently source product from third parties that is of the highest quality and at the lowest cost available. We intend to continue to source a higher proportion of our products from third party manufacturers, which we believe will enable us to obtain high quality products at lower costs per unit. |
| Expand into new target markets under existing brands. We believe there is significant opportunity to extend certain of our brands into our other target markets. We intend to continue to introduce products across varying feature sets and price points in order to meet the needs of our retailers. | ||
| Increase apparel offerings. We believe the long history and authentic heritage of our owned brands provide significant opportunity to extend each of these brands into complementary apparel. We intend to continue to increase our Rocky apparel offerings and believe that similar opportunities exist for our Georgia Boot and Durango brands in their respective markets. | ||
| Cross-sell our brands to our retailers. The acquisition of EJ Footwear expanded our distribution channels and diversified our retailer base. We believe that many retailers of our existing and acquired brands target consumers with similar characteristics and, as a result, we believe there is significant opportunity to offer each of our retailers a broader assortment of footwear and apparel that target multiple markets and span a range of feature sets and price points. | ||
| Expand our retail sales through Lehigh. We believe that our Lehigh mobile and retail stores offer us an opportunity to significantly expand our direct sales of work-related footwear. We intend to grow our Lehigh business by adding new customers, expanding the portfolio of brands we offer and increasing our footwear and apparel offerings. In addition, over time, we plan to upgrade the locations of some of our mini-stores, as well as expand the breadth of products sold in these stores. |
4
| Continue to add new retailers. We believe there is an opportunity to add additional retailers in certain of our distribution channels. We have identified a number of large, national footwear retailers that target consumers whom we believe identify with the Georgia Boot, Durango and Dickies brands. | ||
| Acquire or develop new brands. We intend to continue to acquire or develop new brands that are complementary to our portfolio and could leverage our operational infrastructure and distribution network. |
| Outdoor. Our outdoor product lines consist of footwear, apparel and accessory items marketed to outdoor enthusiasts who spend time actively engaged in activities such as hunting, fishing, camping or hiking. Our consumers demand high quality, durable products that incorporate the highest level of comfort and the most advanced technical features, and we are committed to ensuring our products reflect the most advanced designs, features and materials available in the marketplace. Our outdoor product lines consist of all-season sport/hunting footwear, apparel and accessories that are typically waterproof and insulated and are designed to keep outdoorsmen comfortable on rugged terrain or in extreme weather conditions. | ||
| Work. Our work product lines consist of footwear and apparel marketed to industrial and construction workers, as well as workers in the hospitality industry, such as restaurants or hotels. All of our work products are specially designed to be comfortable, incorporate safety features for specific work environments or tasks and meet applicable federal and other standards for safety. This category includes products such as safety toe footwear for steel workers and non-slip footwear for kitchen workers. | ||
| Duty. Our duty product line consists of footwear products marketed to law enforcement, security personnel and postal employees who are required to spend a majority of time at work on their feet. All of our duty footwear styles are designed to be comfortable, flexible, lightweight, slip resistant and durable. Duty footwear is generally designed to fit as part of a uniform and typically incorporates stylistic features, such as black leather uppers in addition to the comfort features that are incorporated in all of our footwear products. | ||
| Western. Our western product line currently consists of authentic footwear products marketed to farmers and ranchers who generally live in rural communities in North America. We also selectively market our western footwear to consumers enamored with the western lifestyle. |
5
6
| Our outdoor products are sold primarily through sporting goods stores, outdoor specialty stores, catalogs and mass merchants. | ||
| Our work-related products are sold primarily through retail uniform stores, catalogs, farm store chains, specialty safety stores, independent shoe stores and hardware stores. In addition to these retailers, we also market Dickies work-related footwear to select large, national retailers. | ||
| Our duty products are sold primarily through uniform stores and catalog specialists. | ||
| Our western products are sold through western stores, work specialty stores, specialty farm and ranch stores and more recently, fashion oriented footwear retailers. |
7
8
9
10
11
| the imposition of additional United States legislation and regulations relating to imports, including quotas, duties, taxes or other charges or restrictions; | ||
| foreign governmental regulation and taxation; | ||
| fluctuations in foreign exchange rates; | ||
| changes in economic conditions; | ||
| transportation conditions and costs in the Pacific and Caribbean; | ||
| changes in the political stability of these countries; and | ||
| changes in relationships between the United States and these countries. |
12
13
14
| general business conditions; |
15
| interest rates; | ||
| the availability of consumer credit; | ||
| weather; | ||
| increases in prices of nondiscretionary goods; | ||
| taxation; and | ||
| consumer confidence in future economic conditions. |
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
F - 1
F - 2
F - 3
F - 4
F - 5
F - 6
F - 7
F - 8
F - 9
F - 10
F - 11
F - 12
F - 13
F - 14
F - 15
F - 16
F - 17
F - 18
F - 19
F - 20
F - 21
F - 22
F - 23
F - 24
F - 25
F - 26
F - 27
ITEM 5.
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Quarter Ended
High
Low
$
36.44
$
25.31
$
33.79
$
25.00
$
32.25
$
27.50
$
30.62
$
21.56
$
26.50
$
19.00
$
26.70
$
20.80
$
22.65
$
9.73
$
17.49
$
11.45
Table of Contents
Among Rocky Brands, Inc., The NASDAQ Composite Index
And The S & P Footwear Index
12/01
12/02
12/03
12/04
12/05
12/06
100.00
90.81
388.04
516.46
422.18
279.38
100.00
68.85
101.86
112.16
115.32
127.52
100.00
82.99
126.87
166.84
167.82
197.02
www.researchdatagroup.com/S&P.htm
Table of Contents
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except for per share data)
Five Year Financial Summary
12/31/06
12/31/05
12/31/04
12/31/03
12/31/02
$
263,491
$
296,023
$
132,249
$
106,165
$
88,959
41.5
%
37.6
%
29.2
%
30.9
%
26.3
%
$
4,819
$
13,014
$
8,594
$
6,039
$
2,843
$
0.89
$
2.48
$
1.89
$
1.44
$
0.63
$
0.86
$
2.33
$
1.74
$
1.32
$
0.62
5,392
5,258
4,557
4,190
4,500
5,578
5,585
4,954
4,561
4,590
$
77,949
$
75,387
$
32,959
$
38,068
$
23,182
$
246,356
$
236,134
$
96,706
$
86,175
$
68,417
$
135,569
$
119,278
$
55,612
$
54,210
$
41,751
$
103,203
$
98,972
$
10,045
$
17,515
$
10,488
$
104,128
$
99,093
$
71,371
$
58,385
$
52,393
Table of Contents
Net sales, led by decreases of approximately $26.6 million in sales to the U.S.
military, decreased to $263.5 million from $296.0 million in 2005.
Our gross profit decreased to $109.3 million from $111.2 million the prior year. Gross
profit margin was 41.5% versus 37.6% in 2005, primarily due to the decrease in sales to the
U.S. military, which carry lower gross margins than our wholesale and retail sales.
Net income decreased to $4.8 million compared to $13.0 million the prior year. Diluted
earnings per common share decreased to $.86 in 2006 versus $2.33 per diluted share in 2005.
Capital expenditures were $5.6 million in 2006 and $6.1 million in 2005. 2006
expenditures included the renovation of an executive building to accommodate the
consolidations of several operating departments to Nelsonville, Ohio, following the EJ
Footwear Group acquisition.
Debt (total debt minus cash, cash equivalents) was $106.8 million or 49.7% of total
capitalization at December 31, 2006 compared to $103.8 million or 50.7% of total
capitalization at year-end 2005. Total debt was $110.5 million or 51.5% of total
capitalization at December 31, 2006 compared to $105.4 million or 51.5% of total
capitalization at December 31, 2005. The increased debt was to fund working capital.
Table of Contents
Years Ended December 31,
2006
2005
2004
100.0
%
100.0
%
100.0
%
58.5
%
62.4
%
70.8
%
41.5
%
37.6
%
29.2
%
34.3
%
28.1
%
19.4
%
7.2
%
9.5
%
9.8
%
Table of Contents
Table of Contents
Cash Flow Summary
($ in millions)
2006
2005
2004
$
0.7
$
8.4
$
7.6
(3.9
)
(99.4
)
(5.5
)
5.3
87.5
0.8
$
2.1
$
(3.5
)
$
2.9
Table of Contents
December 31
($ in millions)
2006
2005
$
74.7
$
59.6
32.5
41.3
3.3
4.5
110.5
105.4
7.3
6.4
$
103.2
$
99.0
Table of Contents
Payments due by Year
$ millions
Less Than 1
Over 5
Total
Year
1-3 Years
3-5 Years
Years
$
110.5
$
7.3
$
15.3
$
86.4
$
1.5
5.0
2.1
2.2
0.7
28.9
9.9
17.6
1.2
0.2
$
144.4
$
19.3
$
35.1
$
88.3
$
1.7
(1)
Assumes the following interest rates which are consistent with rates as of December 31, 2006:
(1) 8.3% on the $100 million revolving credit facility; (2) 9.0% on the $18 million three-year
term loan; (3) 9.0% on the $15 million three-year term loan; (4) 14.3% on the $15 million six-year
term loan; and 8.275% on the $3.3 million mortgage loans.
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To the Board of Directors and Shareholders of
Rocky Brands, Inc.
Table of Contents
March 14, 2007
Table of Contents
SHAREHOLDER
MATTERS
.
Table of Contents
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule.
Exhibit
Number
Description
Second Amended and Restated Articles of Incorporation of the Company.
Amendment to Companys Second Amended and Restated Articles of Incorporation of the
Company.
Amended and Restated Code of Regulations of the Company (incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form S-1, registration number 33-56118 (the
Registration Statement)).
Form of Stock Certificate for the Company (incorporated by reference to Exhibit 4.1 to
the Registration Statement).
Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh, Twelfth, and Thirteenth of the
Companys Amended and Restated Articles of Incorporation (see Exhibit 3.1).
Articles I and II of the Companys Code of Regulations (see Exhibit 3.3).
Form of Employment Agreement, dated July 1, 1995, for executive officers (incorporated by
reference to Exhibit 10.1 to the Companys Annual Report on Form 10-K for the fiscal year
ended June 30, 1995 (the 1995 Form 10-K)).
Table of Contents
Exhibit
Number
Description
Information concerning Employment Agreements substantially similar to Exhibit 10.1
(incorporated by reference to Exhibit 10.2 to the 1995 Form 10-K).
Deferred Compensation Agreement, dated May 1, 1984, between Rocky Shoes & Boots Co. and
Mike Brooks (incorporated by reference to Exhibit 10.3 to the Registration Statement).
Information concerning Deferred Compensation Agreements substantially similar to Exhibit
10.3 (incorporated by reference to Exhibit 10.4 to the Registration Statement).
Form of Companys amended 1992 Stock Option Plan (incorporated by reference to Exhibit
10.5 to the 1995 Form 10-K).
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the
Registration Statement).
Indemnification Agreement, dated December 21, 1992, between the Company and Mike Brooks
(incorporated by reference to Exhibit 10.10 to the Registration Statement).
Information concerning Indemnification Agreements substantially similar to Exhibit 10.7.
Amended and Restated Lease Agreement, dated March 1, 2002, between Rocky Shoes & Boots
Co. and William Brooks Real Estate Company regarding Nelsonville factory (incorporated by
reference to Exhibit 10.11 to the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2002).
Companys Amended and Restated 1995 Stock Option Plan (incorporated by reference to
Exhibit 4(a) to the Registration Statement on Form S-8, registration number 333-67357).
Form of Stock Option Agreement under the 1995 Stock Option Plan (incorporated by
reference to Exhibit 10.28 to the 1995 Form 10-K).
Form of Employment Agreement, dated September 7, 1995, for executive officers
(incorporated by reference to Exhibit 10.5 to the September 30, 1995 Form 10-Q).
Information covering Employment Agreements substantially similar to Exhibit 10.23
(incorporated by reference to Exhibit 10.5 to the September 30, 1995 Form 10-Q).
Lease Contract dated December 16, 1999, between Lifestyle Footwear, Inc. and The Puerto
Rico Industrial Development Company (incorporated by reference to Exhibit 10.14 to the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2004).
Promissory Note, dated December 30, 1999, in favor of General Electric Capital Business
Asset Funding Corporation in the amount of $1,050,000 (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(the June 30, 2000 Form 10-Q)).
Promissory Note, dated December 30, 1999, in favor of General Electric Capital Business
Asset Funding Corporation in the amount of $1,500,000 (incorporated by reference to
Exhibit 10.2 to the June 30, 2000 Form 10-Q).
Promissory Note, dated December 30, 1999, in favor of General Electric Capital Business
Asset Funding Corporation in the amount of $3,750,000 (incorporated by reference to
Exhibit 10.3 to the June 30, 2000 Form 10-Q).
Table of Contents
Exhibit
Number
Description
Companys Second Amended and Restated 1995 Stock Option Plan (incorporated by reference
to the Companys Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders
held on May 15, 2002, filed on April 15, 2002).
Companys 2004 Stock Incentive Plan (incorporated by reference to the Companys
Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders, held on May 11,
2004, filed on April 6, 2004).
Renewal of Lease Contract, dated June 24, 2004, between Five Star Enterprises Ltd. and
the Dominican Republic Corporation for Industrial Development (incorporated by reference
to Exhibit 10.20 to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2004).
Second Amendment to Lease Agreement, dated as of July 26, 2004, between Rocky Shoes &
Boots, Inc. and the William Brooks Real Estate Company (incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004).
Form of Option Award Agreement under the Companys 2004 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated
January 3, 2005, filed with the Securities and Exchange Commission on January 7, 2005).
Form of Restricted Stock Award Agreement relating to the Retainer Shares issued under the
Companys 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K dated January 3, 2005, filed with the Securities and Exchange
Commission on January 7, 2005).
Loan and Security Agreement, dated as of January 6, 2005, by and among Rocky Shoes &
Boots, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM Lehigh Safety Shoe Co. LLC,
Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot Company LLC, Lehigh Safety
Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety Shoe Properties LLC, as
Borrowers, and GMAC Commercial Finance LLC, as Agent and as Lender (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K dated January 6, 2005, filed
with the Securities and Exchange Commission on January 12, 2005).
Note Purchase Agreement, dated as of January 6, 2005, by and among Rocky Shoes & Boots,
Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM Lehigh Safety Shoe Co. LLC, Georgia
Boot LLC, Georgia Boot Properties LLC, Durango Boot Company LLC, Northlake Boot Company
LLC, Lehigh Safety Shoe Co. LLC, and Lehigh Safety Shoe Properties LLC, as Loan Parties,
American Capital Financial Services, Inc., as Agent, and American Capital Strategies,
Ltd., as Purchaser (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K dated January 6, 2005, filed with the Securities and Exchange Commission on
January 12, 2005).
Table of Contents
Exhibit
Number
Description
Amendment No. 1 to Loan and Security Agreement and Consent, dated as of January 19, 2005,
by and among Rocky Shoes & Boots, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM
Lehigh Safety Shoe Co. LLC, Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot
Company LLC, Lehigh Safety Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety
Shoe Properties LLC, as Borrowers, GMAC Commercial Finance LLC, as administrative agent
and sole lead arranger for the Lenders, Bank of America, N.A., as syndication agent and
Royal Bank of Scotland PLC, as documentation agent (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K dated January 19, 2005, filed with the Securities
and Exchange Commission on January 21, 2005).
Executive Employment Agreement, dated as of December 1, 2004, between Georgia Boot LLC
and Thomas R. Morrison (incorporated by reference to Exhibit 10(a) to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).
Amendment No. 2 to Loan and Security Agreement and Consent, dated as of September 12,
2005, by and among Rocky Shoes & Boots, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC,
HM Lehigh Safety Shoe Co. LLC, Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot
Company LLC, Lehigh Safety Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety
Shoe Properties LLC, as Borrowers, GMAC Commercial Finance LLC, as administrative agent
and sole lead arranger for the Lenders, and Bank of America, N.A., as syndication agent
(incorporated by reference to Exhibit 10(a) to the Companys Quarterly Report on Form
10-Q for the quarter ended September 30, 2005).
Amendment No. 3 to Loan and Security Agreement, dated as of June 28, 2006 , by and among
Rocky Brands, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM Lehigh Safety Shoe Co.
LLC, Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot Company LLC, Lehigh
Safety Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety Shoe Properties LLC,
as Borrowers, and GMAC Commercial Finance LLC, as administrative agent and sole lead
arranger for the Lenders (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated June 28, 2006, filed with the Securities and Exchange
Commission on July 5, 2006).
First Amendment to Note Purchase Agreement, dated as of January 28, 2006, by and among
Rocky Brands, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM Lehigh Safety Shoe Co.
LLC, Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot Company LLC, Lehigh
Safety Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety Shoe Properties LLC,
as the Loan Parties, the purchasers party thereto (each a Purchaser and collectively,
the Purchaser), and American Capital Financial Services, Inc., as administrative and
collateral agent for the Purchasers (incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K dated June 28, 2006, filed with the Securities and
Exchange Commission on July 5, 2006).
Amendment No. 4 to Loan and Security Agreement and Waiver, dated as of November 8, 2006 ,
by and among Rocky Brands, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM Lehigh
Safety Shoe Co. LLC, Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot Company
LLC, Lehigh Safety Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety Shoe
Properties LLC, as Borrowers, and GMAC Commercial Finance LLC, as administrative agent
and sole lead arranger for the Lenders (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K dated November 8, 2006, filed with the Securities
and Exchange Commission on November 13, 2006).
Second Amendment to Note Purchase Agreement and Waiver, dated as of November 8, 2006, by
and among Rocky Brands, Inc., Lifestyle Footwear, Inc., EJ Footwear LLC, HM Lehigh Safety
Shoe Co. LLC, Georgia Boot LLC, Durango Boot Company LLC, Northlake Boot Company LLC,
Lehigh Safety Shoe Co. LLC, Georgia Boot Properties LLC, and Lehigh Safety Shoe
Properties LLC, as the Loan Parties, the purchasers party thereto (each a Purchaser and
collectively, the
Table of Contents
Exhibit
Number
Description
Purchaser), and American Capital Financial Services, Inc., as
administrative and collateral agent for the Purchasers (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K dated November 8, 2006, filed
with the Securities and Exchange Commission on November 13, 2006).
Description of the Material Terms of Rocky Brands, Inc.s Bonus Plan for the Fiscal Year
Ending December 31, 2007 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K dated December 15, 2006, filed with the Securities and
Exchange Commission on December 21, 2006).
Schedule of Outside Director Fees as of January 1, 2007 (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K dated December 15, 2006, filed
with the Securities and Exchange Commission on December 21, 2006).
Schedule of Named Executive Officer Base Salaries as of January 1, 2007 (incorporated by
reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated December 15,
2006, filed with the Securities and Exchange Commission on December 21, 2006).
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Rule 13a-14(a) Certification of Principal Executive Officer.
Rule 13a-14(a) Certification of Principal Financial Officer.
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
Report of Independent Registered
Public Accounting Firm.
Financial Statement Schedule.
*
Filed with this Annual Report on Form 10-K.
**
Furnished with this Annual Report on Form 10-K.
Table of Contents
ROCKY BRANDS, INC.
Date: March 15, 2007
By:
/s/ James E. McDonald
James E. McDonald, Executive Vice
President and Chief Financial Officer
Signature
Title
Date
Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
March 15, 2007
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 15, 2007
Secretary and Director
March 15, 2007
Director
March 15, 2007
Director
March 15, 2007
Director
March 15, 2007
Director
March 15, 2007
Director
March 15, 2007
Director
March 15, 2007
Table of Contents
AND SUBSIDIARIES
F-1
F-2 - F-3
F-4
F-5
F-6
F-7 - F-27
Table of Contents
Rocky Brands, Inc.:
Columbus, Ohio
March 14, 2007
Table of Contents
AND SUBSIDIARIES
December 31,
2006
2005
$
3,731,253
$
1,608,680
65,259,580
61,746,865
1,159,444
2,455,885
77,948,976
75,386,732
3,902,775
133,783
3,632,808
1,346,820
1,581,303
1,497,411
157,216,139
144,176,176
24,349,674
24,342,250
13,564
2,117,352
37,105,291
38,320,828
24,874,368
23,963,637
2,796,776
3,214,131
$
246,355,812
$
236,134,374
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AND SUBSIDIARIES
Table of Contents
AND SUBSIDIARIES
Table of Contents
AND SUBSIDIARIES
Table of Contents
AND SUBSIDIARIES
Table of Contents
AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
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Years
5-40
3-8
3-8
3
Table of Contents
Years Ended December 31,
2006
2005
2004
5,392,390
5,257,530
4,557,283
185,786
327,241
396,246
5,578,176
5,584,771
4,953,529
251,669
125,000
84,000
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Table of Contents
$
91,298,435
11,573,838
1,799,488
$
104,671,761
$
64,727,065
2,781,379
36,000,000
22,405,776
(11,307,184
)
(9,935,275
)
$
104,671,761
$
279,051,000
12,782,000
$
2.54
$
2.35
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December 31,
2006
2005
$
6,564,731
$
7,833,780
249,644
583,963
71,518,898
67,453,668
(384,297
)
(484,679
)
$
77,948,976
$
75,386,732
Gross
Accumulated
Carrying
December 31, 2006
Amount
Amortization
Amount
$
28,241,370
$
28,241,370
6,900,000
6,900,000
2,238,981
$
875,060
1,363,921
1,000,000
400,000
600,000
$
38,380,351
$
1,275,060
$
37,105,291
Gross
Accumulated
Carrying
December 31, 2005
Amount
Amortization
Amount
$
28,933,009
$
28,933,009
6,900,000
6,900,000
2,188,736
$
500,917
1,687,819
1,000,000
200,000
800,000
$
39,021,745
$
700,917
$
38,320,828
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December 31,
2006
2005
$
1,983,951
$
2,417,342
812,825
796,789
$
2,796,776
$
3,214,131
December 31,
2006
2005
$
671,035
$
871,839
16,745,419
16,545,606
24,881,320
26,596,383
4,282,040
4,051,134
13,282,224
11,955,304
79,685
943,445
59,941,723
60,963,711
(35,592,049
)
(36,621,461
)
$
24,349,674
$
24,342,250
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7.
LONG-TERM DEBT
Long-term debt is comprised of the following:
December 31,
2006
2005
$
74,708,658
$
59,580,171
32,473,810
41,300,000
3,309,113
4,492,435
110,491,581
105,372,606
7,288,474
6,400,416
$
103,203,107
$
98,972,190
In conjunction with the completion of our acquisition of EJ Footwear, we entered into
agreements with GMAC Commercial Finance (GMAC); and American Capital Financial Services, Inc., as
agent, and American Capital Strategies, Ltd., as lender (collectively, ACAS) for credit
facilities totaling $148 million. The credit facilities were used to fund the acquisition of EJ
Footwear. Under the terms of the agreements, the interest rates and repayment terms were: (1) a
five-year $100 million revolving credit facility with an interest rate of LIBOR plus 2.5% or prime
plus 1.0% at our option (a weighted average of 8.31% at December 31, 2006); (2) an $18 million
term loan with an interest rate of LIBOR plus 3.25% or prime plus 1.75% at our option (a weighted
average of 9.0% at December 31, 2006) , payable in equal quarterly installments over three years
beginning in 2005; and (3) a $30 million term loan with an interest rate of LIBOR plus 8.0%,
payable in equal installments from 2008 through 2011. The total amount available on our revolving
credit facility is subject to a borrowing base calculation based on various percentages of accounts
receivable and inventory.
In June 2006, we amended our debt agreement with GMAC to include a new three-year, $15 million term
loan with an interest rate of (1) LIBOR plus 3.25% or (2) prime plus 1.75% at our option (a
weighted average of 9.0% at December 31, 2006), payable over three years beginning in September
2006. The proceeds from the new term loan were used to pay down the $30 million ACAS term loan. In
conjunction with this repayment, we amended the terms of the ACAS term loan, including lowering the
interest rate to LIBOR plus 6.5% (14.3% as of December 31, 2006), adjusting the repayment schedule
to reflect the lower loan balance payable in equal installments from August 2009 to January 2011,
and modifying certain restrictive loan covenants.
The total amount available on our revolving credit facility is subject to a borrowing base
calculation based on various percentages of accounts receivable and inventory. As of December 31,
2006, we had $74.7 million in borrowings under this facility and total capacity of $88.5 million.
Our credit facilities contain certain restrictive covenants, which among other things, require us
to maintain a certain minimum EBITDA and certain leverage and fixed
charge coverage ratios. At December 31, 2006, we had no retained
earnings available for the payment of dividends. In
November 2006, we amended the terms of the restrictive covenants through December 2007 pertaining
to minimum EBITDA, senior and total leverage, and fixed charges. This amendment increased the
interest rate on borrowings under the ACAS agreement to LIBOR plus 8.5%.
As of December 31, 2006, we were in compliance with these restrictive covenants; however the margin
of compliance was minimal. These covenants become more restrictive during 2007 and, after
December 2007, revert to more restrictive covenants contained in
the original agreements. We must improve our operating results and cash flows, or take other action, to meet the covenants in
the future.
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Any failure by us to comply with the restrictive covenants could result in an event of default under the
borrowing agreements, in which case the lenders could elect to declare all amounts outstanding
thereunder to be due and payable, which could have a material adverse effect on our financial
condition.
At December 31, 2006, the carrying amount of the revolving credit facility and term loans
approximates fair value as these are variable rate-based borrowings. The carry amount of the
mortgages also approximates fair value, as this was the available financing in the marketplace
during the year.
Long-term debt maturities are as follows for the years ended December 31:
$
7,288,474
7,314,173
8,013,985
85,091,520
1,249,107
1,534,322
$
110,491,581
As of December 31, 2006, our real estate obligations
incur interest at a rate of 8.275%.
8.
OPERATING LEASES
We lease certain machinery, trucks, and facilities under operating leases that generally
provide for renewal options. We incurred approximately $3,208,000, $3,349,000 and $918,000 in
rent expense under operating lease arrangements for 2006, 2005 and 2004, respectively.
Included in total rent expense above are payments of $60,000 for 2004 for our former Ohio
manufacturing and clearance center facility leased from an entity in which the owners are also
shareholders of the Company. We purchased the facility in January 2005 and relocated our
factory outlet store in Nelsonville, Ohio to this location.
Future minimum lease payments under non-cancelable operating leases are as follows for the
years ended December 31:
$
2,089,000
1,382,000
841,000
454,000
273,000
$
5,039,000
9.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income
Taxes
, which requires an asset and liability approach to financial accounting and reporting
for income taxes. Accordingly, deferred income taxes have been provided for the temporary
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Years Ended December 31,
2006
2005
2004
$
1,669,144
$
3,994,381
$
1,836,232
1,180,717
1,087,396
1,173,870
2,849,861
5,081,777
3,010,102
506,794
844,857
146,858
(835,267
)
47,444
142,195
(328,473
)
892,301
289,053
264,861
283,969
176,845
$
2,786,249
$
6,258,047
$
3,476,000
A reconciliation of recorded Federal income tax expense (benefit) to the expected expense
(benefit) computed by applying the applicable Federal statutory rate for all periods to income
before income taxes follows:
Years Ended December 31,
2006
2005
2004
$
2,668,345
$
6,745,160
$
4,224,637
(560,000
)
(560,000
)
(639,347
)
(610,771
)
(580,009
)
883,952
157,000
(117,031
)
579,993
187,884
(9,670
)
103,665
46,488
$
2,786,249
$
6,258,047
$
3,476,000
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Deferred income taxes recorded in the consolidated balance sheets at December 31, 2006 and
2005 consist of the following:
December 31,
2006
2005
$
1,378,597
$
2,165,517
524,288
965,006
585,524
956,779
509,487
1,810,740
2,997,896
5,898,042
(402,958
)
(314,332
)
2,594,938
5,583,710
(812,882
)
(1,295,038
)
(14,438,017
)
(15,377,356
)
(149,712
)
(189,333
)
78,694
(776,137
)
(379,271
)
(379,271
)
(15,701,188
)
(18,017,135
)
$
(13,106,250
)
$
(12,433,425
)
$
3,902,775
$
133,783
(17,009,025
)
(12,567,208
)
$
(13,106,250
)
$
(12,433,425
)
A valuation allowance related to certain state and local income tax net operating
losses was established, of which $314,332 relates to the acquisition of the EJ Footwear Group.
In 2006, approximately $2,200,000 of our accumulated earnings in Five Star became subject to income
taxes under Subpart F of the Internal Revenue Code resulting in an income tax provision of
$883,952. Also, in 2006, our U.S. income tax exemption for income from operations in Puerto Rico
expired.
A provision of the American Jobs Creation Act of 2004 (the AJCA) created a temporary incentive
for U.S. corporations to repatriate undistributed income earned abroad by providing an 85%
dividends received deduction for certain dividends from non-U.S. subsidiaries. During 2004, we
recorded a provision of $157,000 for the US taxes on the anticipated repatriation of $3,000,000 of
accumulated undistributed earnings of Five Star pursuant to the repatriation provisions of the
AJCA. During 2005, we repatriated $3,000,000 of accumulated earnings in accordance with our plan.
We have provided Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated
undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that would be
payable if such earnings were repatriated to the United States. In 2001, we received abatement for
Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994, thus no other provision for
tollgate tax has been made on earnings after that date. If we repatriate the earnings from
Lifestyle, approximately $379,000 of tollgate tax would be due.
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As of December 31, 2006, we had approximately $10,134,000 of undistributed earnings from
non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations.
Because these earnings are considered permanently reinvested, no U.S. tax provision has been
accrued related to the repatriation of these earnings. If the Five Star and Rocky Canada
undistributed earnings were distributed to the Company in the form of dividends, the related
taxes on such distributions would be approximately $2,939,000 and $608,000, respectively.
10.
RETIREMENT PLANS
We sponsor a noncontributory defined benefit pension plan covering our non-union workers in
our Ohio and Puerto Rico operations. Benefits under the non-union plan are based upon years
of service and highest compensation levels as defined. We contribute to the plan the minimum
amount required by regulation. On December 31, 2005 we froze the noncontributory defined
benefit pension plan for all non-U.S. territorial employees. As a result of freezing the plan,
we recognized a charge for previously unrecognized service costs of approximately $0.4 million
in the first quarter of 2006.
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Net pension cost of our plan is as follows:
Years Ended December 31,
2006
2005
2004
$
292,093
$
523,863
$
512,317
519,969
529,059
646,052
(791,557
)
(683,722
)
(684,297
)
85,614
141,642
12,149
16,306
16,306
100,867
135,393
135,393
$
133,521
$
606,513
$
767,413
Our unrecognized benefit obligation existing at the date of transition for the plan is being
amortized over 21 years. Actuarial assumptions used in the accounting for the plan was as follows:
December 31,
2006
2005
6.00%
5.75%
3.00%
3.00%
8.00%
8.00%
Our pension plans asset allocations at September 30, 2006 and 2005 by asset category are:
December 31,
2006
2005
9.3
%
20.1
%
72.4
%
63.9
%
14.4
%
12.6
%
3.9
%
3.4
%
100.0
%
100.0
%
Our investment objectives are to: (1) maintain the purchasing power of the current assets and
all future contributions; (2) maximize return within reasonable and prudent levels of risk; (3)
maintain an appropriate asset allocation policy (approximately 80% equity securities and 20% debt
securities) that is compatible with the actuarial assumptions, while still having the potential to
produce positive returns; and (4) control costs of administering the plan and managing the
investments.
Our desired investment result is a long-term rate of return on assets that is at least 8%. The
target rate of return for the plans have been based upon the assumption that returns will
approximate the long-term rates of return experienced for each asset class in our investment
policy. Our investment guidelines are based upon an investment horizon of greater than five years,
so that interim fluctuations should be viewed with appropriate perspective. Similarly, the Plans
strategic asset allocation is based on this long-term perspective
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The expected benefit payments for pensions are as follows for the years ended December 31:
$
329,000
339,000
340,000
350,000
357,000
2,863,000
$
4,578,000
We do not anticipate making any contributions to the pension plan in 2007.
We sponsored a non-contributory defined benefit plan for certain union employees. The plan was
frozen in September 2001 and terminated March 2004. The settlement of the plan resulted in a gain
of $63,228 in 2004.
We also sponsor a 401(k) savings plan for substantially all of our employees. We provide a
contribution of 3% of applicable salary to the plan for all employees with greater than six months
of service. Additionally, we match eligible employee contributions at a rate of 0.25%, per one
percent of applicable salary contributed to the plan by the employee. This matching contribution
will be made by us up to a maximum of 1% of the employees applicable salary for all qualified
employees. Our contributions to the 401(k) plan were $1.1 million in 2006, $0.5 million in 2005
and none in 2004.
11.
COMMITMENTS AND CONTINGENCIES
We are, from time to time, a party to litigation which arises in the normal course of its
business. Although the ultimate resolution of pending proceedings cannot be determined, in
the opinion of management, the resolution of such proceedings in the aggregate will not have a
material adverse effect on our financial position, results of operations, or liquidity.
Management is currently pursuing reimbursement from the U.S. military for costs associated
with raw material purchases of $1.6 million. These raw material purchases were made
exclusively for production under a subcontract for the U.S. military. Subsequent to the
purchase of raw materials, the subcontract was cancelled for convenience by the U.S. military.
Management expects this matter to be resolved in 2007. No matters have occurred to indicate
the reimbursement will not be made in full.
12.
CAPITAL STOCK AND STOCK BASED COMPENSATION
The Company has authorized 250,000 shares of voting preferred
stock without par value. No shares are issued or outstanding. Also, the Company has authorized 250,000 shares of
non-voting preferred stock without par value. Of these, 125,000 shares have been designated
Series A non-voting convertible preferred stock with a stated value of $.06 per share, of which
no shares are issued or outstanding at December 31, 2006 and 2005, respectively.
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In November 1997, our Board of Directors adopted a Rights Agreement, which provides for one
preferred share purchase right to be associated with each share of our outstanding common stock.
Shareholders exercising these rights would become entitled to purchase shares of Series B Junior
Participating Cumulative Preferred Stock. The rights may be exercised after the time when a person
or group of persons without the approval of the Board of Directors acquire beneficial ownership of
20 percent or more of our common stock or announce the initiation of a tender or exchange offer
which if successful would cause such person or group to beneficially own 20 percent or more of the
common stock. Such exercise may ultimately entitle the holders of the rights to purchase for $80
per right, our common stock having a market value of $160. The person or groups effecting such 20
percent acquisition or undertaking such tender offer will not be entitled to exercise any rights.
These rights expire November 2007 unless earlier redeemed by us under circumstances permitted by
the Rights Agreement.
During 2006, the shareholders voted to increase our
authorized shares from 10,000,000 to 25,000,000.
On January 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment (SFAS
123(R)), which requires that companies measure and recognize compensation expense at an amount
equal to the fair value of share-based payments granted under compensation arrangements. Prior to
January 1, 2006, the Company accounted for its stock-based compensation plans under the recognition
and measurement principles of Accounting Principles Board (APB) Opinion 25, Accounting for Stock
Issued to Employees, and related interpretations, and recognized no compensation expense for stock
option grants because all options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant.
We adopted SFAS 123(R) using the modified prospective method, which results in no restatement of
prior period amounts. Under this method, the provisions of SFAS 123(R) apply to all awards granted
or modified after the date of adoption. In addition, compensation expense must be recognized for
any unvested stock option awards outstanding as of the date of adoption on a straight-line basis
over the remaining vesting period. We calculate the fair value of options using a Black-Scholes
option pricing model. For the twelve-month period ended December 31, 2006, our compensation
expense related to stock option grants was approximately $391,674. The per share impact of
adoption of SFAS 123(R) was $0.07 for both basic and diluted earnings per share. As of December
31, 2006, there was a total of $290,315 of unrecognized compensation expense related to unvested
stock option awards that will be recognized as an expense as the awards vest over the next four
years. For companies that adopt SFAS 123(R) using the modified prospective method, disclosure of
pro forma information for periods prior to adoption must continue to be presented. The following
table sets forth the effect on net income and earnings per share as if SFAS 123 Accounting for
Stock-Based Compensation had been applied to the years ended December 31, 2005 and 2004.
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Years Ended December 31,
2005
2004
$
13,013,839
$
8,594,392
1,488,928
1,003,446
$
11,524,911
$
7,590,946
$
2.48
$
1.89
$
2.19
$
1.67
$
2.33
$
1.74
$
2.06
$
1.53
The pro forma amounts may not be representative of the effects on reported net income for
future years.
On October 11, 1995, we adopted the 1995 Stock Option Plan which provides for the issuance of
options to purchase up to 400,000 common shares. In May 1998, we adopted the Amended and Restated
1995 Stock Option Plan which provides for the issuance of options to purchase up to an additional
500,000 common shares. In addition in May 2002, our shareholders approved the issuance of a total
of 400,000 additional common shares of our stock under the 1995 Stock Option Plan. All employees,
officers, directors, consultants and advisors providing services to us are eligible to receive
options under the Plans. On May 11, 2004 our shareholders approved the 2004 Stock Incentive Plan.
The 2004 Stock Incentive Plan includes 750,000 of our common shares that may be granted for stock
options and restricted stock awards. As of December 31, 2006, the Company is authorized to issue
449,000 options under the 2004 Stock Incentive Plan; no options can be granted under the amended
and restated 1995 Stock Option Plan.
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The plans generally provide for grants with the exercise price equal to fair value on the date of
grant, graduated vesting periods of up to 5 years, and lives not exceeding 10 years. The following
summarizes stock option transactions from January 1, 2004 through December 31, 2006:
Weighted
Weighted
Average
Average
Number of
Exercise
Remaining
Aggregate
Options
Price
Actual Term
Intrinsic Value
658,851
$
14.49
15,000
$
13.61
(62,675
)
$
6.57
(75,000
)
$
22.39
536,176
$
14.33
3.9
$
2,810,998
443,426
$
13.39
3.6
$
2,665,860
92,750
$
18.81
5.6
$
145,138
$
8.24
$
11.99
$
8.97
In determining the estimated fair value of each option granted on the date of grant we use
the Black-Scholes option-pricing model with the following weighted-average assumptions used for
grants:
2006
2005
2004
0
%
0
%
0
%
50
%
51
%
51
%
4.55
%
4.13
%
3.28
%
6
4
4
During the years ended December 31, 2006, 2005 and 2004,
a total of 62,675, 182,699 and 330,700 options were exercised with an
intrinsic value of approximately $0.7 million, $3.6 million
and $5.0 million, respectively. During the years ended
December 31, 2006, 2005 and 2004, a total of
15,000, 199,000 and 175,000 options were issued with a fair value of
approximately $0.1 million, $2.4 million and
$1.6 million, respectively. During the year ended
December 31, 2006, a total of 75,000 options were forfeited with a fair value of approximately $0.7
million. A total of 207,312, 193,562 and 234,626 options vested
during the years ended December 31, 2006, 2005 and 2004, with a fair
value of $1.6 million, $1.2 million and $0.8 million,
respectively. At December 31, 2006, a total of 92,750 options were unvested with a fair
value of $0.8 million. At December 31, 2005, a total of 285,062 options were unvested with a fair
value of $2.7 million. All unvested options as of December 31, 2006 are expected to vest.
In 2005, we issued 3,000 restricted common shares to certain
executives and recorded compensation expense of $85,860, which was
fair market value on date of grant. The shares vested on January 1,
2006.
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13.
CLOSURE OF MANUFACTURING OPERATIONS
In September 2001, the Board of Directors approved a restructuring plan to consolidate and
realign the Companys footwear manufacturing operations. Under this plan, the Company moved
the footwear manufacturing operations at its Nelsonville, Ohio factory to the Companys
factory in Puerto Rico. The restructuring plan was completed in the fourth quarter of 2001.
In 2004, we made the final payments under the plan and recorded a gain of $63,228.
14.
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information including other cash paid for interest and Federal, state
and local income taxes was as follows:
Years Ended December 31,
2006
2005
2004
$
10,919,865
$
8,312,707
$
1,317,991
$
4,365,744
$
3,138,517
$
5,126,694
$
$
11,573,838
$
$
43,830
$
19,625
$
$
372,183
$
$
15.
SEGMENT INFORMATION
Operating Segments
We operate our business through three business segments: wholesale,
retail and military.
Wholesale.
In our wholesale segment, our products are offered in over ten thousand retail
locations representing a wide range of distribution channels in the U.S. and Canada. These
distribution channels vary by product line and target market and include sporting goods
stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass
merchants, uniform stores, farm store chains, specialty safety stores and other specialty
retailers.
Retail.
In our retail segment, we sell our products directly to consumers through our Lehigh
mobile and retail stores, our Rocky outlet store and our websites. Our Lehigh operations
include a fleet of 78 trucks, supported by 40 small warehouses that include retail stores,
which we refer to as mini-stores. Through our outlet store, we generally sell first quality or
discontinued products in addition to a limited amount of factory damaged goods, which
typically carry lower gross margins. Prior to our acquisition of the EJ Footwear Group and its
Lehigh division, our retail segment represented only a small portion of our business.
Military.
While we are focused on continuing to build our wholesale and retail business, we
also actively bid, from time to time, on footwear contracts with the U.S. military. As of
December 31, 2006, we do not have any contracts to produce goods for the U.S. military. As a
result, our military sales fluctuate from year to year.
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The following is a summary of segment results for the Wholesale, Retail, and Military segments.
Years Ended December 31,
2006
2005
2004
$
203,195,421
$
209,947,672
$
109,689,040
59,207,094
58,423,840
4,017,359
1,088,865
27,651,102
18,542,564
$
263,491,380
$
296,022,614
$
132,248,963
$
79,033,568
$
76,374,412
$
34,738,851
30,180,144
30,323,950
1,114,364
103,674
4,530,764
2,789,148
$
109,317,386
$
111,229,126
$
38,642,363
Product Group Information
The following is supplemental information on net sales by product
group:
% of
% of
% of
2006
Sales
2005
Sales
2004
Sales
$
142,076,453
53.9
%
$
140,426,831
47.4
%
$
13,438,818
10.2
%
35,451,267
13.5
%
42,039,534
14.2
%
49,020,109
37.1
%
41,261,105
15.7
%
40,433,142
13.7
%
8,897,666
6.7
%
17,078,111
6.5
%
16,803,095
5.7
%
18,501,811
14.0
%
1,088,865
0.4
%
27,651,102
9.3
%
18,542,564
14.0
%
16,151,170
6.1
%
18,446,792
6.2
%
18,477,727
14.0
%
10,384,409
3.9
%
10,222,118
3.5
%
5,370,268
4.1
%
$
263,491,380
100
%
$
296,022,614
100
%
$
132,248,963
100
%
Net sales to foreign countries, primarily Canada, represented approximately 2.1% in 2006, 2.7%
of net sales in 2005, and 2.1% of net sales in 2004.
Table of Contents
16.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for the years
ended December 31, 2006 and 2005:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Year
$
57,525,164
$
57,297,505
$
78,114,725
$
70,553,986
$
263,491,380
24,915,957
24,073,292
32,116,190
28,211,947
109,317,386
893,230
(215,625
)
4,219,552
(77,875
)*
4,819,282
$
0.17
$
(0.04
)
$
0.78
$
(0.01
)
$
0.89
$
0.16
$
(0.04
)
$
0.76
$
(0.01
)
$
0.86
$
61,498,084
$
65,519,637
$
94,087,786
$
74,917,107
$
296,022,614
24,207,872
25,723,239
34,073,477
27,224,538
111,229,126
1,094,454
2,804,895
6,508,436
2,606,054
13,013,839
$
0.21
$
0.53
$
1.23
$
0.49
$
2.48
$
0.20
$
0.50
$
1.15
$
0.46
$
2.33
No cash dividends were paid during 2006 or 2005.
*
The fourth quarter of 2006 includes an impairment loss of approximately $483,000 or $.09
per share, net of tax.
(a) | the division of such shares into series and the designation and authorized number of shares of each series; | ||
(b) | the annual dividend rate on the shares; | ||
(c) | the dates of payment of dividends, whether the dividends shall be cumulative and, if cumulative, the date from which dividends shall accumulate; | ||
(d) | the redemption price or prices for the particular series, if redeemable, and the terms and conditions of such redemption; | ||
(e) | sinking fund requirements, if any; | ||
(f) | the preference, if any, of the shares of such series in the event of any voluntary or involuntary liquidation, dissolution, or winding up of affairs of the Corporation; | ||
(g) | the right, if any, of the shares of such series to be converted into shares of any other series or class and the terms and conditions of such conversion; and | ||
(h) | any other relative rights, preferences, and limitations of that series. |
-2-
(a) | the division of such shares into series and the designation and authorized number of shares of each series; | ||
(b) | the annual dividend rate on the shares; | ||
(c) | the dates of payment of dividends, whether the dividends shall be cumulative and, if cumulative, the date from which dividends shall accumulate; | ||
(d) | the redemption price or prices for the particular series, if redeemable, and the terms and conditions of such redemption; | ||
(e) | sinking fund requirements, if any; | ||
(f) | the preference, if any, of the shares of such series in the event of any voluntary or involuntary liquidation, dissolution, or winding up of affairs of the Corporation; | ||
(g) | the right, if any, of the shares of such series to be converted into shares of any other series or class and the terms and conditions of such conversion; and | ||
(h) | any other relative rights, preferences, and limitations of that series. |
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-4-
-5-
-6-
-7-
-8-
-9-
-10-
-11-
-12-
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-14-
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(i) | The best interest of the shareholders; for this purpose the Board shall consider, among other factors, not only the consideration being offered in the Acquisition Proposal, in relation to the then current market price, but also in relation to the then current value of the Corporation in a freely negotiated transaction and in relation to the Board of Directors then estimate of the future value of the Corporation as an independent entity, the business and financial conditions and earnings prospects of the acquiring person or persons, and the competence, experience and integrity of the acquiring person or persons and its or their management; and | ||
(ii) | such other factors as the Board of Directors determines to be relevant, including, among other factors, the social, legal and economic effects of the Acquisition Proposal upon employees, suppliers, customers and business. |
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ROCKY SHOES & BOOTS, INC.
|
||||
By: | /s/ Mike Brooks | |||
Mike Brooks, President | ||||
By: | /s/ Curtis A. Loveland | |||
Curtis A. Loveland, Secretary | ||||
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541
|
Page 1 of 2 | Last Revised: May 2002 |
541
|
Page 2 of 2 | Last Revised: May 2002 |
Signature | Title | |
|
||
/s/ Mike Brooks
|
Chairman, Chief Executive Officer, and a Director (Principal Executive Officer) | |
|
||
/s/ James E. McDonald
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | |
|
||
/s/ Curtis A. Loveland
|
Secretary and a Director | |
|
||
/s/ J. Patrick Campbell
|
Director | |
|
||
/s/ Glenn E. Corlett
|
Director | |
|
||
/s/ Michael L. Finn
|
Director | |
|
||
/s/ G. Courtney Haning
|
Director | |
|
||
/s/ Harley E. Rouda, Jr.
|
Director | |
|
||
/s/ James L. Stewart
|
Director |
1. | I have reviewed this annual report on Form 10-K of Rocky Brands, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | ||
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Mike Brooks | ||||
Mike Brooks | ||||
Chairman and Chief Executive Officer |
1. | I have reviewed this annual report on Form 10-K of Rocky Brands, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | ||
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ James E. McDonald | ||||
James E. McDonald | ||||
Executive Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Mike Brooks | ||||
Mike Brooks | ||||
Chief Executive Officer | ||||
March 15, 2007 | ||||
/s/ James E. McDonald | ||||
James E. McDonald | ||||
Executive Vice President and Chief Financial Officer | ||||
March 15, 2007 | ||||
Balance | Additions | |||||||||||||||||||
Balance at | Acquired | Charged to | ||||||||||||||||||
Beginning of | From EJ | Costs and | Balance at | |||||||||||||||||
DESCRIPTION | Period | Footwear | Expenses | Deductions | End of Period | |||||||||||||||
ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
||||||||||||||||||||
Year ended December 31, 2006
|
$ | 984,800 | $ | | $ | 520,620 | $ | (667,420 | )(1) | $ | 838,000 | |||||||||
Year ended December 31, 2005
|
$ | 715,000 | $ | 603,592 | $ | 106,799 | $ | (440,591 | )(1) | $ | 984,800 | |||||||||
Year ended December 31, 2004
|
$ | 620,000 | $ | | $ | 76,189 | $ | 18,811 | (1) | $ | 715,000 | |||||||||
|
||||||||||||||||||||
VALUATION ALLOWANCE FOR DEFERRRED TAX ASSETS
|
||||||||||||||||||||
Year ended December 31, 2006
|
$ | 314,332 | $ | | $ | 88,626 | $ | | $ | 402,958 | ||||||||||
Year ended December 31, 2005
|
$ | | $ | 314,332 | (2) | $ | | $ | | $ | 314,332 | |||||||||
Year ended December 31, 2004
|
$ | | $ | | $ | | $ | | $ | |
(1) | Amount charged off, net of recoveries. | |
(2) | To the extent the valuation allowance acquired from EJ Footwear Group is reduced, this reduction will be reflected as a reduction of goodwill. |