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FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1943
COMMISSION FILE NUMBER: 0-21026
ROCKY SHOES & BOOTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO NO. 31-1364046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39 EAST CANAL STREET
NELSONVILLE, OHIO 45764
(Address of principal executive offices, including zip code)
(740) 753-1951
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value Preferred Stock Purchase Rights
Indicate by checkmark 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, and (2) has been subject to the
filing requirements for at least the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $18,069,310 on March 16,
2001.
There were 4,489,215 shares of the Registrant's Common Stock
outstanding on March 16, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual
Meeting of Shareholders are incorporated by reference in Part III.
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This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"anticipate," "believe," "expect," "estimate," and "project" and similar words
and expressions identify forward-looking statements which speak only as of the
date hereof. Investors are cautioned that such statements involve risks and
uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors, including, but not
limited to, the factors discussed in "Business - Business Risks." The Company
undertakes no obligation to publicly update or revise any forward-looking
statements.
PART I
ITEM 1. BUSINESS.
Rocky Shoes & Boots, Inc. has two subsidiaries: Five Star Enterprises
Ltd. ("Five Star"), a Cayman Islands corporation, which operates a manufacturing
facility in La Vega, Dominican Republic, and Lifestyle Footwear, Inc.
("Lifestyle"), a Delaware corporation, which operates two manufacturing
facilities in Moca, Puerto Rico. Unless the context otherwise requires, all
references to "Rocky" or the "Company" include Rocky Shoes & Boots, Inc. and its
subsidiaries.
OVERVIEW
The Company is the successor to the business of The Wm. Brooks Shoe
Company, a company established in 1932 by William Brooks, who was later joined
by F. M. Brooks, the grandfather of the Company's current Chairman, President
and Chief Executive Officer, Mike Brooks. The business was sold in 1959 to a
company headquartered in Lancaster, Ohio. John W. Brooks, the father of Mike
Brooks, remained as an employee of the business when it was sold. In 1975, John
W. Brooks formed John W. Brooks, Inc. (later known as Rocky Shoes & Boots Co.
("Rocky Co.")) as an Ohio corporation, reacquired the Nelsonville, Ohio
operating assets of the original company and moved the business's principal
executive offices back to Nelsonville, Ohio. In 1993, the Company, Rocky Co.,
Lifestyle and Five Star were parties to a reorganization, and in 1996, Rocky Co.
was merged with and into the Company, resulting in the Company's present
corporate structure.
Following completion of the Company's initial public offering in
1993, the Company began to convert all of its factories to a modular "Team
Pass-Through" manufacturing system. This system substantially increased total
manufacturing capacity and operating efficiencies. Most of the Company's
footwear is manufactured in the Company's facilities located in Nelsonville,
Ohio, the Dominican Republic and Puerto Rico, and the balance of the footwear is
sourced from factories in China. The Company purchases raw materials from a
number of domestic and foreign sources. The principal raw materials used in the
production of the Company's footwear, in terms of dollar value, are leather,
GORE-TEX waterproof breathable fabric, CORDURA nylon fabric and soling
materials. The Company's footwear is distributed nationwide and in Canada from
the Company's finished goods distribution facility located near Logan, Ohio. The
Company stores finished goods in this facility until they are used to fill an
order. If the product ordered is in inventory, it can be shipped to customers
within two days of the order.
In the past, the Company has benefited from a relatively low
effective tax rate. The Company receives favorable tax treatment on income
earned by its subsidiary in Puerto Rico and benefits from local tax abatements
available to such subsidiary. Beginning in the fourth quarter of Fiscal 1996,
the Company elected to repatriate future earnings of its subsidiary in the
Dominican Republic. The repatriation of earnings from its subsidiary in the
Dominican Republic is subject to U.S. federal income tax, but is exempt from
state and local taxation. In 1999, the Company elected not to repatriate all
1999 and future earnings of its subsidiary in the Dominican Republic.
Consequently, no income taxes are provided on these cumulative earnings of
approximately $5,109,000.
ROCKY(R) is a federally registered trademark of Rocky Shoes & Boots, Inc. This
report also refers to trademarks of corporations other than the Company. See
"Business - Patents, Trademarks and Trade Names."
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STRATEGY
The Company's objective is to increase sales within its core product
categories and to also leverage the ROCKY brand into new markets. This strategy
is pursued with products that emphasize the reputation of the Company's footwear
for performance, innovation, quality, comfort and durability. Key elements of
the Company's strategy are as follows:
Maintain Performance, Innovation and Quality. Performance, innovation
and quality are hallmarks of the ROCKY brand. The Company believes it has
developed a competitive advantage through its ability to produce high quality
performance footwear incorporating premium materials such as GORE-TEX waterproof
breathable fabric. The Company continually strives to develop innovative
products in each of its footwear market segments. In Fiscal 2000, the Company
introduced an extensive line of scent suppressant footwear featuring the
ROCKY(R) Scent Control System(TM) as well as ROCKY(R) TMC Series of occupational
shoes. The Company stresses quality control at every stage of its manufacturing
process. Each manufacturing facility is staffed with trained quality assurance
personnel, and a portion of manufacturing employees' compensation is based on
the level of product quality of their work groups.
Increase Awareness of the ROCKY Brand. The Company believes that its
long-term reputation for performance, innovation and quality has increased
awareness of the ROCKY brand. To increase the brand's strength, the Company has
reformulated its advertising strategy by shifting the focus from the retail
trade directly to the consumer. A key component of this new strategy includes
advertising through cost-effective cable broadcasts to audiences which share the
demographic profile of the Company's typical customers. Similarly, the Company
has shifted its national print advertising campaign to more consumer-oriented
publications. Management believes that by directly targeting the consumer it can
convey a broader and more consistent image of ROCKY, thereby increasing demand
for its products at higher retail prices.
Leverage the ROCKY Brand. The Company believes the ROCKY brand has
become a recognizable and established name for performance quality-conscious
consumers in the rugged outdoor and occupational segments of the men's footwear
market. The Company intends to continue leveraging ROCKY with a major emphasis
on broadening its share of the occupational shoe market, especially steel toe
work shoes. Additionally, the Company licenses ROCKY for use on certain
complementary products, such as socks, hats and accessories in an effort to
increase brand recognition.
Utilize Exclusive Rocky-Focused Sales Force. The Company has
historically sold its footwear through manufacturers' representatives who
carried ROCKY brand products as well as other non-competing products. Late in
1995, the Company began replacing its manufacturers' representatives with
exclusive sales representatives who sell only ROCKY brand products. This was
implemented in an effort to ensure full representation of its complete product
line and consistent support of its customers. At December 31, 2000, all of the
Company's sales representatives were working exclusively for the Company.
Capitalize on Manufacturing Process. The Company manufactures its
products under a twin-plant concept by producing its labor intensive "upper
portion" in its lower wage rate plants in the Dominican Republic and Puerto Rico
and completing its footwear in any of its three plants, depending on the type of
construction. Those styles most technologically advanced are finished in
Nelsonville, Ohio where it uses state-of-the-art bottoming techniques. In early
1999, the Company began to manufacture opening price point hunting boots in the
Dominican Republic, at which time the Company moved a substantial portion of its
bottoming operation from its Nelsonville, Ohio facility to Puerto Rico and the
Dominican Republic. During the second half of 2000, employment in its
Nelsonville, Ohio manufacturing facility declined by 78 positions to 69
positions by December 31, 2000. The Company utilizes a modular "Team
Pass-Through" manufacturing system in each of its manufacturing facilities. The
Company believes that this system, which allows each person to perform a number
of different tasks, is superior to a traditional assembly line approach which
requires each person to perform a single repetitive task. This system increases
the number of pairs of footwear produced per square foot of manufacturing space,
reduces work-in-process inventory and direct labor and improves production
yields. In addition, the Company believes its manufacturing process allows a
quick response to changes in product demand and consumer preferences.
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Expand Product Sourcing. The Company's sourced products represented
approximately 36% of net sales in 2000. The Company sources products which are
manufactured to its specifications from independent manufacturers in the Far
East. This enables the Company to offer product for sale at price points that
cannot generally be achieved with products manufactured in its own plants.
The Company can achieve higher initial gross margin on sourced
footwear than is attainable on footwear manufactured in its own factories. The
Company employs a full-time quality assurance staff to inspect each shipment
sourced in the Far East. All of the Company's sourced products are designed by
the Company's design and engineering team. All product sourcing is planned and
implemented under the direction and supervision of the Company's Director of
Sourcing.
PRODUCT LINES
The Company's product lines consist of rugged outdoor, occupational
and casual footwear. ROCKY brand products emphasize quality, patented materials,
such as GORE-TEX waterproof breathable fabric, CORDURA nylon fabric, CAMBRELLE
cushioned lining and THINSULATE thermal insulation. The following table
summarizes the Company's product lines:
RUGGED OUTDOOR OCCUPATIONAL CASUAL
-------------- ------------ ------
TARGET MARKET........................ Hunters and outdoorsmen Law enforcement and Retail customers of
military personnel, premium casual wear
security guards, postal
workers, paramedics,
industrial workers and
construction workers
SUGGESTED RETAIL
PRICE RANGE.......................... $59 - 259 $69 - $179 $69 - $189
DISTRIBUTION CHANNELS................ Sporting goods stores, Retail uniform stores, Independent retail stores,
outdoor specialty stores, mail order catalogs, sporting goods stores,
mail order catalogs, specialty safety stores mail order catalogs and
independent retail stores and sporting goods stores
mass merchandisers
COMPANY'S LEADING BEAR CLAW, BEAR CLAW II, ELIMINATOR, ROCKY 911 ROCKY ROCKERS and
BRAND NAMES.......................... JASPER, PRO HUNTER, and SERIES, ALPHA FORCE GORE TEX HANDSEWN
WILD WOLF(R) by Rocky(R) WORKSMART, and WORKMAX FOOTWEAR
Rugged Outdoor Footwear. Rugged outdoor footwear is the Company's
largest product line, representing $61.8 million, or 60.4%, of Fiscal 2000 net
sales. The Company's rugged outdoor footwear consists of all season
sport/hunting boots that are typically waterproof and insulated and a line of
rubber footwear. Rubber footwear was introduced by the Company in 1998 and
consists of patterned and non-patterned camouflage knee boots, chest and hip
waders and insulated cold weather pack boots. These products are designed to
keep outdoorsmen comfortable in extreme conditions. Most of the Company's rugged
outdoor footwear have outsoles which are designed to provide excellent
cushioning and traction. Although Rocky's rugged outdoor footwear is regularly
updated to incorporate new camouflage patterns, the Company believes its
products in this category are relatively insensitive to changing fashion trends.
Occupational Footwear. Occupational footwear, the Company's second
largest product line, represented $28.0 million, or 27.3%, of Fiscal 2000 net
sales. All occupational footwear styles are designed to be comfortable,
flexible, lightweight, slip resistant and durable and are typically worn by
people who are required to spend a majority of their time at work on their feet.
Several of the Company's occupational footwear products are similar in design to
certain of the Company's rugged outdoor footwear styles, except the Company's
occupational footwear is primarily black in color and features innersole support
systems. This product category includes work/steel toe footwear designed for
industrial, construction and manufacturing workers who
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demand leather work boots that are durable, flexible and comfortable. The
Company increased its emphasis of work steel toe footwear in 2000.
Casual Footwear. Sales of the Company's casual footwear were $6.2
million in Fiscal 2000, accounting for 6.0% of net sales. The Company's casual
products target the upscale segment of the market and include well-styled,
comfortable leather shoes of a variety of constructions, including traditional
handsewn. Most of the Company's footwear in this segment is waterproof and
highly functional for outdoor activity. The Company reduced its emphasis on the
Casual Footwear segment in 2000. While continuing to offer high performance
rugged casual footwear, the emphasis is on marketing this line through the
traditional dealer base.
Factory outlet stores. The Company operates factory outlet stores in
Nelsonville, Ohio and Westpoint, Mississippi. Products principally include
factory damaged goods and close-outs from the Company and Rocky licensed
products. In addition, related products from other manufacturers are sold in the
stores. For 2000, net sales for factory outlet stores were $5.9 million, or 5.7%
of the Company's total net sales.
Other. The Company manufactures and/or markets a variety of
accessories, including GORE-TEX waterproof oversocks, GORE-TEX waterproof
booties, innersole support systems, foot warmers, laces and foot powder.
GORE-TEX waterproof oversocks are sold under the ROCKY brand and as private
label products. Sales of other products were $0.6 million in Fiscal 2000.
Net Sales Composition. The following table indicates the percentage
of net sales derived from each major product line and the factory outlet store
for the periods indicated. Historical percentages may not be indicative of the
Company's future product mix.
FISCAL FISCAL FISCAL
2000 1999 1998
---- ---- ----
Rugged outdoor ...................... 60.4% 52.0% 53.7%
Occupational ........................ 27.3 30.5 26.9
Casual .............................. 6.0 9.1 9.1
Factory outlet stores................ 5.7 5.3 5.5
Other................................ 0.6 3.1 4.8
-------- -------- --------
100.0% 100.0% 100.0%
======== ======== ========
PRODUCT DESIGN AND DEVELOPMENT
Product design and development are initiated both internally by the
Company's development staff and externally by customers and suppliers. The
Company's product development personnel, marketing personnel and sales
representatives work closely together to identify opportunities for new styles,
camouflage patterns, design improvements and the incorporation of new materials.
These opportunities are reported to the Company's development staff which
oversees the development and testing of the new footwear. The Company strives to
develop products which respond to the changing needs and tastes of consumers
under time constraints imposed by the market. As part of the design process, the
Company maintains a computer aided design system, which significantly shortens
the development period for new footwear styles.
SALES, MARKETING AND ADVERTISING
The Company has developed comprehensive marketing and advertising
programs to gain national exposure and create brand awareness for the ROCKY
brand products in targeted markets. By creating strong brand awareness, the
Company seeks to increase the general level of retail demand for its products,
expand the customer base and increase brand loyalty. The Company's footwear is
sold by more than 3,000 retail and mail order companies in the United States and
Canada. The Company's largest customers include: Bass Pro Shops, Inc., Cabela's,
Inc., Dick's Clothing and Sporting Goods, Gander
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Mountain, and Wal-Mart for rugged outdoor footwear; Fecheimer Brothers Uniforms,
Inc., Galls, Inc. and R & R Uniforms, Inc. for occupational footwear. No single
customer accounted for more than 10% of the Company's revenues in Fiscal 2000.
The Company's sales and marketing personnel are responsible for
developing and implementing all aspects of advertising and promotion of the
Company's products. In addition, the Company maintains a network of 51 exclusive
sales representatives and manufacturers' representatives, operating in 30
geographic territories, who sell the Company's products throughout the United
States and in Canada. The Company has historically sold its products through
manufacturers' representatives who carried ROCKY brand products as well as other
non-competing products. Currently, 100% of the Company's sales force is
comprised of exclusive sales representatives. The Company also changed its sales
and manufacturing representatives compensation program by setting performance
goals based on sales growth, development of new accounts and increased
penetration of existing accounts with new products. The Company's exclusive
sales representatives are paid on a commission basis and are responsible for
sales, service and follow-up.
The Company advertises and promotes the ROCKY brand through a variety
of methods, including product packaging, national print and television
advertising and a telemarketing operation. In addition, the Company attends
numerous tradeshows, which have historically been an important source of new
orders, and also works to establish the ROCKY brand within the trade industry.
The Company's marketing personnel have developed a product list, product catalog
and dealer support system which includes attractive point-of-sale displays and
co-op advertising programs.
The Company believes its long-term reputation for quality has
increased awareness of the ROCKY brand. To further increase the strength of its
brand, the Company has targeted the majority of its advertising efforts toward
end consumers. A key component of this strategy includes advertising through
cost-effective cable broadcasts aimed at audiences which share the demographic
profile of the Company's typical customers. Similarly, the Company has shifted
its national print advertising campaign to several consumer publications:
including: Field & Stream, North American Hunter, Outdoor Life, Men's Journal,
Police and Security News, Rescue and Law and Order. The Company's print
advertisements and television commercials emphasize the waterproof nature of the
Company's footwear as well as its high quality, comfort, functionality and
durability. Management believes that by continuing to target consumers, the
ROCKY brand will become more recognizable and establish it as an overall leader
in the industry leading to greater retail demand for the product.
MANUFACTURING AND SOURCING
The Company manufactures its products under a twin-plant concept by
producing the labor intensive "upper portions" in its lower wage rate plants in
the Dominican Republic and Puerto Rico, followed by completion of the bottoming
process at any of the Company's three facilities. The most technologically
advanced styles are completed in Nelsonville, Ohio where it uses
state-of-the-art bottoming techniques. In early 1999, the Company began to
manufacture opening price point hunting boots in the Dominican Republic. The
Company moved a substantial portion of its production to Puerto Rico and the
Dominican Republic. During 2000 the Company reduced employment in its
Nelsonville, Ohio manufacturing facility. By December 31, 2000, 78 manufacturing
positions had been eliminated, leaving 69 manufacturing employees engaged in the
most technologically advanced bottoming operations employed by the Company. The
Company utilizes a modular "Team Pass-Through" manufacturing system in each of
its manufacturing facilities. The Company believes that this system, which
allows each person to perform a number of different tasks, is superior to a
traditional assembly line approach, which requires each person to perform a
single repetitive task. This system increases the production per square foot of
manufacturing space, reduces work-in-process inventory and direct labor and
improves production yields. In addition, the Company believes that its
manufacturing process allows it to respond quickly to changes in product demand
and consumer preferences.
Quality control is stressed at every stage of the manufacturing
process and is monitored by trained quality assurance personnel at each of the
Company's manufacturing facilities. Every pair of ROCKY footwear, or its
component parts, produced at the Company's facilities is inspected at least five
times during the manufacturing process with some styles inspected up to nine
times. Every GORE-TEX waterproof fabric bootie liner is individually tested by
filling it with compressed air and submerging it in water to verify that it is
waterproof. Quality control personnel at the finished goods distribution
facility located near Logan, Ohio conduct quality control testing on incoming
sourced finished goods and raw materials and inspect random samples from
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the finished goods inventory from each of the Company's manufacturing facilities
to ensure that all items meet the Company's high quality standards. A portion of
the manufacturing employees' compensation is based on the level of product
quality of their work groups.
The majority of the Company's footwear is produced in its own
facilities in Nelsonville, Ohio, the Dominican Republic and Puerto Rico. The
Company sources some footwear from manufacturers in the Far East, primarily
China, which in fiscal 2000 accounted for approximately 36% of net sales. During
late 1998, the Company entered into a joint venture with a factory in China to
develop GORE-TEX footwear products. Pursuant to the joint venture, the Company
supplied the technology and know-how to the factory to become W. L. Gore
certified. The Company believes this supplier improved sourced product quality.
A greater portion of the Company's products may be sourced in the future since
the Company can achieve higher initial gross margins on sourced footwear. The
Company sources products to reach price points that it cannot obtain with
products manufactured in its own facilities. The Company will source products
from outside facilities only if the Company believes that these facilities will
maintain the high quality that has become associated with ROCKY brand footwear.
All product sourcing is planned and implemented under the direction and
supervision of the Company's Director of Sourcing.
As part of the Company's quality control process, the Company uses
employees in its China office to visit foreign factories to conduct quality
control reviews of raw materials, work in process inventory, and finished goods.
In addition, upon arrival at the Company's Ohio distribution center, another
inspection of sourced footwear is conducted by the Director of Quality Control.
The Company does not use hedging instruments with respect to foreign sourced
products.
Compliance with federal, state and local regulations with respect to
the environment has not had any material effect on the earnings, manufacturing
process, capital expenditures or competitive position of the Company. Compliance
with such laws or changes therein could have a negative impact in the future.
SUPPLIERS
The Company purchases raw materials from a number of domestic and
foreign sources. The Company does not have any long-term supply contracts for
the purchase of its raw materials, except for limited blanket orders on leather
to protect wholesale selling prices for an extended period of time. The
principal raw materials used in the production of the Company's footwear, in
terms of dollar value, are leather, GORE-TEX waterproof breathable fabric,
CORDURA nylon fabric and soling materials. The Company believes that these
materials will continue to be available from its current suppliers, and, with
the exception of GORE-TEX waterproof breathable fabric, there are acceptable
present alternatives to these suppliers and materials.
GORE-TEX waterproof fabric is purchased under license directly from
W. L. Gore & Associates, Inc. ("Gore"). A majority of the Company's footwear
incorporates GORE-TEX waterproof breathable fabric. The Company, which has been
a customer of Gore since 1980, was the first footwear manufacturer licensed by
Gore to manufacture, promote, sell and distribute footwear worldwide using
GORE-TEX waterproof breathable fabric. The Company is currently one of the
largest customers of GORE-TEX waterproof breathable fabric for footwear.
Although other waterproofing techniques or materials are available, the Company
places a high value on its GORE-TEX license because the GORE-TEX trade name has
high brand name recognition and the GORE-TEX waterproof breathable fabric used
in the manufacture of ROCKY footwear has a reputation for quality and proven
performance.
Under the Company's licensing agreement with Gore, a prototype or
sample of each style of shoe or boot designed and produced by the Company that
incorporates GORE-TEX waterproof breathable fabric must be tested and approved
by Gore before the Company is permitted to manufacture or sell commercial
quantities of that style of footwear. Gore's testing involves immersing the
Company's footwear prototype for days in a water exclusion tester and flexing
the prototype 500,000 times, simulating a 500-mile march through several inches
of water. The prototype is then placed in a sweat absorption and transmission
tester to measure "breathability," which is the amount of perspiration that can
escape from the footwear.
All of the Company's GORE-TEX fabric footwear is guaranteed to be
waterproof for one year from the date of purchase. When a customer claims that a
product is not waterproof, the product is returned to the Nelsonville, Ohio
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manufacturing facility for further testing. If the product fails this testing
process, it is either replaced or credit is given, at the customer's discretion.
The Company believes that the claims associated with this guarantee have been
consistent with guarantee claims in the footwear industry.
SEASONALITY AND WEATHER
The Company has historically experienced significant seasonal
fluctuations in the sale of rugged outdoor footwear. A majority of orders are
placed in January through April for delivery in July through October. In order
to meet demand, the Company must manufacture rugged outdoor footwear year round
to be in a position to ship advance orders during the last two quarters of each
calendar year. Accordingly, average inventory levels have been highest during
the second and third quarters of each calendar year and sales have been highest
in the last two quarters of each calendar year. Because of seasonal
fluctuations, there can be no assurance that the results for any particular
interim period will be indicative of results for the full year or for future
interim periods.
Many of the Company's products, particularly its rugged outdoor
footwear line, are used by consumers in cold or wet weather. Mild or dry weather
conditions can have a material adverse effect on sales of the Company's
products, particularly if they occur in broad geographical areas during late
fall or early winter. Also, due to variations in weather conditions from year to
year, results for any single quarter or year may not be indicative of results
for any future quarter or year.
Footwear retailers in general have begun placing orders closer to the
selling season. This increases the Company's business risk because it must
produce and carry inventories for relatively longer periods. In addition, the
later placement of orders may change the historical pattern of orders and sales
and increase the seasonal fluctuations in the Company's business. There can be
no assurance that the results for any particular interim period or year will be
indicative of results for the full year or for any future interim period or
year.
BACKLOG
At December 31, 2000 and December 31, 1999, backlog was $6.7 and $7.7
million, respectively. Because a majority of the Company's orders are placed in
January through April for delivery in July through October, the Company's
backlog is lowest during the October through December period and peaks during
the April through June period. Factors other than seasonality could have a
significant impact on the Company's backlog and, therefore, the Company's
backlog at any one point in time may not be indicative of future results.
Generally, orders may be canceled by customers prior to shipment without
penalty.
PATENTS, TRADEMARKS AND TRADE NAMES
The Company owns numerous United States patents for shoe upper and
shoe sole designs. The Company is not aware of any infringement of its patents
or that it is infringing any patents owned by third parties.
The Company owns United States federal registrations for its marks
ROCKY(R), ROCKY BOOTS(R) (which claims a ram's head Design as part of the mark),
ROCKY BOOTS and Design(R) (which claims a ram's head Design as part of the
mark), BEAR CLAW(R), CORNSTALKERS(R), COME WALK WITH U.S. and Design(R),
TAC-TEAM and Design(R), ROCKY 911 SERIES and Design(R), SNOW STALKER(R), 4 WAY
STOP and Design(R), ROCKY and Design(R) for cigars, ROCKY SHOES & BOOTS INC.
SINCE 1932 and Design(R) plus a detailed full ram Design, and STALKERS(R).
Additional mark variations for ROCKY BOOTS(R) and Design (which claims a ram's
head Design as part of the mark), AQUAGUARD(TM), FORMZ(TM), SILENTHUNTER(TM),
PROHIKER(TM), ROCKY ELIMINATOR(TM), PROHUNTER(TM), LONGBEARD(TM), RAMDRYTM, and
FIRSTMEDTM are the subject of pending United States federal applications for
registration. In addition, the Company uses and has common law rights in the
marks ROCKY(R) MOUNTAIN STALKERS(R), and other ROCKY(R) marks. During 1994, the
Company began to increase distribution of its goods in several countries,
including countries in Western Europe, Canada and Japan. The Company has applied
for trademark registration of its ROCKY(R) mark in a number of foreign
countries.
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The Company also uses in its advertising and in other documents the
following trademarks owned by corporations other than the Company: GORE-TEX(R)
and CROSSTECH(R) are registered trademarks of W.L. Gore & Associates, Inc.;
CORDURA(R) is a registered trademark of E.I. DuPont de Nemours and Company;
THINSULATE(R) is a registered trademark of Minnesota Mining and Manufacturing
Company; and CAMBRELLE(R) is a trademark of Koppers Industries, Inc. The Company
is not aware of any material conflicts concerning its marks or its use of marks
owned by other corporations.
COMPETITION
The Company operates in a very competitive environment. Product
function, design, comfort, quality, technological improvements, brand awareness,
timeliness of product delivery and pricing are all important elements of
competition in the markets for the Company's footwear. The Company believes
that, based on these factors, it competes favorably in its rugged outdoor
footwear and occupational footwear market niches. Many of the Company's
competitors have greater financial, distribution and marketing resources. The
Company has at least five major competitors in each of its markets. All of these
competitors have strong brand name recognition in the markets they serve.
The footwear industry is subject to rapid changes in consumer
preferences. The Company's casual product line and certain styles within its
rugged outdoor and occupational product lines are susceptible to fashion trends.
Therefore, the success of these products and styles are more dependent on the
Company's ability to anticipate and respond to changing fashion trends and
consumer demands within its niche market in a timely manner. The Company's
inability or failure to do so could adversely affect consumer acceptance of
these product lines and styles and could have a material adverse effect on the
Company's business, financial condition and results of operations.
EMPLOYEES
At December 31, 2000, the Company had approximately 1,167 full-time
employees and 27 part-time employees. Approximately 915 of these full-time
employees are in the Dominican Republic and Puerto Rico. The Company has
approximately 794 employees engaged in production and the balance in managerial
and administrative positions. The production employees at the Nelsonville, Ohio
facility are represented by the Union of Needletrades, Industrial and Textile
Employees ("UNITE"). The current collective bargaining agreement between the
Company and the union was reached in May 2000 and will expire in May 2001. The
Company has initiated negotiations concerning its collective bargaining
agreement with UNITE. The Company believes the agreement is consistent with
other contracts in the footwear industry. Management considers its relations
with all of its employees, both union and non-union, to be good.
BUSINESS RISKS
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
addition to the other information in this report, readers should carefully
consider that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual consolidated results of operations for fiscal 2001
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Dependence on Sales Forecasts. The Company's investments in
infrastructure and product inventory are based on sales forecasts and are
necessarily made in advance of actual sales. The markets in which the Company
does business are highly competitive, and the Company's business is affected by
a variety of factors, including brand awareness, changing consumer preferences,
product innovations, fashion trends, retail market conditions, weather
conditions and economic and other factors. One of management's principal
challenges is to improve its ability to predict these factors, in order to
enable the Company to better match production with demand. In addition, the
Company's growth over the years has created the need to increase these
investments in infrastructure and product and to enhance the Company's
operational systems. To the extent sales forecasts are not achieved, costs
associated with infrastructure and carrying cost of product inventory would
represent a higher percentage of revenue, which would adversely affect the
Company's financial performance.
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Changes in Consumer Demand. Demand for the Company's products,
particularly the Company's casual product line and certain styles within its
rugged outdoor and occupational product lines, may be adversely affected by
changing fashion trends. The future success of the Company will depend upon its
ability to anticipate and respond to changing consumer preferences and fashion
trends in a timely manner. The Company's failure to adequately anticipate or
respond to such changes could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, sales of
the Company's products may be negatively affected by weak consumer spending as a
result of adverse economic trends or uncertainties regarding the economy. See
"Business -- Competition."
Seasonality. The Company has historically experienced, and expects to
continue to experience, significant seasonal fluctuations in the sale of its
products. The Company's operating results have varied significantly in the past,
and may vary significantly in the future, partly due to such seasonal
fluctuations. A majority of the orders for the Company's rugged outdoor footwear
are placed in January through April for delivery in July through October. To
meet demand, the Company must manufacture its products year-round. Accordingly,
average inventory levels have been highest during the second and third quarters
of each calendar year, and sales have been highest in the last two quarters of
each calendar year. The Company believes that sales of its products will
continue to follow this seasonal cycle. Additionally, the Company does not have
long-term contracts with its customers. Accordingly, there is no assurance that
the results for any particular quarter will be indicative of results for the
full year or for the future. The Company believes that comparisons of its
interim results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to the factors mentioned
above as well as factors discussed elsewhere in this Form 10-K, it is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock will likely be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Seasonality and Weather."
Impact of Weather. Many of the Company's products, particularly its
rugged outdoor footwear line, are used primarily in cold or wet weather. Mild or
dry weather has in the past and may in the future have a material adverse effect
on sales of the Company's products, particularly if mild or dry weather
conditions occur in broad geographical areas during late fall or early winter.
Also, due to variations in weather conditions from year to year, results for any
single quarter or year may not be indicative of results for any future period.
See "Business -- Seasonality and Weather."
Competition. The footwear industry is intensely competitive, and the
Company expects competition to increase in the future. Many of the Company's
competitors have greater financial, distribution and marketing resources than
the Company. The Company's ability to succeed depends on its ability to remain
competitive with respect to the quality, design, price and timely delivery of
products. Competition could materially adversely affect the Company's business,
financial condition and results of operations. See "Business -- Competition."
Reliance on Suppliers. The Company purchases raw materials from a
number of domestic and foreign sources. The Company does not have any long-term
supply contracts for the purchase of its raw materials, except for limited
blanket orders on leather. The principal raw materials used in the production of
the Company's footwear, in terms of dollar value, are leather, GORE-TEX
waterproof breathable fabric, CORDURA nylon fabric and soling materials. The
Company believes that currently there are acceptable alternatives to these
suppliers and materials, with the exception of the GORE-TEX waterproof
breathable fabric.
The Company is currently one of the largest customers of GORE-TEX
waterproof fabric for use in footwear. The Company's licensing agreement with
W.L. Gore & Associates, Inc. may be terminated by either party upon 90 days
written notice. Although other waterproofing techniques and materials are
available, the Company places a high value on its GORE-TEX waterproof breathable
fabric license because GORE-TEX has high brand name recognition and the GORE-TEX
waterproof fabric used in the manufacture of ROCKY footwear has a reputation for
quality and proven performance. Even though the Company does not believe that
its supply of GORE-TEX waterproof breathable fabric will be interrupted in the
future, no assurance can be given in this regard. The Company's loss of its
license to use GORE-TEX waterproof breathable
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fabric could have a material adverse effect on the Company's competitive
position, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Suppliers."
The Company delivers a majority of shipments to its customers via
United Parcel Service. Possible interruptions of United Parcel Service's service
in the future could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company utilizes other
carriers and the U.S. Postal Service to deliver its shipments.
The Company purchases leather from a number of both domestic and
foreign suppliers. Due to the recent outbreak of disease in European cattle the
worldwide supply of cowhide has been reduced. This situation could cause an
increase in the price of leather later in 2001. The Company believes it has the
ability to increase the price of its footwear in response to this situation
since all of its competitors purchase from the same suppliers.
Changing Retailing Trends. A continued shift in the marketplace from
traditional independent retailers to large discount mass merchandisers has
increased the pressure on many footwear manufacturers to sell products to large
discount mass merchandisers at less favorable margins. Because of competition
from large discount mass merchandisers, a number of small retailing customers of
the Company have gone out of business, and in the future more of these customers
may go out of business, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Although
progressive independent retailers have attempted to improve their competitive
position by joining buying groups, stressing personal service and stocking more
products that address specific local needs, a continued shift to discount mass
merchandisers could have a material adverse effect on the Company's business,
financial condition and results of operations. In fiscal 2000, to offer rugged
outdoor footwear for sale in another segment of retail, the Company established
the Wild Wolf(R) by Rocky(R) brand. This footwear is sold to the mass
merchandise channel of distribution at lower retail prices than historically
available in Rocky brand product. See "Business -- Sales, Marketing and
Advertising."
Reliance on Key Personnel. The development of the Company's business
has been, and will continue to be, highly dependent upon Mike Brooks, Chairman,
President and Chief Executive Officer, and David Fraedrich, Executive Vice
President and Chief Financial Officer, and David Sharp, Vice President-Sales &
Marketing. Each of these executive officers has an at-will employment agreement
with the Company. The employment agreements provide that in the event of
termination of employment with the Company, the employee will receive a
severance benefit and may not compete with the Company for a period of one year.
The Company has obtained key man life insurance on Messrs. Brooks and Fraedrich
in the amount of $1,146,022 and $1,143,602, respectively. The loss of the
services of any of these officers could have a material adverse effect upon the
Company's business, financial condition and results of operations.
Reliance on Foreign Manufacturing. Most of the Company's rugged
outdoor and casual footwear uppers and some opening price point hunting boots
are produced in the Dominican Republic. Therefore, the Company's business is
subject to the risks of doing business offshore, such as: the imposition of
additional United States legislation and regulations relating to imports,
including quotas, duties, taxes or other charges or restrictions; weather
conditions in the Dominican Republic; foreign governmental regulation and
taxation; fluctuations in foreign exchange rates; changes in economic
conditions; changes in the political stability of the Dominican Republic; and
changes in relationships between the United States and the Dominican Republic.
If any such factors were to render the conduct of business in the Dominican
Republic undesirable or impracticable, the Company would have to locate new
facilities for its manufacturing operations. There can be no assurance that
additional facilities would be available to the Company or, if available, that
such facilities could be obtained on terms favorable to the Company. Such a
development would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing
and Sourcing."
Changes in Tax Rates. In past years, the Company's effective tax rate
typically has been substantially below the United States federal statutory
rates. The Company has paid minimal income taxes on income earned by its
subsidiary in Puerto Rico due to tax credits afforded the Company under Section
936 of the Internal Revenue Code and local tax abatements. However, Section 936
of the Internal Revenue Code has been repealed such that future tax credits
available to the Company will be capped beginning in 2002 and terminate in 2006.
In addition, the Company's local tax abatements in Puerto Rico are due to expire
in 2004. Before Fiscal 1996, the Company paid no foreign income tax on the
income generated by its subsidiary in the
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Dominican Republic. Consequently, no income taxes are provided on these
cumulative earnings of approximately $5,109,000. During fourth quarter Fiscal
1996, the Company elected to repatriate future earnings of its subsidiary in the
Dominican Republic. In 1999, the Company elected not to repatriate all 1999 and
future earnings of its subsidiary in the Dominican Republic.
The Company's future tax rate will vary depending on many factors,
including the level of relative earnings and tax rates in each jurisdiction in
which it operates and the repatriation of any foreign income to the United
States. Accordingly, since October 1, 1996, the Company has accrued taxes on all
amounts repatriated and will accrue taxes on future earnings as they are no
longer deemed permanently invested. The Company cannot anticipate future changes
in such laws. Increases in effective tax rates or changes in tax laws may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Manufacturing. The Company currently plans to retain its internal
manufacturing capability in order to continue benefiting from expertise the
Company has gained with respect to footwear manufacturing methods conducted at
its manufacturing facilities. The Company continues to evaluate its
manufacturing facilities and independent manufacturing alternatives in order to
determine the appropriate size and scope of its manufacturing facilities. There
can be no assurance that the costs of products that continue to be manufactured
by the Company can remain competitive with sourced products. On March 1, 2000
the Company announced plans to substantially decrease manufacturing at its
Nelsonville, Ohio plant during 2000 by moving additional production to its
plants in Puerto Rico and the Dominican Republic. The Company completed this
move in the fourth quarter of Fiscal 2000 resulting in a reduction of 78
positions. At December 31, 2000 the Company had 69 people engaged in
manufacturing in Nelsonville, Ohio.
Concentration of Stock Ownership; Certain Corporate Governance
Measures. The directors, executive officers and principal shareholders of the
Company beneficially own approximately 11.7 % of the Company's outstanding
Common Stock. As a result, these shareholders are able to exert significant
influence over all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. The Company has also adopted certain corporate
governance measures which, individually or collectively, could delay or
frustrate the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving the Company even if such events
might be deemed by certain shareholders to be beneficial to the interest of the
shareholders.
Volatility of Market Price. From time to time, there may be
significant volatility in the market price of the Common Stock. The Company
believes that the current market price of its Common Stock reflects expectations
that the Company will be able to continue to market its products profitably and
develop new products with market appeal. If the Company is unable to market its
products profitably and develop new products at a pace that reflects the
expectations of the market, investors could sell shares of the Common Stock at
or after the time that it becomes apparent that such expectations may not be
realized, resulting in a decrease in the market price of the Common Stock.
In addition to the operating results of the Company, changes in
earnings estimates by analysts, changes in general conditions in the economy or
the financial markets or other developments affecting the Company or its
industry could cause the market price of the Common Stock to fluctuate
substantially. In recent years, the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant effect on the
market prices of securities issued by many companies, including the Company, for
reasons unrelated to their operating performance. See "Market for the
Registrant's Common Equity and Related Matters."
Accounting Standards. Changes in the accounting standards promulgated
by the Financial Accounting Standards Board or other authoritative bodies could
have an adverse effect on the Company's future reported operating results.
Environmental and Other Regulation. The Company is subject to various
environmental and other laws and regulations, which may change periodically.
Compliance with such laws or changes therein could have a negative impact on the
Company's future reported operating results.
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Limited Protection of Intellectual Property. The Company regards
certain of its footwear designs as proprietary and relies on patents to protect
those designs. The Company believes that the ownership of the patents is a
significant factor in its business. Existing intellectual property laws afford
only limited protection of the Company's proprietary rights, and it may be
possible for unauthorized third parties to copy certain of the Company's
footwear designs or to reverse engineer or otherwise obtain and use information
that the Company regards as proprietary. The Company believes its patents
provide a measure of security against competition, and the Company intends to
enforce its patents against infringement by third parties. However, if the
Company's patents are found to be invalid, to the extent they have served, or
would in the future serve, as a barrier to entry to the Company's competitors,
such invalidity could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company owns United States federal registrations for a number of
its trademarks, trade names and designs. Additional trademarks, trade names and
designs are the subject of pending federal applications for registration. The
Company also uses and has common law rights in certain trademarks. During 1994,
the Company began to increase distribution of its goods in several foreign
countries. Accordingly, the Company has applied for trademark registrations in a
number of these countries. The Company intends to enforce its trademarks and
trade names against unauthorized use by third parties. See "Business -- Patents,
Trademarks and Trade Names."
Risks Associated with Forward Looking Statements. This Annual Report
on Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which are intended to be covered by the safe harbors created
thereby. Those statements include, but may not be limited to, all statements
regarding the intent, belief and expectations of the Company and its management,
such as statements concerning the Company's future profitability and its
operating and growth strategy. Investors are cautioned that all forward-looking
statements involve risks and uncertainties including, without limitation, the
factors set forth under the caption "Business Risks" in this Annual Report on
Form 10-K and other factors detailed from time to time in the Company's filings
with the Securities and Exchange Commission. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate. Therefore, there can be
no assurance that the forward-looking statements included in this Annual Report
on Form 10-K will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved.
ITEM 2. PROPERTIES.
The Company owns, subject to a mortgage, executive offices and a
factory outlet store which are located in Nelsonville, Ohio in a two-story
25,000 square foot building adjacent to the Company's manufacturing facility.
The first floor of this building, which consists of approximately 12,500 square
feet, houses the Company's factory outlet store which was opened in late 1994.
The second floor houses the Company's executive offices. The Company also owns a
5,000 square foot office building in Nelsonville, Ohio, subject to a mortgage,
which is used to house administrative staff.
The Company owns, subject to a mortgage, a 98,000 square foot
distribution warehouse in Nelsonville, Ohio. This facility is currently used to
receive and warehouse raw materials and footwear uppers, and houses the footwear
returns department.
The Company leases a 41,000 square foot facility in Nelsonville,
Ohio, from the William Brooks Real Estate Company, which is 20% owned by Mike
Brooks, President and Chief Executive Officer of the Company. This building is
used for manufacturing and houses additional outlet store retail space. The
lease expires in April 2003 and is renewable for two five-year terms.
Lifestyle leases two manufacturing facilities, T-1236-0-87 which
contains 44,978 sq. ft. and T-1236-1-82-00 which contains 39,581 sq. ft. in
Moca, Puerto Rico. These buildings are leased from the Puerto Rico Industrial
Development Company under a net non-cancelable operating lease which expires in
2009.
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Five Star's manufacturing facility, consisting of three connected
buildings and a stand-alone building, is located in a tax-free trade zone in the
Dominican Republic. Five Star leases 82,600 square feet of this facility from
the Dominican Republic Corporation for Industrial Development (the "DRCID")
under a Consolidation of Lease Contract, dated as of December 13, 1993, the term
of which expires on February 1, 2003. Five Star leases an additional stand-alone
32,000 square feet from the DRCID under a temporary lease. The Company is
currently negotiating a permanent lease for the 32,000 square foot facility.
The Company leases a 3,900 square foot retail outlet store in
Westpoint, Mississippi in October of 1998, pursuant to a lease which expires
October 30, 2001.
The Company owns, subject to a mortgage, a finished goods
distribution facility near Logan, Ohio. The building contains 192,000 square
feet and is situated on 17.9 acres of land. The finished goods distribution
facility became fully operational in the first quarter of 2000. The company has
an option on an additional four acres of land.
ITEM 3. LEGAL PROCEEDINGS.
The Company is, 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 the Company's financial position, results of operations, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
The Company's Common Stock trades on the Nasdaq National Market under
the symbol "RCKY." The following table sets forth the range of high and low
sales prices for the Common Stock for the periods indicated, as reported by the
Nasdaq National Market:
QUARTER ENDED HIGH LOW
- ------------- ---- ---
March 31, 1999.................................... 6.75 4.75
June 30, 1999..................................... 9.38 4.81
September 30, 1999................................ 8.50 5.53
December 31, 1999................................. 8.13 6.63
March 31, 2000.................................... 7.53 3.69
June 30, 2000..................................... 6.53 4.88
September 30, 2000................................ 5.47 4.63
December 31, 2000................................. 5.38 3.75
On March 16, 2001, the last reported sales price of the Common Stock
on the Nasdaq National Market was $4.56 per share. As of March 16, 2001, there
were approximately 172 shareholders of record of the Common Stock.
The Company presently intends to retain its earnings to finance the
growth and development of its business and does not anticipate paying any cash
dividends in the foreseeable future. Future dividend policy will depend upon the
earnings and financial condition of the Company, the Company's need for funds
and other factors. Presently, the Line of Credit restricts the payment of
dividends on the Common Stock. At December 31, 2000, the Company had no retained
earnings available for distribution.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except for per share data)
FIVE YEAR FINANCIAL SUMMARY
---------------------------
12/31/00 12/31/99 12/31/98 12/31/97 12/31/96
-------- -------- -------- -------- --------
INCOME STATEMENT DATA
Net sales ........................ $102,451 $ 98,099 $88,699 $95,027 $73,148
Gross margin % of sales .......... 23.3% 15.1% 23.1% 27.1% 24.7%
Net income (loss) ................ $ 96 $ (5,130) $ 2,262 $ 4,761 $ 2,806
BALANCE SHEET DATA
Inventories ...................... $ 32,035 $ 32,573 $47,110 $32,894 $25,390
Total assets ..................... 86,051 89,333 96,598 80,955 58,090
Working capital .................. 50,201 48,468 67,468 55,988 30,609
Long-term debt, less current
maturities .................... 26,445 25,177 26,878 13,407 19,520
Shareholders' equity ............. 50,326 50,229 59,635 59,197 26,375
PER SHARE
Net income (loss):
Basic ...................... $ 0.02 $ (1.09) $ 0.42 $ 1.16 $ 0.77
Diluted .................... $ 0.02 $ (1.09) $ 0.41 $ 1.10 $ 0.74
Weighted average number of common
shares outstanding:
Basic ...................... 4,489 4,710 5,425 4,088 3,666
Diluted .................... 4,493 4,710 5,527 4,330 3,776
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
References to Fiscal 2000, 1999 and 1998 are to Fiscal years of the
Company ended December 31 of the respective year.
PERCENTAGE OF NET SALES
2000 1999 1998
---- ---- ----
Net sales................................................. 100.0% 100.0% 100.0%
Costs of goods sold....................................... 76.7 84.9 76.9
------- ------- ------
Gross margin.............................................. 23.3 15.1 23.1
Selling, general and administrative expenses.............. 20.2 20.4 19.4
------- ------- ------
Income (Loss) from operations............................. 3.1% (5.3%) 3.7%
======= ======= ======
FISCAL 2000 COMPARED TO FISCAL 1999
NET SALES
Net sales rose 4.4% to $102,451,376 for Fiscal 2000 compared with
$98,099,184 for Fiscal 1999. This increase was due to higher sales in the rugged
outdoor category, especially Wild Wolf(R) by Rocky(R) footwear, initial
shipments of which were made during third quarter 2000. This new line increases
the availability of ROCKY branded footwear in an additional segment of the
rugged outdoor category. Occupational sales for Fiscal 2000 were $1.9 million
below the prior year. This is primarily due to more sales of footwear at lower
price points than during the prior year. The Company reduced its emphasis on
casual footwear sales during the second half of Fiscal 2000. As a result, these
net sales were $2.6 million below the prior year. Average list prices for the
Company's product were approximately 2% higher in Fiscal 2000 than in 1999.
GROSS MARGIN
Gross margin increased $8,991,868, or 60.6%, to $23,834,284 in Fiscal
2000 versus $14,842,416 in 1999. As a percentage of net sales, gross margin
improved to 23.3% in Fiscal 2000 from 15.1% in 1999. This gross margin
improvement is attributable to changing product mix, a significant shift in
production during Fiscal 2000 to the Company's lower wage rate factories in the
Caribbean, and an inventory reduction program implemented during fourth quarter
1999. The Company is committed to increasing gross margin through improved
operating efficiencies in its own factories and higher production levels of
ROCKY branded sourced footwear. Net sales of sourced footwear grew to 36% of net
sales in Fiscal 2000 from 26% last year.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general & administrative ("SG&A") expenses increased
$628,790, or 3.1%, to $20,649,147 in Fiscal 2000 compared to $20,020,357 in
1999. As a percentage of net sales, SG&A declined slightly to 20.2% from 20.4%
in Fiscal 1999. SG&A compared to the prior year included increased commissions
from the higher net sales and costs associated with the finished goods
distribution center, which began operations in first quarter 2000. During the
fourth quarter of Fiscal 2000 the Company reorganized the sales force, reduced
its emphasis on casual footwear, and achieved productivity improvements in the
finished goods distribution facility. The Company believes that these actions
will have a positive effect on operations in Fiscal 2001. In addition, an
ongoing cost reduction program will continue to be implemented throughout the
Company.
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INTEREST EXPENSE
Interest expense rose $938,706, or 38.9%, to $3,354,388 for Fiscal
2000 from $2,415,682 in Fiscal 1999, principally due to higher rates of interest
that prevailed during Fiscal 2000 compared to the prior year. On September 18,
2000 the Company entered into a revolving line of credit agreement with another
lender, which also includes a higher borrowing limit, subject to certain levels
of collateralized assets of the Company.
OTHER INCOME
Other income-net increased $212,970 to $449,257 in Fiscal 2000
compared to $236,287 in Fiscal 1999. The higher level of other income-net is
primarily due to increased licensing income.
INCOME TAXES
The Company recognized income tax expense of $183,464 for Fiscal 2000
compared with an income tax benefit of $2,227,579 for Fiscal 1999. The current
year expense resulted from income generated in Rocky Shoes & Boots, Inc. and the
Dominican Republic offset by losses in the Company's Puerto Rican subsidiary.
The Company's effective tax rate of 65.5% reflects permanent differences, prior
year rate reconcilement adjustments and favorable tax treatment in Puerto Rico
and the Dominican Republic. Effective in 2000, the Company intends to reinvest
accumulated undistributed earnings of Five Star, which amounted to $5,109,000 as
of December 2000, in the Dominican Republic. As a result of this decision, no
taxes were provided on the 2000 earnings of the Company's Dominican Republic
subsidiary.
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES
Net sales rose 10.6% to $98,099,184 for Fiscal 1999 compared with
$88,699,413 for Fiscal 1998. A significant portion of this increase was due to
higher sales in the Company's occupational and rugged outdoor footwear
categories. The occupational category grew approximately $6.0 million in Fiscal
1999 versus the prior year, benefiting from additional styles and increased
market acceptance of the Company's branded products. The rugged outdoor
category, which includes all season sport/hunting boots that are typically
waterproof and insulated, and a line of rubber footwear, increased approximately
$3.4 million in Fiscal 1999 compared with a year ago. Sales of rubber footwear,
which were introduced in Fiscal 1998, were particularly strong compared to
Fiscal 1998. Casual footwear sales rose $0.9 million for Fiscal 1999 compared to
Fiscal 1998. Average list prices for the Company's products were approximately
2% higher in Fiscal 1999 than the prior year.
GROSS MARGIN
Gross margin declined $5,671,956 to $14,842,416 in Fiscal 1999 from
$20,514,372 in Fiscal 1998. As a percentage of net sales, gross margin was 15.1%
for Fiscal 1999 versus 23.1% for Fiscal 1998. The Company ended Fiscal 1998 with
higher than anticipated inventory and implemented plans during Fiscal 1999 to
bring it into line with expected sales, including an aggressive inventory
reduction program during the fourth quarter of the year. Manufacturing
inefficiencies resulting from relocating certain production operations to the
Company's Dominican Republic facilities throughout the second half of Fiscal
1999, as well as the sale of certain inventory at low or negative margins during
fourth quarter 1999, adversely impacted Fiscal 1999 gross margin compared to
Fiscal 1998. As a result of the inventory reduction program, the Company
established a reserve of $445,000 for inventories where the estimated net
realizable value is deemed to be less than cost. The reserve was recorded in
cost of goods sold.
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SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general & administrative ("SG&A") expenses increased
$2,812,146 to $20,020,357 for Fiscal 1999 from $17,208,211 for Fiscal 1998. As a
percentage of net sales, SG&A expenses were 20.4% for Fiscal 1999 versus 19.4%
the prior year. This was principally due to substantially higher costs to
temporarily operate four warehouse facilities and additional shipping costs
while the Company's finished goods distribution center was being constructed and
substantially completed in December 1999. In addition, the Company expanded the
use of co-op advertising during Fiscal 1999 to support sales.
INTEREST EXPENSE
Interest expense rose $681,071 to $2,415,682 for Fiscal 1999 versus
$1,734,611 for Fiscal 1998. The higher interest expense was attributable to
additional interest expense associated with the higher than anticipated
inventory during most of Fiscal 1999, the Company's share repurchase program,
and somewhat higher interest rates in Fiscal 1999 versus Fiscal 1998.
OTHER INCOME
Other income-net decreased $454,786 to $236,287 in Fiscal 1999
compared to $691,073 in Fiscal 1998. The lower other income is due to a decrease
in interest income earned on the Company's lower average cash balances in 1999
compared to 1998, and fewer cash discounts earned on early payments of trade
payables.
INCOME TAXES
The Company recognized an income tax benefit of $2,227,579 for Fiscal
1999 compared with income tax expense of $426 for Fiscal 1998. The current year
benefit resulted from losses generated in Rocky Shoes & Boots, Inc., offset by
income earned in the Dominican Republic and losses in the Company's Puerto Rican
subsidiary. The primary components of the income tax benefit were a net
operating loss carry back of $1,671,000 and a net operating loss carry forward
of $1,794,000 which was offset by a $822,000 reduction of the uniform
capitalization costs as a result of reduced inventory levels. The Company's
effective tax benefit rate of 31.1% reflects favorable tax treatment in Puerto
Rico and the Dominican Republic. Effective in 1999, the Company intends to
reinvest accumulated undistributed earnings of Five Star, which amounted to
$5,109,000 as of December 1999, in the Dominican Republic. As a result of this
decision, no taxes were provided on the 1999 earnings of the Company's Dominican
Republic subsidiary. In addition, Section 936 of the Internal Revenue Code has
been repealed such that future tax credits available to the Company will be
capped beginning in 2002 and terminate in 2006. The Company receives abatements
on its Commonwealth and municipal taxes on its subsidiary in Puerto Rico.
LIQUIDITY AND CAPITAL RESOURCES
The Company principally funds its working capital requirements and
capital expenditures through net income, borrowings under its credit facility
and other indebtedness. During Fiscal 2000 the Company principally relied upon
borrowings under its revolving credit facility. Working capital is primarily
used 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 the months of January through March of each year and highest
during the months of May through October of each year. The Company had working
capital of $50,200,965 and $48,467,902 at December 31, 2000 and 1999,
respectively.
Inventory was $32.0 million at December 31, 2000 or 1.7% lower than
on the same date of the prior year. Factors that contributed to this decline
included an inventory management program and full operation of the finished
goods distribution facility since first quarter 2000. The Company believes its
inventory levels at December 31, 2000 are in line with anticipated Fiscal 2001
sales in each footwear category.
19
20
The Company also requires capital to support additions to machinery,
equipment and facilities as well as the introduction of new footwear styles.
Capital expenditures for Fiscal 2000 were $3.1 million compared to $9.7 million
the prior year. Capital expenditures are anticipated to be lower in Fiscal 2001
compared to Fiscal 2000.
On September 18, 2000 the Company completed a revolving line of
credit agreement with maximum borrowing limits of $50,000,000 subject to certain
levels of accounts receivable and inventory, which is $8,000,000 higher than the
previous agreement. The agreement expires September 17, 2003. As of December 31,
2000, the Company had borrowed $20,491,101 against its available line of credit
of $25,371,101. At December 31, 2000, the Company did not comply with certain
bank covenants. On March 27, 2001, the Company obtained a waiver from the bank
with respect to such events of noncompliance and amended these covenants through
2001.
During first quarter 2000, the Company completed mortgage financing
with GE Capital for three of its facilities totaling $6,300,000, with monthly
payments of $63,100 to 2014. Proceeds from the financing were used to pay down
borrowings under the revolving credit facility.
The Company's financing activities during Fiscal 2000 were to support
future growth. No single activity represented a significant amount of the total
expenditures. In Fiscal 1999 the largest financing activity was the repurchase
of 685,100 shares of common stock for $4,300,000. This was primarily financed
through increased borrowings under the Company's revolving credit facility. The
Company believes it will be able to finance capital additions and meet operating
expenditure requirements for Fiscal 2001 through net income, borrowings under
its credit facility and other indebtedness.
INFLATION
The Company cannot determine the precise effects of inflation;
however, inflation continues to have an influence on the cost of raw materials,
salaries and employee benefits. The Company attempts to minimize or offset the
effects of inflation through increased selling prices, productivity
improvements, and reduction of costs.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended, which are intended to be covered by
the safe harbors created thereby. Those statements include, but may not be
limited to, all statements regarding the intent, belief and expectations of the
Company and its management, such as statements concerning the Company's future
capital expenditures. Investors are cautioned that all forward-looking
statements involve risks and uncertainties including, without limitation,
dependence on sales forecasts, changes in consumer demand, seasonality, impact
of weather, competition, reliance on suppliers, changing retail trends, as well
as other factors set forth under the caption "Business Risks" in this Annual
Report on Form 10-K and other factors detailed from time to time in the
Company's filings with the Securities and Exchange Commission. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate.
Therefore, there can be no assurance that the forward-looking statements
included herein will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. The Company assumes no obligation to update any forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk results from fluctuations in
interest rates. The Company is also exposed to changes in the price of
commodities used in its manufacturing operations. However, commodity price risk
related to the Company's current commodities is not material as price changes in
commodities are usually passed along to the final customer. The Company does not
hold any material market risk sensitive instruments for trading purposes.
20
21
The Company has the following three items that are market rate
sensitive for interest rates: (1) Long-term debt consists of a credit facility
with a balance at December 31, 2000 of $20,491,101. Interest is payable monthly
at the bank's LIBOR rate plus 250 basis points or prime plus 25 basis points.
(2) The Company also has equipment and other obligations at December 31, 2000,
that bear interest at fixed and variable rates ranging from 3.0% to Prime rate
plus one-quarter percent (0.25%). (3) The Company has a real estate obligations
at December 31, 2000, that bear interest at a fixed and variable rates of 7.625%
to 8.275%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial balance sheets as of December
31, 2000 and 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 2000,
1999, and 1998, together with the independent auditors' report thereon appear on
pages F-1 through F-21 hereof, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
21
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is included under the captions
"ELECTION OF DIRECTORS" and "INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE
OFFICERS, AND PRINCIPAL SHAREHOLDERS - EXECUTIVE OFFICERS" and "SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Company's Proxy Statement for
the 2001 Annual Meeting of Shareholders (the "Proxy Statement") to be held on
May 23, 2001, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under the captions
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
in the Company's Proxy Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under the caption
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - OWNERSHIP OF COMMON STOCK BY MANAGEMENT" and "- OWNERSHIP OF
COMMON STOCK BY PRINCIPAL SHAREHOLDERS," in the Company's Proxy Statement, and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is included under the caption
"INFORMATION CONCERNING THE DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL
SHAREHOLDERS - COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in
the Company's Proxy Statement, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) The following Financial Statements are included in this Annual
Report on Form 10-K on the pages indicated below:
Independent Auditors' Report............................................................. F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999............................. F-2 - F-3
Consolidated Statements of Operations for the fiscal years ended
December 31, 2000, 1999, and 1998..................................................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal
years ended December 31, 2000, 1999, and 1998......................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 2000, 1999, and 1998..................................................... F-6
Notes to Consolidated Financial Statements for the fiscal years ended
December 31, 2000, 1999, and 1998..................................................... F-7 - F-21
22
23
(2) The following financial statement schedule for the fiscal years
ended December 31, 2000, 1999, and 1998 is included in this
Annual Report on Form 10-K and should be read in conjunction with
the Consolidated Financial Statements contained in the Annual
Report.
Schedule II -- Consolidated Valuation and Qualifying Accounts.
Independent Auditors' Report on Financial Statement Schedule.
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the Consolidated Financial Statements or the notes thereto.
23
24
(3) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Second Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Annual Report on Form 10-K for the fiscal year ended December
31, 1997).
3.2 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").
4.1 Form of Stock Certificate for the Company (incorporated by
reference to Exhibit 4.1 to the Registration Statement).
4.2 Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh,
Twelfth, and Thirteenth of the Company's Amended and Restated
Articles of Incorporation (see Exhibit 3.1).
4.3 Articles I and II of the Company's Code of Regulations (see
Exhibit 3.2).
10.1 Form of Employment Agreement, dated July 1, 1995, for
executive officers (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995 (the "1995 Form 10-K")).
10.2 Information concerning Employment Agreements substantially
similar to Exhibit 10.1 (incorporated by reference to Exhibit
10.2 to the 1995 Form 10-K).
10.3 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).
10.4 Information concerning Deferred Compensation Agreements
substantially similar to Exhibit 10.3 (incorporated by
reference to Exhibit 10.4 to the Registration Statement).
10.5 Form of Company's amended 1992 Stock Option Plan
(incorporated by reference to Exhibit 10.5 to the 1995 Form
10-K).
10.6 Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.6 to the Registration Statement).
10.7 Indemnification Agreement, dated December 21, 1992, between
the Company and Mike Brooks (incorporated by reference to
Exhibit 10.10 to the Registration Statement).
10.8 Information concerning Indemnification Agreements
substantially similar to Exhibit 10.7 (incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993 (the "1993
Form 10-K")).
10.9 Trademark License Agreement and Manufacturing Certification
Agreement, each dated May 14, 1994, between Rocky Shoes &
Boots Co. and W. L. Gore & Associates, Inc. (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994 (the "1994
Form 10-K")).
24
25
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.10 Decree of Tax Exemption from the Government of the
Commonwealth of Puerto Rico (incorporated by reference to
Exhibit 10.13 to the Registration Statement).
10.10A English Translation of Addendum to Exhibit 10.16
(incorporated by reference to Exhibit 10.13A to the
Registration Statement).
10.11 Lease Agreement, dated May 1, 1998, as amended, between Rocky
Shoes & Boots Co. and William Brooks Real Estate Company
regarding Nelsonville factory (incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
10.12 Lease Contract, dated August 31, 1988, between Lifestyle
Footwear, Inc. and The Puerto Rico Industrial Development
Company regarding factory location 1 (incorporated by
reference to Exhibit 10.15 to the Registration Statement).
10.13 Lease Contract, undated, between Lifestyle Footwear, Inc. and
The Puerto Rico Industrial Development company regarding
factory location 2 (incorporated by reference to Exhibit
10.16 to the Registration Statement).
10.13A English translation of Exhibit 10.13 (incorporated by
reference to Exhibit 10.16A to the Registration Statement).
10.14 Lease Agreement, dated December 13, 1993, between Five Star
Enterprises Ltd. and the Dominican Republic Corporation for
Industrial Development regarding buildings and annexes of a
combined manufacturing surface of 75,526 square feet, located
in the Industrial Free Zone of La Vega (incorporated by
reference to Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 (the
"September 30, 1995 Form 10-Q")).
10.14A English translation of Exhibit 10.20 (incorporated by
reference to Exhibit 10.2A to the September 30, 1995 Form
10-Q).
10.15 Term Lease Master Agreement, dated April 27, 1993, between
the Company and IBM Credit Corporation (incorporated by
reference to Exhibit 10.22 to the 1993 Form 10-K).
10.16 Adjustable Rate Note, dated May 23, 1988, between Nelsonville
Home and Savings Association and Rocky Shoes & Boots Co.
(incorporated by reference to Exhibit 10.25 to the
Registration Statement).
10.17 Form of Company's 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).
10.18 Form of Stock Option Agreement under the 1995 Stock Option
Plan (incorporated by reference to Exhibit 10.28 to the 1995
Form 10-K).
10.19 Letter Agreement between the Company and the Kravetz Group,
dated August 3, 1994 (incorporated by reference to Exhibit
No. 10.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995).
10.20 Loan Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes
& Boots Co. (incorporated by reference to Exhibit 10.43 to
the 1995 Form
25
26
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10-K).
10.21 Promissory Note, dated October 7, 1994, by Rocky Shoes &
Boots Co. to the Director of Development of the State of Ohio
(incorporated by reference to Exhibit 10.44 to the 1995 Form
10-K).
10.22 Security Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes
& Boots Co. (incorporated by reference to Exhibit 10.45 to
the 1995 Form 10-K).
10.23 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).
10.24 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).
10.25 Termination of Buy-Sell Agreement, dated August 18, 1998,
among the Company, Mike Brooks, Barbara Brooks Fuller,
Patricia H. Robey, Jay W. Brooks, and Charles Stuart Brooks
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998).
10.26 Employment Agreement, dated April 27, 1999, between the
Company and John E. Friday (incorporated by reference to
Exhibit 10.49 to the Annual Report on Form 10-K for the year
ended December 31, 1999).
10.27 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")).
10.28 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).
10.29 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).
10.30 Limited Waiver and Modification Agreement, dated May 14,
2000, by and among the Company, Five Star Enterprises Ltd.,
Lifestyle Footwear, Inc., Bank One, NA, The Huntington
National Bank, and Bank One, NA, as agent (incorporated by
reference to Exhibit 10.4 to the June 30, 2000 Form 10-Q).
10.31 Extension of Limited Waiver and Modification Agreement, dated
June 30, 2000, by and among the Company, Five Star
Enterprises Ltd., Lifestyle Footwear, Inc., Bank One, NA, The
Huntington National Bank, and Bank One, NA, as agent
(incorporated by reference to Exhibit 10.5 to the June 30,
2000 Form 10-Q).
26
27
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.32 Loan and Security Agreement, dated September 18, 2000, among
the Company, Lifestyle Footwear, Inc., and GMAC Business
Credit, LLC (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, filed on September 20, 2000).
10.33 First Amendment to Loan and Security Agreement, dated
November 20, 2000, among the Company, Lifestyle Footwear,
Inc., and GMAC Business Credit, LLC.
10.34 Second Amendment to Loan and Security Agreement, dated March
27, 2001, among the Company, Lifestyle Footwear, Inc., and
GMAC Business Credit, LLC.
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the Registration Statement on Form S-2 filed
September 11, 1997, registration number 333-35391).
23 Independent Auditors' Consent and Report on Schedules of
Deloitte & Touche LLP.
24 Powers of Attorney.
99.1 Independent Auditors' Report on Schedules of Deloitte &
Touche LLP (incorporated by reference to Exhibit 23).
99.2 Financial Statement Schedule.
The Registrant agrees to furnish to the Commission upon its request copies of
any omitted schedules or exhibits to any Exhibit filed herewith.
(b) REPORTS ON FORM 8-K
None
(c) EXHIBITS
The exhibits to this report begin immediately following the signature
page.
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule and the independent auditors' report
thereon are included in this Annual Report on Form 10-K as Exhibit 99.1 and
Exhibit 99.2, respectively.
27
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROCKY SHOES & BOOTS, INC.
Date: March 30, 2001 By: /s/ DAVID FRAEDRICH
-------------------
David Fraedrich, Executive Vice President,
Treasurer, and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* MIKE BROOKS Chairman, President, Chief March 30, 2001
- ---------------------------------------------------- Executive Officer and Director (Principal
Mike Brooks Executive Officer)
/s/ DAVID FRAEDRICH Executive Vice President, Treasurer, March 30, 2001
- ---------------------------------------------------- Chief Financial Officer and Director
David Fraedrich (Principal Financial and Accounting
Officer)
* CURTIS A. LOVELAND Secretary and Director March 30, 2001
- ----------------------------------------------------
Curtis A. Loveland
* LEONARD L. BROWN Director March 30, 2001
- ----------------------------------------------------
Leonard L. Brown
* STANLEY I. KRAVETZ Director March 30, 2001
- ----------------------------------------------------
Stanley I. Kravetz
* JAMES L. STEWART Director March 30, 2001
- ----------------------------------------------------
James L. Stewart
* ROBERT D. ROCKEY Director March 30, 2001
- ----------------------------------------------------
Robert D. Rockey
* GLENN E. CORLETT Director March 30, 2001
- ----------------------------------------------------
Glenn E. Corlett
*By: /s/ CURTIS A. LOVELAND
- ----------------------------------------------------
Curtis A. Loveland, Attorney-in-Fact
28
29
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------
Independent Auditors' Report F - 1
Consolidated Balance Sheets as of December 31, 2000 and 1999 F - 2 - F - 3
Consolidated Statements of Operations for the Years Ended December 31, 2000,
1999 and 1998 F - 4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 F - 5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 F - 6
Notes to Consolidated Financial Statements F - 7 - F - 21
30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Rocky Shoes & Boots, Inc.:
We have audited the accompanying consolidated balance sheets of Rocky Shoes &
Boots, Inc. and subsidiaries as of December 31, 2000 and 1999 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Rocky Shoes & Boots, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Columbus, Ohio
March 27, 2001
F-1
31
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
--------------------------------
2000 1999
CURRENT ASSETS:
Cash and cash equivalents $ 2,117,994 $ 2,330,324
Accounts receivable - trade, net 18,055,881 18,712,588
Refundable income taxes 3,850,000
Other receivables 2,956,900 1,377,394
Inventories 32,035,237 32,573,067
Deferred income taxes 536,012 1,017,331
Other current assets 1,295,287 1,222,914
------------ ------------
Total current assets 56,997,311 61,083,618
FIXED ASSETS, AT COST:
Property, plant and equipment 47,401,015 45,012,101
Less - accumulated depreciation (23,070,696) (18,879,879)
------------ ------------
Total fixed assets - net 24,330,319 26,132,222
DEFERRED PENSION ASSET 2,526,603 357,520
OTHER ASSETS 2,196,939 1,759,994
------------ ------------
TOTAL ASSETS $ 86,051,172 $ 89,333,354
============ ============
See notes to consolidated financial statements.
F-2
32
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
-----------------------------
2000 1999
CURRENT LIABILITIES:
Accounts payable $ 3,502,296 $ 2,128,112
Current maturities - long-term debt 1,070,374 8,599,897
Accrued expenses:
Taxes - other 560,537 412,721
Salaries and wages 369,925 569,203
Co-op advertising 520,019 128,644
Interest 272,882 198,399
Other 500,313 578,740
----------- -----------
Total current liabilities 6,796,346 12,615,716
LONG-TERM DEBT - Less current maturities 26,445,276 25,176,918
DEFERRED LIABILITIES:
Compensation 187,959 170,294
Income taxes 528,273
Pension 2,295,919 613,023
----------- -----------
Total deferred liabilities 2,483,878 1,311,590
----------- -----------
Total liabilities 35,725,500 39,104,224
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, Series A, no par value, $.06 stated value;
none outstanding 2000 and 1999
Common stock, no par value; 10,000,000 shares authorized;
outstanding 2000 and 1999 - 4,489,215 shares 35,284,159 35,284,159
Retained earnings 15,041,513 14,944,971
----------- -----------
Total shareholders' equity 50,325,672 50,229,130
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $86,051,172 $89,333,354
=========== ===========
See notes to consolidated financial statements.
F-3
33
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998
NET SALES $ 102,451,376 $ 98,099,184 $ 88,699,413
COST OF GOODS SOLD 78,617,092 83,256,768 68,185,041
------------- ------------ ------------
GROSS MARGIN 23,834,284 14,842,416 20,514,372
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 20,649,147 20,020,357 17,208,211
------------- ------------ ------------
INCOME (LOSS) FROM OPERATIONS 3,185,137 (5,177,941) 3,306,161
------------- ------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense (3,354,388) (2,415,682) (1,734,611)
Other - net 449,257 236,287 691,073
------------- ------------ ------------
Total other - net (2,905,131) (2,179,395) (1,043,538)
------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 280,006 (7,357,336) 2,262,623
INCOME TAX EXPENSE (BENEFIT) 183,464 (2,227,579) 426
------------- ------------ ------------
NET INCOME (LOSS) $ 96,542 $ (5,129,757) $ 2,262,197
============= ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.02 $ (1.09) $ 0.42
============= ============ ============
Diluted $ 0.02 $ (1.09) $ 0.41
============= ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 4,489,215 4,710,039 5,425,026
============= ============ ============
Diluted 4,493,304 4,710,039 5,526,863
============= ============ ============
See notes to consolidated financial statements.
F-4
34
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL
PREFERRED COMMON TREASURY RETAINED SHAREHOLDERS'
STOCK STOCK STOCK EARNINGS EQUITY
BALANCE, DECEMBER 31, 1997 $ 5,400 $ 42,604,658 $ (1,226,059) $ 17,812,531 $ 59,196,530
YEAR ENDED DECEMBER 31, 1998:
Net income 2,262,197 2,262,197
Treasury stock retired (124,095 shares) (1,226,059) 1,226,059
Treasury stock purchased and retired (292,600 shares) (2,038,118) (2,038,118)
Stock options exercised 214,462 214,462
Preferred stock converted to common stock (5,400) 5,400
------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 39,560,343 20,074,728 59,635,071
YEAR ENDED DECEMBER 31, 1999:
Net loss (5,129,757) (5,129,757)
Treasury stock purchased and retired (685,100 shares) (4,285,184) (4,285,184)
Stock options exercised 9,000 9,000
------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 35,284,159 14,944,971 50,229,130
YEAR ENDED DECEMBER 31, 2000:
Net income 96,542 96,542
------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 $ $ 35,284,159 $ $ 15,041,513 $ 50,325,672
======= ============ ============ ============ ============
See notes to consolidated financial statements.
F-5
35
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 96,542 $ (5,129,757) $ 2,262,197
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,698,554 3,836,586 4,226,313
Deferred income taxes (46,954) (1,052,222) (11,293)
Deferred compensation and pension - net (468,522) 254,769 138,485
Loss on sale of fixed assets 32,116 9,048 837
Change in assets and liabilities:
Receivables 2,927,201 (6,690,028) 1,014,968
Inventories 537,830 14,536,944 (14,215,775)
Other current assets (72,373) (378,992) (21,515)
Other assets (469,514) (749,720) 58,811
Accounts payable 1,551,745 162,705 (506,171)
Accrued expenses 335,969 277,628 (854,432)
------------- ------------ ------------
Net cash provided by (used in) operating activities 9,122,594 5,076,961 (7,907,575)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (3,113,529) (9,675,010) (6,817,108)
Proceeds from sale of fixed assets 39,770
------------- ------------ ------------
Net cash used in investing activities (3,073,759) (9,675,010) (6,817,108)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 106,607,246 57,527,000 79,835,000
Payments on long-term debt (112,868,411) (53,555,319) (64,610,668)
Purchase of treasury stock (4,285,184) (2,038,118)
Proceeds from exercise of stock options 9,000 214,462
------------- ------------ ------------
Net cash provided by (used in) financing activities (6,261,165) (304,503) 13,400,676
------------- ------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (212,330) (4,902,552) (1,324,007)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 2,330,324 7,232,876 8,556,883
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,117,994 $ 2,330,324 $ 7,232,876
============= ============ ============
See notes to consolidated financial statements.
F-6
36
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Rocky Shoes & Boots, Inc. ("Rocky
Inc.") and its wholly-owned subsidiaries, Lifestyle Footwear, Inc.
("Lifestyle") and Five Star Enterprises Ltd. ("Five Star"), collectively
referred to as the "Company." All significant intercompany transactions
have been eliminated.
BUSINESS ACTIVITY - The Company designs, manufactures, and markets high
quality men's and women's footwear primarily under the registered
trademark, ROCKY(R). The Company maintains a nationwide network of
Company sales representatives who sell the Company's products primarily
through independent shoe, sporting goods, specialty, uniform stores and
catalogs, and through mass merchandisers throughout the United States.
The Company did not have any customers that accounted for more than 10%
of consolidated net sales in 2000, 1999 and 1998.
ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. The Company's cash and cash equivalents are primarily held
in four banks.
TRADE RECEIVABLES - Trade receivables are presented net of the related
allowance for doubtful accounts of approximately $503,000 and $715,000 at
December 31, 2000 and 1999, respectively.
CONCENTRATION OF CREDIT RISK - The Company's exposure to credit risk is
impacted by the economic climate affecting its industry. The Company
manages this risk by performing ongoing credit evaluations of its
customers and maintains reserves for potential uncollectible accounts.
SUPPLIER AND LABOR CONCENTRATIONS - The Company purchases raw materials
from a number of domestic and foreign sources. The Company currently buys
the majority of its waterproof fabric, a component used in a significant
portion of the Company's shoes and boots, from one supplier
(GORE-TEX(R)). The Company has had a relationship with this supplier for
over 19 years and has no reason to believe that such relationship will
not continue.
F-7
37
A significant portion of the Company's shoes and boots are produced in
the Company's Dominican Republic operations. The Company has conducted
operations in the Dominican Republic since 1987 and is not aware of any
governmental or economic restrictions that would alter its current
operations.
The Company sources a significant portion of its footwear from
manufacturers in the Far East, primarily China. The Company has had
sourcing operations in China since 1993 and is not aware of any
governmental or economic restrictions that would alter its current
sourcing operations.
INVENTORIES - Inventories are valued at the lower of cost, determined on
a first-in, first-out (FIFO) basis, or market. Reserves are established
for inventories when the net realizable value (NRV) is deemed to be less
than its cost based on management's periodic estimates of NRV.
FIXED ASSETS - The Company records fixed assets at historical cost and
generally utilizes the straight-line method of computing depreciation for
financial reporting purposes over the estimated useful lives of the
assets as follows:
Years
-----
Building and improvements 5-40
Machinery and equipment 8-12
Furniture and fixtures 8-12
Lasts, dies, and patterns 8-12
Management periodically evaluates the future economic benefit of its
long-term assets when events or circumstances indicate potential
recoverability concerns. This evaluation is based on consideration of
expected future undiscounted cash flows and other operating factors.
Carrying amounts are adjusted appropriately when determined to have been
impaired.
For income tax purposes, the Company generally computes depreciation
utilizing accelerated methods.
ADVERTISING - The Company expenses advertising costs as incurred.
Advertising expense was $2,532,671, $2,997,462 and $2,323,372 for 2000,
1999 and 1998, respectively.
REVENUE RECOGNITION - Revenue and related cost of goods sold are
recognized at the time footwear product is shipped to the customer and
title transfers. Revenue is recorded net of estimated sales discounts and
returns based upon historical trends. All sales are considered final upon
shipment.
F-8
38
PER SHARE INFORMATION - Basic net loss per common share is computed based
on the weighted average number of common shares outstanding during the
period. Diluted net income per common share is computed similarly but
includes the dilutive effect of the Company's Series A preferred stock
and stock options. A reconciliation of the shares used in the basic and
diluted income per share computations is as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
Basic - Weighted average shares outstanding 4,489,215 4,710,039 5,425,026
Dilutive securities:
Preferred stock 7,365
Stock options 4,089 94,472
--------- --------- ---------
Diluted - Weighted average shares outstanding 4,493,304 4,710,039 5,526,863
========= ========= =========
In 1999, no adjustments to net loss were required for purposes of
computing diluted per share amounts. Stock options of 30,236 were not
used to compute diluted weighted average common shares outstanding since
the loss the Company incurred in 1999 makes these stock options
anti-dilutive.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS - Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS 133 certain contracts that were not
formerly considered derivatives may now meet the definition of a
derivative. The Company adopted SFAS 133 effective January 1, 2001.
Management does not expect the adoption of SFAS 133 to have a significant
impact on the financial position, results of operations, or cash flows of
the Company.
F-9
39
SEGMENT INFORMATION - The Company is managed in one operating segment,
footwear. Within their one operating segment, the Company has identified
three product groups; Rugged Outdoor, Occupational and Handsewn Casual.
The following is supplemental information on net sales by product group:
% OF % OF % OF
NET NET NET
2000 SALES 1999 SALES 1998 SALES
Rugged Outdoor $ 61,828,170 60.4% $51,029,943 52.0% $47,640,000 53.7%
Occupational 27,991,923 27.3% 29,847,018 30.4% 23,847,520 26.9%
Handsewn Casual 6,178,237 6.0% 8,927,026 9.1% 8,071,647 9.1%
Factory Outlet Stores 5,872,380 5.7% 5,199,257 5.3% 4,878,468 5.5%
Other 580,666 0.6% 3,095,940 3.2% 4,261,778 4.8%
------------ ----- ----------- ----- ----------- -----
Total $102,451,376 100.0% $98,099,184 100.0% $88,699,413 100.0%
============ ===== =========== ===== =========== =====
Net sales to foreign countries, primarily Canada, represented
approximately 1% of net sales in 2000, 1999, and 1998.
RECLASSIFICATIONS - Certain amounts in the prior years' consolidated
financial statements have been reclassified to conform with 2000
presentation.
2. INVENTORIES
Inventories are comprised of the following:
DECEMBER 31,
------------------------------
2000 1999
Raw materials $ 5,043,839 $ 4,133,520
Work-in-process 1,288,960 2,128,738
Finished goods 23,604,593 24,110,469
Factory outlet finished goods 2,438,398 2,645,340
Less reserve for obsolescence or lower of
cost or market (340,553) (445,000)
------------ ------------
Total $ 32,035,237 $ 32,573,067
============ ============
F-10
40
3. FIXED ASSETS
Fixed assets are comprised of the following:
DECEMBER 31,
-----------------------------
2000 1999
Land $ 572,838 $ 557,071
Building and improvements 13,892,507 6,314,768
Machinery and equipment 23,021,226 21,765,027
Furniture and fixtures 3,854,503 3,479,787
Lasts, dies and patterns 6,029,904 5,509,926
Construction work-in-progress 30,037 7,385,522
------------ ------------
Total 47,401,015 45,012,101
Less - accumulated depreciation (23,070,696) (18,879,879)
------------ ------------
Net fixed assets $ 24,330,319 $ 26,132,222
============ ============
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
DECEMBER 31,
--------------------------
2000 1999
--------------------------
Bank - revolving credit facility $20,491,101 $31,900,000
Equipment and other obligations 896,408 1,687,898
Real estate obligations 6,108,661 56,875
Other 19,480 132,042
----------- -----------
Total debt 27,515,650 33,776,815
Less current maturities 1,070,374 8,599,897
----------- -----------
Net long-term debt $26,445,276 $25,176,918
=========== ===========
On September 18, 2000, the Company entered into a three-year loan and
security agreement with GMAC Business Credit, LLC (GMAC) refinancing its
former bank revolving line of credit based on the collateral value of its
accounts receivable and inventory. The new agreement replaces the
Company's previous loan and security agreement with a bank and increases
the Company's borrowing base from $42,000,000 to a maximum of
$50,000,000. Interest on the revolving credit facility is payable monthly
at one-quarter percent (0.25%) per annum in excess of the GMAC's Prime
rate, and the entire principal is due September 17, 2003. Under terms of
the agreement, the Company has the option to borrow up to half of their
outstanding obligation at LIBOR plus two and one-half percent (2.50%).
The interest rate for the outstanding balance at December 31, 2000 was
9.75% (6.01% at December 31, 1999).
Amounts borrowed under the agreement are secured by accounts receivable,
inventory, equipment, intangible assets of the Company and its
wholly-owned domestic subsidiary, Lifestyle Footwear, Inc. Additional
security includes 65% of the capital stock of the Company's wholly-owned
foreign subsidiary, Five Star Enterprises, Ltd., and 100% of the capital
stock of the Company's wholly-owned domestic subsidiary.
F-11
41
The loan and security agreement contains certain restrictive covenants,
which among other things, require the Company to maintain a certain level
of EBITDA (earnings before interest, taxes, and depreciation and
amortization), net worth, and fixed charge coverage. At December 31,
2000, the Company was not in compliance with these bank covenant
requirements. In March 2001, the Company obtained a waiver from GMAC with
respect to such events of noncompliance and amended the loan covenants
for 2001. Management believes the Company will be in compliance with the
revised 2001 covenants.
Equipment and other obligations at December 31, 2000 bear interest at
fixed and variable rates ranging from 3% to prime rate plus one-quarter
percent (.25%) and are payable in monthly installments to 2003. The
equipment is held as collateral against the outstanding obligations.
In January 2000, the Company completed a mortgage financing facility with
GE Capital Corp. for three of its facilities totaling $6,300,000. The
facility bears interest at 8.275%, with total monthly principal and
interest payments of $63,100 to 2014. The proceeds of the financing were
used to pay down borrowings under a former revolving credit facility.
In 1998, the Company entered into two interest rate swap agreements with
a major bank for a total notional amount of $25,000,000 with average
maturities of seven years to reduce the impact of changes in interest
rates on its variable rate long-term debt. One interest rate swap
agreement for a notional amount of $10,000,000 was terminated in 1999 and
resulted in a gain of $103,000. The remaining interest rate swap
agreement for a notional amount of $15,000,000 was terminated during the
second quarter 2000 and resulted in a gain of $294,000. At December 31,
2000 the Company has no interest rate swap agreements.
At December 31, 2000 essentially all trade accounts receivable,
inventories and property are held as collateral for the Company's debt.
Long-term debt matures as follows for the years ended December 31:
2001 $ 1,070,374
2002 470,650
2003 20,486,161
2004 503,933
2005 492,020
Thereafter 4,492,512
-----------
Total $27,515,650
===========
The estimated fair value of the Company's long-term obligations
approximated their carrying amount at December 31, 2000 and 1999, based
on current market prices for the same or similar issues or on debt
available to the Company with similar rates and maturities.
F-12
42
5. OPERATING LEASES
The Company leases certain machinery and manufacturing facilities under
operating leases that generally provide for renewal options. The Company
incurred approximately $1,161,000, $1,069,000, and $840,000 in rent
expense under operating lease arrangements for 2000, 1999 and 1998,
respectively.
Included in total rent expense above are monthly payments of $7,000 for
2000, 1999 and 1998, respectively, for the Company's Ohio manufacturing
facility leased from an entity in which the owners are also shareholders
of the Company.
Future minimum lease payments under non-cancelable operating leases are
as follows for the years ended December 31:
2001 $ 788,000
2002 656,000
2003 564,000
2004 536,000
2005 536,000
Thereafter 700,000
----------
Total $3,780,000
==========
6. INCOME TAXES
Rocky Inc. and its wholly-owned subsidiary doing business in Puerto Rico,
Lifestyle, are subject to U.S. Federal income taxes; however, the
Company's income earned in Puerto Rico is allowed favorable tax treatment
under Section 936 of the Internal Revenue Code if conditions as defined
therein are met. Five Star is incorporated in the Cayman Islands and
conducts its operations in a "free trade zone" in the Dominican Republic
and, accordingly, is currently not subject to Cayman Islands or Dominican
Republic income taxes. Thus, the Company is not subject to foreign income
taxes.
At December 31, 2000, a provision has not been made for U.S. taxes on the
accumulated undistributed earnings of Five Star through December 31, 2000
of approximately $5,109,000 that would become payable upon repatriation
to the United States. It is the intention of the Company to reinvest all
such earnings of Five Star in operations and facilities outside of the
United States. In addition, the Company has not provided any U.S.
tollgate taxes on approximately $2,257,000 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.
It is the intention of the Company to reinvest all such earnings of
Lifestyle. If the Five Star and Lifestyle undistributed earnings were
distributed to the Company in the form of dividends, the related taxes on
such distributions would be approximately $1,737,000 and $226,000,
respectively.
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
differences between the financial reporting and the income tax basis of
the Company's assets and liabilities by applying enacted statutory tax
rates applicable to future years to the basis differences.
F-13
43
Income taxes (benefits) are summarized as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
Federal:
Current $(115,262) $(1,273,033) $ (76,294)
Deferred 263,071 (1,007,542) 10,357
--------- ----------- ---------
Total Federal 147,809 (2,280,575) (65,937)
--------- ----------- ---------
State and local:
Current 345,680 97,676 88,013
Deferred (310,025) (44,680) (21,650)
--------- ----------- ---------
Total state and local 35,655 52,996 66,363
--------- ----------- ---------
Total $ 183,464 $(2,227,579) $ 426
========= =========== =========
A reconciliation of recorded Federal income tax expense (benefit) to the
expected expense (benefit) computed by applying the Federal statutory
rate of 34% for all periods to income (loss) before income taxes follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
Expected expense (benefit) at statutory rate $ 95,202 $(2,501,494) $ 769,286
Increase (decrease) in income taxes
resulting from:
Exempt (income) loss from operations in
Puerto Rico, net of tollgate taxes 77,938 563,663 (802,791)
Exempt income from Dominican
Republic operations (74,034) (625,978)
State and local income taxes (benefit) 23,532 (18,019) (22,563)
Revision of prior year taxes 56,229
Alternative minimum tax 118,829
Other - net 4,597 182,424 (9,869)
--------- ----------- ---------
Total $ 183,464 $(2,280,575) $ (65,937)
========= =========== =========
F-14
44
Deferred income taxes recorded in the consolidated balance sheets at
December 31, 2000 and 1999 consist of the following:
Deferred tax assets:
Alternative minimum tax carryforward - Rocky $ 118,829 $ 118,829
Alternative minimum tax carryforward - Lifestyle 188,800
Asset valuation allowances 648,577 549,265
Pension and deferred compensation 202,291 168,755
Net operating loss carryforwards 1,657,782 1,854,661
Inventories 318,267 309,066
----------- -----------
Total deferred tax assets 3,134,546 3,000,576
----------- -----------
Deferred tax liabilities:
Fixed assets (1,497,685) (1,630,696)
State and local income taxes (47,425)
Prepaid assets (276,989) (40,048)
Tax on Five Star earnings (64,339)
Tollgate tax on Lifestyle earnings (776,435) (776,435)
----------- -----------
Total deferred tax liabilities (2,598,534) (2,511,518)
----------- -----------
Net deferred tax asset $ 536,012 $ 489,058
=========== ===========
At December 31, 2000, the Company has approximately $4,062,000 of net
operating loss carryforwards for Federal income tax purposes. The
expiration of such carryforwards in 2001 is $213,000. The remaining net
operating loss carryforward expires in 2019.
7. RETIREMENT PLANS
The Company sponsors separate noncontributory defined benefit pension
plans covering the union and non-union workers of the Company's Ohio and
Puerto Rico operations. Benefits under the union plan are primarily based
upon negotiated rates and years of service. Benefits under the non-union
plan are based upon years of service and highest compensation levels as
defined. Annually, the Company contributes to the plans at least the
minimum amount required by regulation.
In April 2000, the Company announced that certain union and non-union
employees were eligible to participate in voluntary early retirement
plans. As part of the plans, employees who accepted the offers received
increased retiree benefits that are to be paid from plan assets over the
employees established retirement period. The effect of the union and
non-union plan amendments increased the Company's benefit obligation
$1,907,868.
F-15
45
Net pension cost of the Company's plans is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
Service cost $ 303,748 $ 323,726 $ 273,091
Interest 403,542 356,194 317,725
Actual loss (return) on plan assets (185,315) (404,283) 42,745
Amortization and deferral (58,162) 152,373 (327,398)
--------- --------- ---------
Net pension cost $ 463,813 $ 428,010 $ 306,163
========= ========= =========
The funded status of the Company's plans and reconciliation of accrued
pension cost at December 31, 2000 and 1999 are presented below
(information with respect to benefit obligations and plan assets as of
September 30 is):
DECEMBER 31,
---------------------------
2000 1999
Change in benefit obligation:
Benefit obligation at beginning of the year $ 5,422,818 $ 5,463,914
Service cost 303,748 323,726
Interest cost 403,542 356,194
Actuarial gain (433,965)
Amendments 1,907,868
Exchange (gain)/loss 248,684 (93,418)
Benefits paid (301,653) (193,633)
----------- -----------
Benefit obligation at end of year $ 7,985,007 $ 5,422,818
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year $ 4,387,026 $ 3,906,376
Actual return on plan assets 185,315 404,283
Employer contribution 300,000 270,000
Benefits paid (301,653) (193,633)
----------- -----------
Fair value of plan assets at end of year $ 4,570,688 $ 4,387,026
=========== ===========
Funded deficit $(3,414,319) $(1,035,792)
Remaining unrecognized benefit obligation existing
at transition
at transition 232,362 260,255
Unrecognized prior service costs due to plan amendments 2,473,620 688,260
Unrecognized net loss (gain) 289,021 (168,226)
Adjustment required to recognize minimum liability (2,526,603) (357,520)
Additional contributions (September 30-December 31) 650,000
----------- -----------
Accrued pension cost $(2,295,919) $ (613,023)
=========== ===========
F-16
46
The assets of the plans consist primarily of common stocks, bonds, and
cash equivalents. The assets of the plans include 61,400 and 61,000
shares of the Company's common stock with a market value of $314,675 and
$468,000 at September 30, 2000 and 1999, respectively. The Company's
unrecognized benefit obligations existing at the date of transition for
the union and non-union plans are being amortized over 23 and 21 years,
respectively. Actuarial assumptions used in the accounting for the plans
were as follows:
DECEMBER 31,
-----------------
2000 1999
Discount rate 7.25% 7.25%
Average rate of increase in compensation levels
(non-union only) 3.0% 3.0%
Expected long-term rate of return on plan assets 9.0% 9.0%
SFAS No. 87, "Employers' Accounting for Pensions," generally requires the
Company to recognize a minimum liability in instances in which a plan's
accumulated benefit obligation exceeds the fair value of plan assets. In
accordance with the Statement, the Company has recorded in the
accompanying financial statements a non-current intangible asset of
$2,526,603, and $357,520 as of December 31, 2000 and 1999, respectively.
The Company also sponsors a 401(k) savings plan for substantially all of
its union and non-union employees. The Company only matches contributions
for non-union employees. Funding for non-union employees electing to
contribute a percentage of their compensation is matched by the Company,
subject to certain limitations. Company contributions to the 401(k)
savings plan were $14,504 for 1998. No Company contribution was made for
2000 and 1999.
8. CAPITAL STOCK
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 and none are outstanding at December 31, 2000
and 1999, respectively. In accordance with its terms, all of the
outstanding Series A preferred stock was converted into common shares of
the Company on a one for one basis on February 3, 1998.
F-17
47
In November 1997, the Company's Board of Directors adopted a Rights
Agreement which provides for one preferred share purchase right to be
associated with each share of the Company's 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 the Company's 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, common stock of the Company 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 the Company under circumstances permitted by the Rights
Agreement.
The Company reacquired 124,095 and 292,600 shares of common stock in 1994
and 1998 for $1,226,059 and $2,038,118, respectively. In December 1998,
the Board of Directors approved the retirement of all shares held in
treasury (total of 416,695 shares). During 1998 and 1999, the Company
purchased and retired 292,600 and 685,100 shares for $2,038,118 and
$4,285,184, respectively, under its share repurchase program. At December
31, 2000, the Company's Board of Directors has not authorized any
additional share repurchase. There were no treasury stock purchases in
2000.
The Company adopted a Stock Option Plan in 1992 which provides for the
issuance of options to purchase up to 400,000 common shares of the
Company. On October 11, 1995, the Company adopted the 1995 Stock Option
Plan which provides for the issuance of options to purchase up to an
additional 400,000 common shares of the Company. In May 1998, the Company
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 of the Company. All employees, officers, directors,
consultants and advisors providing services to the Company are eligible
to receive options under the Plans. In addition, the Plans provide for
the annual issuance of options to purchase 5,000 shares of common stock
to each non-employee director of the Company.
F-18
48
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 all
stock option transactions from January 1, 1998 through December 31, 2000:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
Outstanding at January 1, 1998 407,960 $ 8.74
Issued 210,000 9.37
Exercised (22,890) 8.94
Forfeited (34,660) 8.28
------- ------
Outstanding at December 31, 1998 560,410 10.86
Issued 247,000 5.82
Exercised (1,500) 6.00
Forfeited (112,160) 10.61
------- ------
Outstanding at December 31, 1999 693,750 9.12
Issued 221,000 6.87
Forfeited (232,250) 8.40
------- ------
Outstanding at December 31, 2000 682,500 $ 8.64
======= ======
Options exercisable at December 31:
1998 359,785 $10.01
1999 386,035 $ 9.27
2000 444,250 $ 9.37
The following table summarizes information about options outstanding at
December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------- ------------------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES NUMBER LIFE PRICE NUMBER PRICE
$4.50 - $6.75 269,750 7.0 $ 5.75 135,500 $ 5.97
$7.50 - $9.00 215,750 6.1 $ 8.05 138,625 $ 8.28
$9.50 - $9.875 71,500 2.3 $ 9.75 70,500 $ 9.75
$13.125 - $16.875 125,500 6.0 $15.22 99,625 $15.23
-------- -------
Total 682,500 6.0 $ 8.64 444,250 $ 9.37
======== =======
F-19
49
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation costs
for the Company's stock-based compensation plans been determined based on
the fair value at the grant dates for awards under those plans consistent
with the method of SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have resulted in the amounts as reported
below. In determining the estimated fair value of each option granted on
the date of grant the Company uses the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 2000,
1999 and 1998, respectively; dividend yield of 0%; expected volatility of
45%, 41% and 48%; risk-free interest rates of 6.70%, 6.66% and 5.29%; and
expected life of 6 years. The weighted average grant date fair value of
options issued during 2000, 1999 and 1998 was $3.09, $3.40 and $8.55,
respectively.
YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
Net income (loss):
As reported $ 96,542 $(5,129,757) $2,262,197
Pro forma $(99,255) $(5,201,230) $1,301,976
Income (loss) per share:
As reported:
Basic $ 0.02 $ (1.09) $ 0.42
Diluted $ 0.02 $ (1.09) $ 0.41
Pro forma:
Basic $ (0.02) $ (1.10) $ 0.24
Diluted $ (0.02) $ (1.10) $ 0.24
The pro forma amounts are not representative of the effects on reported
net income for future years.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was as
follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
Interest $ 3,279,905 $2,547,104 $1,756,078
=========== ========== ==========
Federal, state and local
income taxes - net of refunds $(3,450,000) $2,370,588 $1,210,445
=========== ========== ==========
The Company entered into no capital lease arrangements during the years
ended December 31, 2000, 1999 and 1998. Accounts payable at December 31,
2000, 1999 and 1998 include a total of $12,098, $189,659 and $418,278,
respectively, relating to the purchase of fixed assets.
F-20
50
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the years ended December 31, 2000 and 1999:
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL YEAR
2000
Net sales $ 14,842,111 $22,918,457 $36,994,402 $ 27,696,406 $ 102,451,376
Gross margin 3,243,760 5,276,084 8,508,498 6,805,942 $ 23,834,284
Net income (loss) (1,615,568) 343,288 1,262,972 105,850 $ 96,542
Net income (loss) per
common share:
Basic $ (0.36) $ 0.08 $ 0.28 $ 0.02 $ 0.02
Diluted $ (0.36) $ 0.08 $ 0.28 $ 0.02 $ 0.02
1999
Net sales $ 13,622,730 $23,200,428 $34,458,907 $ 26,817,119 $ 98,099,184
Gross margin 3,178,670 5,963,422 8,784,203 (3,083,879) $ 14,842,416
Net income (loss) (321,973) 587,650 1,818,221 (7,213,655) $ (5,129,757)
Net income (loss) per
common share:
Basic $ (0.06) $ 0.12 $ 0.40 $ (1.55) $ (1.09)
Diluted $ (0.06) $ 0.12 $ 0.40 $ (1.55) $ (1.09)
No cash dividends were paid during 2000 and 1999.
******
F-21
51
ROCKY SHOES & BOOTS, INC.
------------------------
EXHIBIT INDEX
TO
ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000
---------------------------
52
Exhibit
Number Description
------ -----------
3.1 Second Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Annual Report on Form 10-K for the fiscal year ended December
31, 1997).
3.2 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").
4.1 Form of Stock Certificate for the Company (incorporated by
reference to Exhibit 4.1 to the Registration Statement).
4.2 Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh,
Twelfth, and Thirteenth of the Company's Amended and Restated
Articles of Incorporation (see Exhibit 3.1).
4.3 Articles I and II of the Company's Code of Regulations (see
Exhibit 3.2).
10.1 Form of Employment Agreement, dated July 1, 1995, for
executive officers (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995 (the "1995 Form 10-K")).
10.2 Information concerning Employment Agreements substantially
similar to Exhibit 10.1 (incorporated by reference to Exhibit
10.2 to the 1995 Form 10-K).
10.3 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).
10.4 Information concerning Deferred Compensation Agreements
substantially similar to Exhibit 10.3 (incorporated by
reference to Exhibit 10.4 to the Registration Statement).
10.5 Form of Company's amended 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.5 to the 1995 Form 10-K).
10.6 Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.6 to the Registration Statement).
10.7 Indemnification Agreement, dated December 21, 1992, between
the Company and Mike Brooks (incorporated by reference to
Exhibit 10.10 to the Registration Statement).
10.8 Information concerning Indemnification Agreements
substantially similar to Exhibit 10.7 (incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993 (the "1993
Form 10-K")).
10.9 Trademark License Agreement and Manufacturing Certification
Agreement, each dated May 14, 1994, between Rocky Shoes &
Boots Co. and W. L. Gore & Associates, Inc. (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994 (the "1994
Form 10-K")).
10.10 Decree of Tax Exemption from the Government of the
Commonwealth of Puerto Rico (incorporated by reference to
Exhibit 10.13 to the Registration Statement).
53
Exhibit
Number Description
------ -----------
10.10A English Translation of Addendum to Exhibit 10.16 (incorporated
by reference to Exhibit 10.13A to the Registration Statement).
10.11 Lease Agreement, dated May 1, 1998, as amended, between Rocky
Shoes & Boots Co. and William Brooks Real Estate Company
regarding Nelsonville factory (incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
10.12 Lease Contract, dated August 31, 1988, between Lifestyle
Footwear, Inc. and The Puerto Rico Industrial Development
Company regarding factory location 1 (incorporated by
reference to Exhibit 10.15 to the Registration Statement).
10.13 Lease Contract, undated, between Lifestyle Footwear, Inc. and
The Puerto Rico Industrial Development company regarding
factory location 2 (incorporated by reference to Exhibit 10.16
to the Registration Statement).
10.13A English translation of Exhibit 10.13 (incorporated by
reference to Exhibit 10.16A to the Registration Statement).
10.14 Lease Agreement, dated December 13, 1993, between Five Star
Enterprises Ltd. and the Dominican Republic Corporation for
Industrial Development regarding buildings and annexes of a
combined manufacturing surface of 75,526 square feet, located
in the Industrial Free Zone of La Vega (incorporated by
reference to Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 (the
"September 30, 1995 Form 10-Q")).
10.14A English translation of Exhibit 10.20 (incorporated by
reference to Exhibit 10.2A to the September 30, 1995 Form
10-Q).
10.15 Term Lease Master Agreement, dated April 27, 1993, between the
Company and IBM Credit Corporation (incorporated by reference
to Exhibit 10.22 to the 1993 Form 10-K).
10.16 Adjustable Rate Note, dated May 23, 1988, between Nelsonville
Home and Savings Association and Rocky Shoes & Boots Co.
(incorporated by reference to Exhibit 10.25 to the
Registration Statement).
10.17 Form of Company's 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).
10.18 Form of Stock Option Agreement under the 1995 Stock Option
Plan (incorporated by reference to Exhibit 10.28 to the 1995
Form 10-K).
10.19 Letter Agreement between the Company and the Kravetz Group,
dated August 3, 1994 (incorporated by reference to Exhibit No.
10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.20 Loan Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes &
Boots Co. (incorporated by reference to Exhibit 10.43 to the
1995 Form 10-K).
10.21 Promissory Note, dated October 7, 1994, by Rocky Shoes & Boots
Co. to the Director of
54
'
Exhibit
Number Description
------ -----------
Development of the State of Ohio (incorporated by reference to
Exhibit 10.44 to the 1995 Form 10-K).
10.22 Security Agreement, dated as of October 7, 1994, between the
Director of Development of the State of Ohio and Rocky Shoes &
Boots Co. (incorporated by reference to Exhibit 10.45 to the
1995 Form 10-K).
10.23 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).
10.24 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).
10.25 Termination of Buy-Sell Agreement, dated August 18, 1998,
among the Company, Mike Brooks, Barbara Brooks Fuller,
Patricia H. Robey, Jay W. Brooks, and Charles Stuart Brooks
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).
10.26 Employment Agreement, dated April 27, 1999, between the
Company and John E. Friday (incorporated by reference to
Exhibit 10.49 to the Annual Report on Form 10-K for the year
ended December 31, 1999).
10.27 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")).
10.28 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).
10.29 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).
10.30 Limited Waiver and Modification Agreement, dated May 14, 2000,
by and among the Company, Five Star Enterprises Ltd.,
Lifestyle Footwear, Inc., Bank One, NA, The Huntington
National Bank, and Bank One, NA, as agent (incorporated by
reference to Exhibit 10.4 to the June 30, 2000 Form 10-Q).
10.31 Extension of Limited Waiver and Modification Agreement, dated
June 30, 2000, by and among the Company, Five Star Enterprises
Ltd., Lifestyle Footwear, Inc., Bank One, NA, The Huntington
National Bank, and Bank One, NA, as agent (incorporated by
reference to Exhibit 10.5 to the June 30, 2000 Form 10-Q).
10.32 Loan and Security Agreement, dated September 18, 2000, among
the Company, Lifestyle Footwear, Inc., and GMAC Business
Credit, LLC (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K, filed on September 20, 2000).
10.33 First Amendment to Loan and Security Agreement, dated November
20, 2000, among the Company,
55
Exhibit
Number Description
------ -----------
Lifestyle Footwear, Inc., and GMAC Business Credit, LLC.
10.34 Second Amendment to Loan and Security Agreement, dated March
27, 2001, among the Company, Lifestyle Footwear, Inc., and
GMAC Business Credit, LLC.
21 Subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the Registration Statement on Form S-2 filed
September 11, 1997, registration number 333-35391).
23 Independent Auditors' Consent and Report on Schedules of
Deloitte & Touche LLP.
24 Powers of Attorney.
99.1 Independent Auditors' Report on Schedules of Deloitte & Touche
LLP (incorporated by reference to Exhibit 23).
99.2 Financial Statement Schedule.