2001cover.flg 4/10/02 3:36 PM Page 1
Rocky Shoes & Boots, Inc.
2001 Annual Report
Financial Highlights.flg 4/11/02 8:23 AM Page 1
Rocky Shoes & Boots, Inc. designs, develops, manufactures
and markets premium quality rugged outdoor, occupational
and casual footwear.
FINANCIAL HIGHLIGHTS
(In thousands, except for per share data)
1999
2000
2001
Income Statement Data
Net sales
Net income (loss)
Balance Sheet Data
Inventories
Long-term debt, less current
maturities
Shareholders' equity
Per Share
Net income (loss):
Basic
Diluted
Weighted average number of
shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
98,781
(5,130)
32,573
25,177
50,229
(1.09)
(1.09)
4,710
4,710
$
$
$
$
$
$
$
103,229
96
32,035
26,445
50,326
0.02
0.02
4,489
4,493
$
$
$
$
$
$
$
103,320
1,531
27,714
16,976
51,043
0.34
0.34
4,489
4,549
Net sales
Net income per diluted share
$103,229
$103,320
$98,781
$0.34
$0.02
($1.09)
1999
2000
2001
1999
2000
2001
Inventories
Long-term debt(1)
$32,573
$32,035
$27,714
1999
2000
2001
$25,177
$26,445
$16,976
1999
2000
2001
(1) less current maturities
To Our Shareholders,
Our operating and financial results for 2001 were much improved over the prior year.
Net income rose to $1.5 million, including a $1.5 million restructuring charge, from $0.1
million in 2000. The increase in profitability was directly attributable to cost reduction
programs we began to implement more than a year ago. These efforts have streamlined
our operations and positioned us as a leaner, more competitive company.
Net sales for the twelve months ended December 31, 2001, were $103.3 million
compared to $103.2 million a year ago. Sales momentum was building through third
quarter 2001; however, we, like many other retail companies, faced particular challenges
during fourth quarter 2001 due to much weaker retail market conditions combined with
generally warmer weather. These factors especially impacted re-orders for our rugged
outdoor footwear during this period.
During 2001 we specifically focused management attention on reducing our controllable
costs. There were several initiatives to reduce expenses, and the benefits of these actions
became apparent during the second half of 2001 particularly through lower selling,
general, and administrative expenses. Our borrowings were also much lower compared
to 2000. This was due to reductions in inventory, accounts receivable, and, to a lesser
extent, capital expenditures. At year-end 2001, our funded debt was 36.6% below the
same date of the prior year.
In September 2001 we announced a strategic decision to realign our manufacturing
operations. Targeted efforts to address this situation had been previously implemented
that incrementally benefited our operations and performance. However, none was as
extensive as the decision to cease manufacturing at our Nelsonville, Ohio factory.
Following an extended period of review and analysis, we concluded that this realignment
was necessary in order to strengthen the company’s long-term competitive position. The
restructuring charge was recorded to cover the costs associated with this action. We
expect that savings from the change will offset the one-time charges for the realignment
of manufacturing operations within 18 months.
The ROCKY brand maintained its strong position in 2001. We are the leading brand in
the rugged outdoor category. During the second half of 2001 we developed the ROCKY
Gear Outfitters line of products. The line includes adult clothing and accessories, such as
coats, fleeces, socks and other items. In January 2002 we purchased the licensing rights
to ROCKY Kids, a line of children’s rugged outdoor footwear. These initiatives reflect
the growing importance of the casual lifestyle and increased recognition and value of the
ROCKY brand. Both lines were introduced earlier this year and the initial response has
been favorable. We are excited about these extensions of our brand and the opportunities
they present for increased sales.
This past year we manufactured $8.9 million of Intermediate Cold Wet military boots
under a contract with the U.S. government. Sales of these ROCKY branded boots offset
weakness in other footwear categories, particularly during the fourth quarter of 2001. We
plan to manufacture and ship another $6.4 million of military boots during the first half of
2002. These boots are made in our Puerto Rico factory.
Sourcing continued to increase throughout 2001 and represented 41% of net sales for the
year. Port of entry sales, which are shipped directly to the customer, grew substantially
compared to 2000. We are sourcing the entire lines of ROCKY Kids and ROCKY Gear
Outfitters products. It is anticipated that sourcing will continue to increase for the
foreseeable future.
We began 2002 with increased confidence based on the achievements we made this past
year to improve our business. Further benefits are anticipated this year as a result of
those actions, especially in the area of manufacturing costs. Nonetheless, we are cautious
concerning the retail market, especially for rugged outdoor footwear, due to the high
levels of carryover from the recent winter season. Inventories at the retail level are above
expectations, which was reflected in the reduced re-orders during fourth quarter 2001.
We are responding proactively to this situation through increased contact with our
customers and monitoring production schedules closely.
We believe the right steps have been taken to position the company for improved
profitability and long-term performance. As a result, we are a better company today and
positioned to respond promptly to changes in our operating environment. Our continued
emphasis on controlling costs is being balanced with the active pursuit of growth
opportunities.
Your continued interest in the company and comments are appreciated.
Sincerely
Mike Brooks
Chairman and CEO
March 28, 2002
Blankpg w/logo.flg 4/10/02 4:21 PM Page 1
FORM 10-K
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
⌧⌧⌧⌧
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
""""
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 0-21026
ROCKY SHOES & BOOTS, INC.
(Exact name of Registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
No. 31-1364046
(I.R.S. Employer Identification No.)
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 ⌧ 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 $28,011,583 on March 19, 2002.
There were 4,498,965 shares of the Registrant's Common Stock outstanding on March 19, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of Shareholders are incorporated by
reference in Part III.
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.
ITEM 1.
BUSINESS.
PART I
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 a manufacturing facility 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.
Most of the Company's footwear is manufactured in the Company's facilities located in the Dominican Republic and
Puerto Rico, and the balance of the footwear is sourced from factories in the Far East. The Company's footwear is distributed
nationwide and in Canada from the Company's finished goods distribution facility located near Logan, Ohio.
In September 2001, the Board of Directors approved a plan to consolidate and realign the Company’s footwear
manufacturing operations. Under this plan, the Company moved the footwear manufacturing operations at the Nelsonville,
Ohio factory to the Company’s factory in Puerto Rico. The restructuring plan was completed in fourth quarter of 2001.
In the past, the Company has benefited from a relatively low effective tax rate. 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. As of December 31, 2001, a provision has not been made for U.S.
taxes on the accumulated undistributed earnings of Five Star through December 31, 2001 of approximately $5,309,000 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.
The Company operates in one financial reporting segment, footwear. The footwear segment has several major
product lines. Financial information, including revenues, pre-tax income, and assets are included in the consolidated financial
statements.
ROCKY® 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."
2
Strategy
The Company's objective is to design, supply and market innovative, high performance, branded footwear and
accessory products that enhance shareholder value while improving the quality of life of our employees, customers and the
communities in which we operate. Key elements of the Company's strategy are as follows:
Leverage the ROCKY Brand. The Company believes the ROCKY brand has become a recognizable and established
name for performance and quality conscious consumers in the rugged outdoor and occupational segments of the men's
footwear market. The Company intends to continue leveraging ROCKY with emphasis on the occupational shoe market and
complementary products, such as socks and accessories in an effort to increase brand recognition.
Build customer and consumer relationships. The Company believes it can improve customer and consumer
relationships through innovative sales and marketing methods. These enhanced relationships will enable the Company to
better understand and satisfy our customer’s and consumer’s needs.
Maximize benefit of current infrastructure. The Company believes it must more extensively utilize the recent
significant investments made in distribution and information systems. These systems will enable the Company to better
service its customers in a more cost efficient manner.
Focus future investment. The Company believes it needs to continue as the leader in design and engineering of new
and innovative products and to focus future investments on achieving this goal.
Expand Product Sourcing. The Company's sourced products represented approximately 41% of net sales in 2001. 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.
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
Military
TARGET MARKET ................... Hunters and outdoorsmen Law enforcement and
military personnel,
security guards, postal
workers, paramedics,
industrial workers and
construction workers
Retail customers of
premium casual wear
U.S. government
SUGGESTED RETAIL
PRICE RANGE........................... $59 - 259
DISTRIBUTION CHANNELS ... Sporting goods stores,
outdoor specialty stores,
mail order catalogs,
independent retail stores and
mass merchandisers
$69 - $179
$69 - $189
NA
Retail uniform stores,
mail order catalogs,
specialty safety stores
Independent retail stores,
sporting goods stores,
mail order catalogs and
sporting goods stores
U.S. government supply chain
Rugged Outdoor Footwear. Rugged outdoor footwear is the Company's largest product line, representing $56.6
million, or 54.7%, of Fiscal 2001 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
3
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 $27.1
million, or 26.2%, of Fiscal 2001 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 demand leather work boots that are durable, flexible and comfortable.
Military Footwear. Sales of military footwear were $8.9 million in Fiscal 2001, accounting for 8.7% of net sales.
The military footwear are sold under contract to the U.S. government. While the Company may pursue future government
contracts for military footwear, the current contract will be fulfilled during the first half of 2002.
Casual Footwear. Sales of the Company's casual footwear were $4.4 million in Fiscal 2001, accounting for 4.3% 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
beginning in Fiscal 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. During 2001, the Company operated factory outlet stores in Nelsonville, Ohio and Westpoint,
Mississippi. The Westpoint, Mississippi store was closed in July, 2001. 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 Fiscal 2001, net sales for factory outlet stores were $4.7 million, or 4.6% 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 $1.5
million in Fiscal 2001.
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.
Rugged outdoor ...........................................................................
Occupational ................................................................................
Military ........................................................................................
Casual ..........................................................................................
Factory outlet stores......................................................................
Other .............................................................................................
Fiscal
2001
54.7%
26.2
8.7
4.3
4.6
1.5
100.0%
Fiscal
2000
Fiscal
1999
60.4%
27.3
-
6.0
5.7
0.6
100.0%
52.0%
30.4
-
9.1
5.3
3.2
100.0%
4
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.
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. No single customer accounted for more than 10% of the Company's revenues in Fiscal 2001. The Company believes
the loss of any single customer would not have a material averse effect on the Company’s financial position.
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 exclusive sales
representatives 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, the majority of the Company's sales force is comprised of exclusive sales representatives.
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 and national print
publications aimed at audiences which share the demographic profile of the Company's typical customers. 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 in the Company’s facilities located in the Dominican Republic and Puerto
Rico utilizing a modular "Team Pass-Through" manufacturing system. 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
5
distribution facility located near Logan, Ohio conduct quality control testing on incoming sourced finished goods and raw
materials and inspect random samples from 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 group.
The majority of the Company's footwear is produced in its own facilities in the Dominican Republic and Puerto
Rico. Until the Company discontinued production in its Nelsonville, Ohio facility in November 2001, the Company also
produced footwear in this facility. The Company also sources footwear from manufacturers in the Far East, which accounted
for approximately 41% of net sales in Fiscal 2001. 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 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.
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
possible 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 Company 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.
6
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, 2001 and December 31, 2000, backlog was $9.7 million and $6.7 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®, ROCKY BOOTS® (which claims a
ram's head Design as part of the mark), ROCKY BOOTS and Design® (which claims a ram's head Design as part of the
mark), AQUA GUARD®, BEAR CLAW®, CORNSTALKERS®, FORMZ®, LONGBEARD®, TAC-TEAM and Design®,
ROCKY 911 SERIES and Design®, SNOW STALKER®, 4 WAY STOP and Design®, ROCKY and Design® for cigars,
ROCKY SHOES & BOOTS INC. SINCE 1932 and Design® plus a detailed full ram Design, and STALKERS®. Additional
mark variations for ROCKY BOOTS® and Design (which claims a ram's head Design as part of the mark),
ALPHAFORCE™, SAWBLADE™, WILDWOLF™, SILENTHUNTER™, PRO-HIKER™, ROCKY ELIMINATOR™,
PROHUNTER™, 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® MOUNTAIN STALKERS®,
and other ROCKY® 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® mark in a number of foreign countries.
The Company also uses in its advertising and in other documents the following trademarks owned by corporations
other than the Company: GORE-TEX® and CROSSTECH® are registered trademarks of W.L. Gore & Associates, Inc.;
CORDURA® is a registered trademark of E.I. DuPont de Nemours and Company; THINSULATE® is a registered trademark
7
of Minnesota Mining and Manufacturing Company; and CAMBRELLE® 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, 2001, the Company had approximately 929 full-time employees and 7 part-time employees.
Approximately 783 of these full-time employees are in the Dominican Republic and Puerto Rico. The Company has
approximately 649 employees engaged in production and the balance in managerial and administrative positions. Management
considers its relations with all of its employees to be good. The collective bargaining agreement between the Company and the
Union of Needletrades, Industrial and Textile Employees ("UNITE") was cancelled with the closing of the Company’s
Nelsonville, Ohio manufacturing facility.
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 2002 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, susceptibility to 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 the investment in infrastructure and product inventory and to enhance the Company’s systems.
To the extent sales forecasts are not achieved, costs associated with the infrastructure and carrying costs of product inventory
would represent a higher percentage of revenue, which would adversely affect the Company’s financial performance.
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."
8
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 possible 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 currently
believes 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 advance written
notice to the other party by October 1 of the current year of the agreement that the agreement will terminate, effective
December 31 of that same year. 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 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."
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
9
merchandisers could have a material adverse effect on the Company's business, financial condition and results of operations.
The Company established the Wild Wolf® by Rocky
® brand in fiscal 2000 to offer rugged outdoor footwear for sale in another
segment of retail. 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, David Fraedrich, Senior Vice President and
Treasurer, David Sharp, Senior Vice President-Sales & Operations, and James McDonald, Vice President and Chief Financial
Officer. Messrs. Brooks and Fraedrich have 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 terminating in 2006. In addition, the Company's local tax abatements in
Puerto Rico are due to expire in 2004. The Company provided no U.S. income tax on the unrepatriated income generated by
its subsidiary in the Dominican Republic. Consequently, no income taxes are provided on these cumulative earnings of
approximately $5,309,000. During fourth quarter Fiscal 1996 and through December 31, 1998, the Company elected to
repatriate future earnings of its subsidiary in the Dominican Republic and provided taxes on the earnings during that period.
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. 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. In
an effort to enhance its competitive position, during the first quarter of 2000 the Company began to curtail manufacturing at
its Nelsonville, Ohio plant and to consolidate production at its plants in Puerto Rico and the Dominican Republic. As of
November 16, 2001, the Company has closed its Nelsonville, Ohio manufacturing facility.
10
Concentration of Stock Ownership; Certain Corporate Governance Measures. The directors, executive officers and
principal shareholders of the Company beneficially own approximately 11.6% 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 a merger more difficult, 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.
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
11
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. The Company does not assume any obligation to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
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. 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. This office building is currently for sale.
The Company owns, subject to a mortgage, a 98,000 square foot distribution warehouse in Nelsonville, Ohio. This
facility is currently used to warehouse raw materials. This distribution warehouse is currently for sale.
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 was
used for manufacturing and presently 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-1236-0-78 which contains 44,978 sq. ft. and T-1236-1-82 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.
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 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 adjacent to this
property.
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.
12
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, 2000..................................................................................................
June 30, 2000.....................................................................................................
September 30, 2000 ...........................................................................................
December 31, 2000............................................................................................
March 31, 2001..................................................................................................
June 30, 2001.....................................................................................................
September 30, 2001 ...........................................................................................
December 31, 2001............................................................................................
$7.53
$6.53
$5.47
$5.38
$6.25
$4.80
$6.90
$6.49
$3.69
$4.88
$4.63
$3.75
$3.81
$2.98
$4.46
$4.58
On March 19, 2002, the last reported sales price of the Common Stock on the Nasdaq National Market was $7.04
per share. As of March 19, 2002, there were approximately 147 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, 2001 the Company had no retained earnings available for
distribution.
13
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except for per share data)
Income Statement Data
Net sales
Gross margin % of sales
Net income (loss)
Balance Sheet Data
Inventories
Total assets
Working capital
Long-term debt, less current
maturities
Shareholders' equity
Per Share
Net income (loss):
Basic
Diluted
Five Year Financial Summary
12/31/01
12/31/00
12/31/99
12/31/98
12/31/97
$ 103,320
$ 103,229
$ 98,781
$ 89,316
$ 95,688
22.5%
$ 1,531
23.8%
15.7%
23.6%
27.6%
$ 96
$ (5,130)
$ 2,262
$ 4,761
$ 27,714
$ 32,035
$ 32,573
$ 47,110
$ 32,894
74,660
44,267
16,976
51,043
86,051
50,201
26,445
50,326
89,333
48,468
25,177
50,229
96,598
67,468
26,878
59,635
80,955
55,988
13,407
59,197
$ 0.34
$ 0.34
$ 0.02
$ (1.09)
$ 0.02
$ (1.09)
$ 0.42
$ 0.41
$ 1.16
$ 1.10
Weighted average number of common
shares outstanding:
Basic
Diluted
4,489
4,549
4,489
4,493
4,710
4,710
5,425
5,527
4,088
4,330
14
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates and judgments, including those related to accounts
receivable, inventories, pension benefits, income taxes, and restructuring costs. Management bases its estimates and
judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.
Accounts receivable allowances:
Management maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. Management also records estimates for
customer returns and discounts offered to customers. Should a greater proportion of customers return goods and take
advantage of discounts than estimated by the Company, additional allowances may be required.
Inventories:
Management identifies slow moving or obsolete inventories and estimates appropriate loss provisions related to these
inventories. Historically, these loss provisions have not been significant as the vast majority of the Company’s inventories are
considered saleable and the Company has been able to liquidate any slow moving or obsolete inventories through the
Company’s factory clearance center or through various discounts to customers. Should management encounter difficulties
liquidating slow moving or obsolete inventories, additional provisions may be required.
Pension benefits:
Management records an accrual for pension costs associated with the Company sponsored noncontributory defined benefit
pension plans covering the union and non-union workers of the Company’s operations. Future adverse changes in market
conditions or poor operating results of underlying plan assets could result in losses or a higher accrual.
Income taxes:
Currently, management has not recorded a valuation allowance to reduce its deferred tax assets to the amount that it believes
is more likely than not to be realized. The Company has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for the valuation allowance, however in the event the Company were to determine
that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to income in the period such determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred
tax assets would increase income in the period such determination was made.
Restructuring costs:
As disclosed in Note 2 of Notes to Consolidated Financial Statements, in 2001 management established an accrual for
estimated restructuring and realignment costs associated with the closing of its Nelsonville manufacturing facility. The
Company expects no additional restructuring and realignment costs associated with this plan, however should the Company
incur additional costs related to the closing of the manufacturing facility, additional accruals may be required.
15
PERCENTAGE OF NET SALES
References to Fiscal 2001, 2000 and 1999 are to Fiscal years of the Company ended December 31 of the respective year.
2001
2000
1999
Net sales....................................................................................................
Costs of goods sold ...................................................................................
Gross margin.............................................................................................
Selling, general and administrative expenses and plant closing costs .......
Income (loss) from operations ..................................................................
100.0%
77.5
22.5
19.0
3.5%
100.0%
76.2
23.8
20.7
3.1%
100.0%
84.8
15.7
21.0
(5.3%)
FISCAL 2001 COMPARED TO FISCAL 2000
Net Sales
Net sales rose 0.1% to $103,319,806 for Fiscal 2001 compared with $103,228,987 for Fiscal 2000. This increase
was primarily due to sales of military footwear, initial shipments of which were made during second quarter 2001. To a lesser
extent, sales of accessory items contributed to the increase. Offsetting the increase were decreases in sales within each other
major footwear category for Fiscal 2001. The Company attributes these reduced sales to the general softness within the
economy, especially during the second half of Fiscal 2001, and milder than normal weather during its peak selling season.
Average list prices for the Company’s product were approximately 7% higher in Fiscal 2001 than in 2000.
Gross Margin
Gross margin decreased $1,359,955, or 5.5%, to $23,251,940 in Fiscal 2001 versus $24,611,895 in 2000. As a
percentage of net sales, gross margin decreased to 22.5% in Fiscal 2001 from 23.8% in 2000. Fiscal 2001 included sales of
Intermediate Cold Wet military boots with gross margins below the Company’s average rate. In addition, implementation of
improved cost and reporting systems allowed the Company to review its inventory costing methods and revise its costs during
fourth quarter 2001, which negatively impacted gross margin. Improved pricing policies combined with an increase in
sourced footwear to 41% of net sales in Fiscal 2001 from 36% the prior year benefited gross margin for the year ended
December 31, 2001.
Selling, General & Administrative Expenses
Selling, general & administrative ("SG&A") expenses decreased $3,250,815, or 15.2%, to $18,175,943 in Fiscal
2001 compared to $21,426,758 in 2000. As a percentage of net sales, SG&A declined to 17.6% from 20.7% in Fiscal 2000.
The most significant factors contributing to the reduction in SG&A expenses for the Year 2001 were lower selling costs
resulting from a restructuring of the sales force and reduced bad debt expense. Salaries and wages as well as advertising
expenses were lower than the prior year, which offset higher fringe benefits for increased pension accruals, anticipated
performance incentives, and additional professional fees. The Company continues to seek additional cost reductions that will
benefit long-term performance.
In addition, the Company announced plans to realign its manufacturing operations on September 17, 2001, which
included ceasing manufacturing operations at the Nelsonville, Ohio factory during fourth quarter 2001. A restructuring
charge of $1.5 million was recorded in Fiscal 2001 for anticipated expenses associated with the realignment of manufacturing
operations. A summary of the costs accrued includes: severance, pension and employee benefit costs, equipment and
relocation costs, and legal and other expenses.
16
Interest Expense
Interest expense declined $860,855, or 25.7%, to $2,493,533 for Fiscal 2001 from $3,354,388 in Fiscal 2000. The
Company benefited from lower outstanding balances and lower interest rates during Fiscal 2001, which were partially offset
by a $295,000 reduction in second quarter 2000 interest expense due to a gain on the termination of an interest rate swap
agreement.
The Company’s funded debt decreased 36.6% to $17,445,166 at December 31, 2001 versus $27,515,650 a year ago
due to reductions to inventories, accounts receivable and capital expenditures.
Income Taxes
The Company recognized income tax benefit of $93,438 for Fiscal 2001 compared with an income tax expense of
$183,464 for Fiscal 2000. The current year benefit resulted primarily from an abatement of Puerto Rico tollgate taxes on all
earnings subsequent to June 30, 1994. This resulted in a deferred tax benefit of $408,000.
FISCAL 2000 COMPARED TO FISCAL 1999
Net Sales
Net sales rose 4.5% to $103,228,987 for Fiscal 2000 compared with $98,781,223 for Fiscal 1999. This increase was
footwear, initial shipments of which were
due to higher sales in the rugged outdoor category, especially Wild Wolf
made during third quarter 2000. This new line increased the availability of ROCKY branded footwear in an additional
segment of the rugged outdoor category. Occupational sales for Fiscal 2000 were $1.6 million below the prior year. This was
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 $2.7 million below the prior
year. Average list prices for the Company’s product were approximately 2% higher in Fiscal 2000 than in 1999.
by Rocky
Gross Margin
Gross margin increased $9,087,440, or 58.5%, to $24,611,895 in Fiscal 2000 versus $15,524,455 in 1999. As a
percentage of net sales, gross margin improved to 23.8% in Fiscal 2000 from 15.7% in 1999. This gross margin improvement
was 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. Net sales of
sourced footwear grew to 36% of net sales in Fiscal 2000 from 26% the prior year.
Selling, General & Administrative Expenses
Selling, general & administrative ("SG&A") expenses increased $724,362, or 3.5%, to $21,426,758 in Fiscal 2000
compared to $20,702,396 in 1999. As a percentage of net sales, SG&A decreased slightly to 20.7% from 21.0% 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.
17
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.
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 decided 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.
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 2001 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 $44,266,895 and $50,200,965 at December 31, 2001 and 2000, respectively.
Inventory declined by $4,321,573 or 13.5% to $27,713,664 at December 31, 2001 compared with $32,035,237 on
the same date of the prior year. This decrease resulted from improved forecasting and scheduling systems that allowed
footwear to be manufactured closer to actual delivery dates. In addition, the Company’s product lines included fewer styles
for the Year 2001, and there was also an increase in port of entry sales during the year, which are shipped directly to the
customer. The Company believes it has adequate inventory to meet anticipated demand.
Capital expenditures were $1,172,365 for the Year 2001 versus $3,113,529 for the Year 2000. The Company’s
increased use of sourced manufacturing significantly reduced the need for capital expenditures compared to the Year 2000.
Capital expenditures for the foreseeable future are expected to be similar to Fiscal 2001, as sourced manufacturing continues
to increase as a percentage of products sold.
On September 18, 2000, the Company completed a revolving line of credit and term loan 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, 2001, the Company had
borrowed $11,000,000 and $616,500 against its revolving line of credit and term loan agreements respectively, against its
available borrowings of $20,118,320. At December 31, 2001, the Company did not comply with certain lender covenants,
due in large part to the $1.5 million charge for the manufacturing realignment. On February 22, 2002, the Company obtained
a waiver from the lender with respect to such events of noncompliance and amended these covenants through 2002.
During first quarter 2000, the Company completed mortgage financing 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 leases certain machinery and manufacturing facilities under operating leases that generally provide for
renewal options. Future minimum lease payments under non-cancelable operating leases are $652,000, $579,000, $696,000,
$743,000, and $472,000 for fiscal years 2002 through 2006, respectively, and $823,000 for all years after 2006, or
$3,965,000 in total.
18
The Company's financing activities during Fiscal 2001 and 2000 were to support future growth. No single activity
represented a significant amount of the total expenditures. The Company believes it will be able to finance capital additions
and meet operating expenditure requirements for Fiscal 2002 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, economic changes, 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 retail
customer. The Company does not hold any material market risk sensitive instruments for trading purposes.
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, 2001 of $11,000,000. Interest is payable monthly at the lender's
LIBOR rate plus 250 basis points or prime plus 25 basis points; (2) The Company also has equipment and other obligations
totaling $616,500 at December 31, 2001, that bear interest at a variable rate of Prime plus one-quarter percent (0.25%); and
(3) The Company has a real estate obligations of $5,827,541 at December 31, 2001, that bear interest at fixed rates of 7.625%
and 8.275%.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial balance sheets as of December 31, 2001 and 2000 and the related
consolidated statements of operations, shareholders' equity, and cash flows for the years ended December 31, 2001, 2000, and
1999, together with the independent auditors' report thereon appear on pages F-1 through F-22 hereof, and are incorporated
herein by reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
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 2002 Annual Meeting of Shareholders (the "Proxy Statement") to be held on May 15,
2002, 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, 2001 and 2000 ...................................
Consolidated Statements of Operations for the fiscal years ended
December 31, 2001, 2000, and 1999 ...........................................................................
Consolidated Statements of Shareholders' Equity for the fiscal
years ended December 31, 2001, 2000, and 1999........................................................
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 2001, 2000, and 1999 ...........................................................................
Notes to Consolidated Financial Statements for the fiscal years ended
December 31, 2001, 2000, and 1999 ...........................................................................
F-2 - F-3
F-4
F-5
F-6
F-7 - F-22
20
(2) The following financial statement schedule for the fiscal years ended December 31, 2001, 2000, and 1999 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.
21
(3) Exhibits:
Exhibit
Number
Description
3.1
3.2
4.1
4.2
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).
Amended and Restated Code of Regulations of the Company (incorporated by reference to Exhibit
3.2 to the Registration Statement on Form S-1, registration number 33-56118 (the "Registration
Statement").
Form of Stock Certificate for the Company (incorporated by reference to Exhibit 4.1 to the
Registration Statement).
Articles Fourth, Fifth, Sixth, Seventh, Eighth, Eleventh, Twelfth, and Thirteenth of the 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
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
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")).
Information concerning Employment Agreements substantially similar to Exhibit 10.1 (incorporated
by reference to Exhibit 10.2 to the 1995 Form 10-K).
Deferred Compensation Agreement, dated May 1, 1984, between Rocky Shoes & Boots Co. and
Mike Brooks (incorporated by reference to Exhibit 10.3 to the Registration Statement).
Information concerning Deferred Compensation Agreements substantially similar to Exhibit 10.3
(incorporated by reference to Exhibit 10.4 to the Registration Statement).
Form of Company's amended 1992 Stock Option Plan (incorporated by reference to Exhibit 10.5 to
the 1995 Form 10-K).
Form of Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Registration
Statement).
Indemnification Agreement, dated December 21, 1992, between the Company and Mike Brooks
(incorporated by reference to Exhibit 10.10 to the Registration Statement).
Information concerning Indemnification Agreements substantially similar
to Exhibit 10.7
(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")).
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
22
Exhibit
Number
Description
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
10.12
10.13
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).
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).
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
10.20
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).
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).
23
Exhibit
Number
10.21
Description
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
[Reserved.]
10.27
10.28
10.29
10.30
10.31
Promissory Note, dated December 30, 1999, in favor of General Electric Capital Business Asset
Funding Corporation in the amount of $1,050,000 (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (the “June 30, 2000 Form 10-
Q”)).
Promissory Note, dated December 30, 1999, in favor of General Electric Capital Business Asset
Funding Corporation in the amount of $1,500,000 (incorporated by reference to Exhibit 10.2 to the
June 30, 2000 Form 10-Q).
Promissory Note, dated December 30, 1999, in favor of General Electric Capital Business Asset
Funding Corporation in the amount of $3,750,000 (incorporated by reference to Exhibit 10.3 to the
June 30, 2000 Form 10-Q).
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).
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
24
Exhibit
Number
Description
Company, Lifestyle Footwear, Inc., and GMAC Business Credit, LLC (incorporated by reference to
Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 2000).
10.34
Second Amendment to Loan and Security Agreement, dated March 27, 2001, among the Company,
Lifestyle Footwear, Inc., and GMAC Business Credit, LLC (incorporated by reference to Exhibit
10.34 to the Annual Report on Form 10-K for the year ended December 31, 2000).
10.35
Third Amendment to Loan and Security Agreement, dated July 9, 2001, among the Company,
Lifestyle Footwear, Inc., and GMAC Business Credit, LLC.
10.36
Fourth Amendment to Loan and Security Agreement, dated February 22, 2002, among the
Company, Lifestyle Footwear, Inc., and GMAC Business Credit, LLC.
21
23
24
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).
Independent Auditors' Consent and Report on Schedules of Deloitte & Touche LLP.
Powers of Attorney.
99.1
Independent Auditors' Report of Deloitte & Touche LLP on Schedules (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 F-pages.
(d)
FINANCIAL STATEMENT SCHEDULES
The Independent Auditors’ Report and financial statement schedule are included in this Annual Report on Form 10-
K as Exhibit 99.1 and Exhibit 99.2, respectively.
25
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.
SIGNATURES
Date: March 28, 2002
ROCKY SHOES & BOOTS, INC.
By: /s/ James E. McDonald
James E. McDonald, Vice President 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
Mike Brooks
* DAVID FRAEDRICH
David Fraedrich
/s/ James E. McDonald
James E. McDonald
* CURTIS A. LOVELAND
Curtis A. Loveland
* LEONARD L. BROWN
Leonard L. Brown
* STANLEY I. KRAVETZ
Stanley I. Kravetz
* JAMES L. STEWART
James L. Stewart
* ROBERT D. ROCKEY
Robert D. Rockey
* GLENN E. CORLETT
Glenn E. Corlett
* By: /s/ Curtis A. Loveland
Curtis A. Loveland, Attorney-in-Fact
Chairman, President, Chief
Executive Officer and Director (Principal
Executive Officer)
March 28, 2002
Senior Vice President, Treasurer,
and Director
March 28, 2002
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 28, 2002
Secretary and Director
March 28, 2002
March 28, 2002
March 28, 2002
March 28, 2002
March 28, 2002
March 28, 2002
Director
Director
Director
Director
Director
26
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors’ Report
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended December 31, 2001,
2000 and 1999
Consolidated Statements of Shareholders’ Equity for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999
F - 1
F - 2 - F - 3
F - 4
F - 5
F - 6
Notes to Consolidated Financial Statements
F - 7 - F - 22
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, 2001 and 2000 and the related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001.
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, 2001 and 2000 and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of America.
March 25, 2002
F - 1
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable - trade, net
Other receivables
Inventories
Deferred income taxes - current
Other current assets
December 31,
2001
2000
$
2,954,935
15,091,100
2,225,498
27,713,664
615,609
1,053,192
$
2,117,994
18,055,881
2,956,900
32,035,237
536,012
1,295,287
Total current assets
49,653,998
56,997,311
FIXED ASSETS, AT COST:
Property, plant and equipment
Less - accumulated depreciation
43,024,219
(22,258,125)
47,401,015
(23,070,696)
Total fixed assets - net
20,766,094
24,330,319
DEFERRED PENSION ASSET
1,802,922
2,526,603
DEFERRED INCOME TAXES
295,784
OTHER ASSETS
TOTAL ASSETS
See notes to consolidated financial statements.
2,141,016
2,196,939
$
74,659,814
$
86,051,172
F - 2
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CURRENT LIABILITIES:
Accounts payable
Current maturities - long-term debt
Accrued expenses:
Taxes - other
Salaries and wages
Plant closing costs
Co-op advertising
Interest
Other
December 31,
2001
2000
$
1,559,444
469,143
$
3,502,296
1,070,374
991,295
985,992
903,291
231,862
121,417
124,659
560,537
369,925
520,019
272,882
500,313
Total current liabilities
5,387,103
6,796,346
LONG-TERM DEBT - Less current maturities
16,976,023
26,445,276
DEFERRED LIABILITIES:
Compensation
Pension
Total deferred liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, Series A, no par value, $.06 stated value;
none outstanding 2001 and 2000
Common stock, no par value; 10,000,000 shares authorized;
outstanding 2001 - 4,492,215 and 2000 - 4,489,215 shares
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
155,564
1,097,791
187,959
2,295,919
1,253,355
2,483,878
23,616,481
35,725,500
35,302,159
(831,161)
16,572,335
35,284,159
15,041,513
51,043,333
50,325,672
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
74,659,814
$
86,051,172
See notes to consolidated financial statements.
F - 3
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NET SALES
COST OF GOODS SOLD
GROSS MARGIN
OTHER OPERATING EXPENSES:
Selling, general and
administrative expenses
Plant closing costs
Years Ended December 31,
2000
2001
1999
$
103,319,806
$
103,228,987
$
98,781,223
80,067,866
78,617,092
83,256,768
23,251,940
24,611,895
15,524,455
18,175,943
1,500,000
21,426,758
20,702,396
Total other operating expenses
19,675,943
21,426,758
20,702,396
INCOME (LOSS) FROM OPERATIONS
3,575,997
3,185,137
(5,177,941)
OTHER INCOME AND (EXPENSES):
Interest expense
Other - net
(2,493,533)
354,920
(3,354,388)
449,257
(2,415,682)
236,287
Total other - net
(2,138,613)
(2,905,131)
(2,179,395)
INCOME (LOSS) BEFORE INCOME TAXES
1,437,384
280,006
(7,357,336)
INCOME TAX EXPENSE (BENEFIT)
(93,438)
183,464
(2,227,579)
NET INCOME (LOSS)
$
1,530,822
$
96,542
$
(5,129,757)
NET INCOME (LOSS) PER COMMON SHARE:
Basic and diluted
$
0.34
$
0.02
$
(1.09)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic
Diluted
See notes to consolidated financial statements.
4,489,322
4,489,215
4,710,039
4,548,632
4,493,304
4,710,039
F - 4
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common
Stock
Accumulated Other
Comprehensive
Loss
Retained
Earnings
Total
Shareholders’
Equity
BALANCE, DECEMBER 31, 1998
$
39,560,343
$
20,074,728
$
59,635,071
YEAR ENDED DECEMBER 31, 1999:
Net loss
Treasury stock purchased and retired (685,100 shares)
Stock options exercised
BALANCE, DECEMBER 31, 1999
YEAR ENDED DECEMBER 31, 2000:
Net income
(4,285,184)
9,000
35,284,159
(5,129,757)
(5,129,757)
(4,285,184)
9,000
14,944,971
50,229,130
96,542
96,542
BALANCE, DECEMBER 31, 2000
35,284,159
15,041,513
50,325,672
YEAR ENDED DECEMBER 31, 2001:
Net income
Minimum pension liability, net of tax of $323,229
Comprehensive income
Stock options exercised
$
(831,161)
1,530,822
1,530,822
(831,161)
699,661
18,000
18,000
BALANCE, DECEMBER 31, 2001
$
35,302,159
$
(831,161)
$
16,572,335
$
51,043,333
See notes to consolidated financial statements.
F - 5
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Deferred compensation and pension - net
Loss on sale of fixed assets
Change in assets and liabilities:
Receivables
Inventories
Other current assets
Other assets
Accounts payable
Accrued expenses
Years Ended December 31,
2001
2000
1999
$
1,530,822
$
96,542
$
(5,129,757)
4,409,361
(52,152)
(1,661,232)
353,681
3,696,183
4,321,573
242,095
14,731
(1,936,064)
1,134,840
4,698,554
(46,954)
(468,522)
32,116
2,927,201
537,830
(72,373)
(469,514)
1,551,745
335,969
3,836,586
(1,052,222)
254,769
9,048
(6,690,028)
14,536,944
(378,992)
(749,720)
162,705
277,628
Net cash provided by operating activities
12,053,838
9,122,594
5,076,961
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets
Proceeds from sale of fixed assets
(1,172,365)
7,952
(3,113,529)
39,770
(9,675,010)
Net cash used in investing activities
(1,164,413)
(3,073,759)
(9,675,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt
Payments on long-term debt
Purchase of treasury stock
Proceeds from exercise of stock options
96,926,759
(106,997,243)
106,607,246
(112,868,411)
18,000
57,527,000
(53,555,319)
(4,285,184)
9,000
Net cash used in financing activities
(10,052,484)
(6,261,165)
(304,503)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
836,941
(212,330)
(4,902,552)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
2,117,994
2,330,324
7,232,876
CASH AND CASH EQUIVALENTS, END OF YEAR
$
2,954,935
$
2,117,994
$
2,330,324
See notes to consolidated financial statements.
F - 6
ROCKY SHOES & BOOTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
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. 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 2001, 2000 and 1999.
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 $345,000 and $503,000 at December 31, 2001 and 2000, respectively.
Concentration of Credit Risk - The Company has significant transactions with a large number of
customers. Accounts receivable from one customer represented 16% and 12% of the Company’s
total accounts receivable - trade balance as of December 31, 2001 and 2000, respectively. 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). The Company has had a relationship with this supplier for over 20 years and has
no reason to believe that such relationship will not continue.
F - 7
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:
Building and improvements
Machinery and equipment
Furniture and fixtures
Lasts, dies, and patterns
Years
5-40
8-12
8-12
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
$1,962,783, $2,532,671 and $2,997,462 for 2001, 2000 and 1999, 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.
Shipping and Handling Costs - The emerging issues task force (“EITF” of the Financial
Accounting Standards Board) issued EITF No. 00-10 “Accounting for Shipping and Handling Fees
and Costs” (“EITF 00-10”). EITF 00-10 addresses the accounting for shipping and handling costs
billed to customers and prohibits the netting of such revenue against related costs. The adoption of
EITF 00-10 had no impact on the Company’s net income and all applicable expenses have been
reclassified from selling general and administrative expenses to net sales for all years presented to
conform with the new presentation requirements.
F - 8
Per Share Information - Basic net income (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 stock options. A
reconciliation of the shares used in the basic and diluted income per share computations is as
follows:
Years Ended December 31,
2000
2001
1999
Basic - Weighted average shares outstanding
4,489,322
4,489,215
4,710,039
Dilutive securities - stock options
59,310
4,089
Diluted - Weighted average shares outstanding
4,548,632
4,493,304
4,710,039
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. Adoption of SFAS 133 did not
have a significant impact on the financial position, results of operations, or cash flows of the
Company. The Company occasionally uses interest rate swaps to hedge a portion of its variable rate
debt. There were no swaps outstanding at December 31, 2001 and 2000. The Company’s policy
requires that swap contracts be used as hedges and be effective at reducing risk associated with the
exposure being hedged. Such contracts are designated at the inception of the contract.
In June, 2001, the Financial Accounting Standards Board (FASB) approved Statement of Financial
Accounting Standards (SFAS) No. 141, “Business Combinations.” SFAS No. 141 improves the
transparency of the accounting and reporting for business combinations by requiring that all
business combinations be accounted for under a single method - the purchase method. This
Statement is effective for all business combinations initiated after June 30, 2001.
In June, 2001, the FASB approved SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS
No. 142 applies to intangibles and goodwill acquired after June 30, 2001, as well as goodwill and
intangibles previously acquired. Under this Statement goodwill as well as other intangibles
determined to have an infinite life will no longer be amortized; however, these assets will be
reviewed for impairment on a periodic basis. This Statement is effective for the Company for the
first quarter in the fiscal year ended December 2002.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets.” This Statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes FASB Statement No. 121 “Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” Because
SFAS No. 121 did not address the accounting for a segment of a business accounted for as a
F - 9
discontinued operation under Opinion 30, two accounting models existed for long-lived assets to be
disposed of. The Board decided to establish a single accounting model, based on the framework
established in Statement No. 121, for long-lived assets to be disposed of by sale. This Statement is
effective for financial statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years.
The Company is currently assessing the impact of these Statements but management does not
believe that these Statements will have a material effect on the Company’s consolidated financial
statements.
Segment Information - The Company is managed in one operating segment, footwear. Within their
one operating segment, the Company has identified four product groups; Rugged Outdoor,
Occupational-Work, Military and Handsewn Casual. The following is supplemental information on
net sales by product group:
Rugged Outdoor
Occupational
Military
Casual
Factory Outlet Store
Other
2001
$
56,596,762
27,054,015
8,948,426
4,446,109
4,741,326
1,533,168
% of
Sales
54.7 %
26.2 %
8.7 %
4.3 %
4.6 %
1.5 %
2000
$
62,297,449
28,204,383
6,225,130
5,916,952
585,073
% of
Sales
60.4 %
27.3 %
6.0 %
5.7 %
0.6 %
1999
$
51,384,731
30,054,531
8,989,091
5,235,405
3,117,465
% of
Sales
52.0 %
30.4 %
9.1 %
5.3 %
3.2 %
Total
$
103,319,806
100.0 %
$
103,228,987
100.0 %
$
98,781,223
100.0 %
Net sales to foreign countries, primarily Canada, represented approximately 1% of net sales in
2001, 2000, and 1999.
Reclassifications - Certain amounts in the prior years’ consolidated financial statements have been
reclassified to conform with 2001 presentation.
2. CLOSURE OF MANUFACTURING OPERATIONS
In September 2001, the Board of Directors approved a restructuring plan to consolidate and realign
the Company’s footwear manufacturing operations. Under this plan, the Company moved the
footwear manufacturing operations at its Nelsonville, Ohio factory to the Company’s factory in
Puerto Rico. The restructuring plan was completed in the fourth quarter of 2001.
The execution of this plan, which started in September 2001, resulted in the elimination of 67
employees at the Company’s Nelsonville, Ohio facility, and a transfer of a significant amount of
machinery and equipment located at the Nelsonville facility to the Moca, Puerto Rico facility.
F - 10
A reconciliation of the plant closing costs and accrual during fiscal year 2001 is as follows:
Severance:
Union
Non-union
Curtailment of pension plan benefits
Employee benefits
Factory lease
Equipment and relocation costs
Legal and other costs
Total
Expenses
Accrued Balance
December 31, 2001
$
292,653
71,668
690,000
34,223
90,000
260,626
60,830
$
71,668
690,000
33,000
85,000
5,000
18,623
Total
$
1,500,000
$
903,291
The Company expects no additional restructuring and realignment costs associated with this plan.
3.
INVENTORIES
Inventories are comprised of the following:
Raw materials
Work-in-process
Finished goods
Factory outlet finished goods
Less reserve for obsolescence or lower of
cost or market
Total
December 31,
2001
2000
$
4,537,865
1,578,107
20,077,999
1,680,693
$
5,043,839
1,288,960
23,604,593
2,438,398
(161,000)
(340,553)
$
27,713,664
$
32,035,237
F - 11
4. FIXED ASSETS
Fixed assets are comprised of the following:
Land
Building and improvements
Machinery and equipment
Furniture and fixtures
Lasts, dies and patterns
Construction work-in-progress
Total
Less - accumulated depreciation
December 31,
2001
2000
$
572,838
13,387,497
20,415,510
1,685,485
6,739,027
223,862
43,024,219
(22,258,125)
$
572,838
13,892,507
23,021,226
3,854,503
6,029,904
30,037
47,401,015
(23,070,696)
Net fixed assets
$
20,766,094
$
24,330,319
5. LONG-TERM DEBT
Long-term debt is comprised of the following:
Bank - revolving credit facility
Equipment and other obligations
Real estate obligations
Other
Total debt
Less current maturities
December 31,
2001
2000
$
11,000,000
616,500
5,827,541
1,125
17,445,166
469,143
$
20,491,101
896,408
6,108,661
19,480
27,515,650
1,070,374
Net long-term debt
$
16,976,023
$
26,445,276
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. This loan and security agreement
has the Company’s borrowing base at 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, 2001 was
4.64% (9.75% at December 31, 2000).
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 - 12
The loan and security agreement contains certain restrictive covenants, which among other things,
requires 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, 2001, the
Company was not in compliance with certain of these bank covenant requirements. In February
2002, the Company obtained a waiver from GMAC with respect to such events of noncompliance
and amended the loan covenants for 2002. Management believes the Company will be in
compliance with the revised 2002 covenants.
Equipment and other obligations at December 31, 2001 bear interest at a variable rate of prime 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, 2001 and 2000 the
Company has no interest rate swap agreements.
Long-term debt matures as follows for the years ended December 31:
2002
2003
2004
2005
2006
Thereafter
Total
$
469,143
486,034
503,796
491,871
400,254
15,094,068
$
17,445,166
The estimated fair value of the Company’s long-term obligations approximated their carrying
amount at December 31, 2001 and 2000, based on current market prices for the same or similar
issues or on debt available to the Company with similar rates and maturities.
F - 13
6. OPERATING LEASES
The Company leases certain machinery and manufacturing facilities under operating leases that
generally provide for renewal options. The Company incurred approximately $1,096,000,
$1,161,000, and $1,069,000 in rent expense under operating lease arrangements for 2001, 2000 and
1999, respectively.
Included in total rent expense above are monthly payments of $7,000 for 2001, 2000 and 1999,
respectively, for the Company’s former Ohio manufacturing and clearance center 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:
2002
2003
2004
2005
2006
Thereafter
Total
7.
INCOME TAXES
$
652,000
579,000
696,000
743,000
472,000
823,000
$
3,965,000
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, 2001, a provision has not been made for U.S. taxes on the accumulated
undistributed earnings of Five Star through December 31, 2001 of approximately $5,309,000 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 provided Puerto Rico tollgate taxes on approximately $3,684,000 of
accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that
would be payable if such earnings were repatriated to the United States. 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 $1,805,000 and $368,000, respectively.
In 2001, the Company received an abatement for Puerto Rico tollgate taxes on all earnings
subsequent to June 30, 1994. This resulted in the Company reducing its deferred tax liability by
$408,000.
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
F - 14
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.
Income taxes (benefits) are summarized as follows:
Federal:
Current
Deferred
Total Federal
State and local:
Current
Deferred
Total state and local
Years Ended December 31,
2000
1999
2001
$
112,508
(174,636)
(62,128)
$
(115,262)
263,071
147,809
$
(1,273,033)
(1,007,542)
(2,280,575)
(153,794)
122,484
(31,310)
345,680
(310,025)
35,655
97,676
(44,680)
52,996
Total
$
(93,438)
$
183,464
$
(2,227,579)
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:
Expected expense (benefit) at statutory rate
Increase (decrease) in income taxes
resulting from:
Exempt (income) loss from operations in
Puerto Rico, net of tollgate taxes
Exempt income from Dominican
Republic operations
State and local income taxes (benefit)
Revision of prior year taxes
Alternative minimum tax
Abatement of Puerto Rico taxes
Other - net
Year Ended December 31,
2001
2000
1999
$
488,711
$
95,202
$
(2,501,494)
(97,344)
77,938
563,663
(67,967)
(20,628)
(12,123)
(408,000)
23,913
(74,034)
23,532
56,229
4,597
(625,978)
(18,019)
118,829
182,424
Total
$
(93,438)
$
183,464
$
(2,280,575)
F - 15
Deferred income taxes recorded in the consolidated balance sheets at December 31, 2001 and 2000
consist of the following:
Deferred tax assets:
Alternative minimum tax carryforward - Rocky
Alternative minimum tax carryforward - Lifestyle
Asset valuation allowances
Plant closing costs and prepaid assets
Pension and deferred compensation
Net operating loss carryforwards
Inventories
December 31,
2001
2000
$
118,829
283,200
288,317
257,342
148,004
1,616,901
201,832
$
118,829
188,800
648,577
202,291
1,657,782
318,267
Total deferred tax assets
2,914,425
3,134,546
Deferred tax liabilities:
Fixed assets
State and local income taxes
Prepaid assets
Tollgate tax on Lifestyle earnings
(1,580,872)
(53,725)
(368,435)
(1,497,685)
(47,425)
(276,989)
(776,435)
Total deferred tax liabilities
(2,003,032)
(2,598,534)
Net deferred tax asset
$
911,393
$
536,012
At December 31, 2001, the Company has approximately $4,293,000 of net operating loss
carryforwards for Federal income tax purposes. The net operating loss carryforward expires in
2019 and 2020.
8. 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 in 2000.
F - 16
In September, 2001 the Company announced a restructuring plan to consolidate and realign the
Company’s footwear manufacturing operations. As part of the plan, 67 employees were eliminated
and their balances paid directly from plan assets (a total of approximately $293,000). As a result of
the curtailment of certain retiree benefits and future employee service periods, $690,570 is included
in the calculation of 2001 net pension expense as a curtailment loss. Also, benefits under the
Company’s union plan were frozen at September 30, 2001.
The funded status of the Company’s plans and reconciliation of accrued pension cost at
December 31, 2001 and 2000 is presented below (information with respect to benefit obligations
and plan assets is as of September 30):
Change in benefit obligation:
Projected benefit obligation at beginning of the year
Service cost
Interest cost
Actuarial (gain)
Amendments
Exchange (gain)
Benefits paid
December 31,
2001
2000
$
7,985,007
316,572
571,295
(93,218)
115,396
(652,587)
$
5,422,818
303,748
403,542
1,907,868
248,684
(301,653)
Projected benefit obligation at end of year
$
8,242,465
$
7,985,007
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contribution
Benefits paid
$
4,570,688
(721,643)
1,870,000
(652,587)
$
4,387,026
185,315
300,000
(301,653)
Fair value of plan assets at end of year
$
5,066,458
$
4,570,688
Unfunded deficit
Remaining unrecognized benefit obligation existing(cid:31)
at transition
Unrecognized prior service costs due to plan amendments
Unrecognized net loss
Adjustment required to recognize minimum liability
Additional contributions (September 30-December 31)
Curtailment charge included in plant closing costs
$
(3,176,007)
$
(3,414,319)
105,993
1,696,929
1,542,036
(2,957,312)
1,000,000
690,570
232,362
2,473,620
289,021
(2,526,603)
650,000
Accrued pension cost
$
(1,097,791)
$
(2,295,919)
F - 17
Net pension cost of the Company’s plans is as follows:
Years Ended December 31,
2001
2000
1999
Service cost
Interest
Expected loss on assets
Amortization of unrecognized transition obligation
Amortization of unrecognized prior service cost
Curtailment charge
$
316,572
571,295
(509,194)
27,892
184,598
690,570
$
303,748
403,542
(393,877)
27,892
122,508
$
323,726
356,194
(404,283)
27,892
124,481
Net pension cost
$
1,281,733
$
463,813
$
428,010
The assets of the plans consist primarily of common stocks, bonds, and cash equivalents. The
assets of the plans include 81,400 and 61,400 shares of the Company’s common stock with a market
value of $416,768 and $314,675 at September 30, 2001 and 2000, respectively. The Company’s
unrecognized benefit obligations existing at the date of transition for the non-union plan is being
amortized over 21 years. Actuarial assumptions used in the accounting for the plans were as
follows:
Discount rate
Average rate of increase in compensation levels
(non-union only)
Expected long-term rate of return on plan assets
December 31,
2001
2000
7.25 %
7.25 %
3.0 %
3.0 %
8.0 %
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 consolidated financial statements a non-current deferred pension asset of $1,802,922
and $2,526,603 as of December 31, 2001 and 2000, respectively. In addition, under SFAS No. 87,
if the minimum liability exceeds the unrecognized prior service cost and the remaining
unrecognized benefit obligation at transition, the excess is reported in other comprehensive income
(loss) ($831,161, net of a deferred tax benefit of $323,229).
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. No Company contribution was made for 2001, 2000 and
1999.
F - 18
9. 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, 2001 and 2000, respectively.
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 1999, the Company
purchased and retired 685,100 shares for $4,285,184 under its share repurchase program. At
December 31, 2001, the Company’s Board of Directors has not authorized any additional share
repurchase. There were no treasury stock purchases in 2001 and 2000, respectively.
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 - 19
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, 1999 through December 31, 2001:
Outstanding at January 1, 1999
Issued
Exercised
Forfeited
Outstanding at December 31, 1999
Issued
Forfeited
Outstanding at December 31, 2000
Issued
Exercised
Forfeited
Weighted
Average
Exercise
Price
$
10.86
5.82
6.00
10.61
9.12
6.87
8.40
8.64
4.04
6.00
7.60
Shares
560,410
247,000
(1,500)
(112,160)
693,750
221,000
(232,250)
682,500
283,750
(3,000)
(51,250)
Outstanding at December 31, 2001
912,000
$
7.27
Options exercisable at December 31:
1999
2000
2001
386,035
444,250
604,000
$
$
$
9.27
9.37
8.45
The following table summarizes information about options outstanding at December 31, 2001:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
$3.875 - $5.00
$5.25 - $7.50
$7.625 - $9.50
$9.75 - $9.875
$13.125 - $16.875
Total
Number
314,750
219,750
200,500
51,500
125,500
912,000
Average
Remaining
Contractual
Life
Weighted-
Average
Exercise
Price
7.8
5.7
5.2
0.7
4.0
5.8
$
$
$
$
$
4.14
5.93
8.05
9.76
15.22
$
7.27
Weighted-
Average
Exercise
Price
$
$
$
$
$
4.02
5.92
8.19
9.75
15.22
Number
90,250
185,250
152,750
51,000
124,750
604,000
$
8.45
F - 20
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 2001, 2000 and 1999, respectively;
dividend yield of 0%; expected volatility of 44%, 45% and 41%; risk-free interest rates of 4.21%,
6.70% and 6.66%; and expected life of 6 years. The weighted average grant date fair value of
options issued during 2001, 2000 and 1999 was $4.04, $3.09 and $3.40, respectively.
Net income (loss):
As reported
Pro forma
Income (loss) per share:
As reported:
Basic and diluted
Pro forma:
Basic and diluted
Year Ended December 31,
2001
2000
1999
$
$
1,530,822
1,096,952
$
$
96,542
(99,255)
$
$
(5,129,757)
(5,201,230)
$
0.34
$
0.02
$
(1.09)
$
0.24
$
(0.02)
$
(1.10)
The pro forma amounts are not representative of the effects on reported net income for future years.
10. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents net income (loss) plus the results of certain non-
shareholders’ equity changes not reflected in the Statement of Operations. The components of
comprehensive income (loss), net of tax, are as follows:
Year Ended December 31,
2000
1999
2001
Net income (loss)
$
1,530,822
$
96,542
$
(5,129,757)
Minimum pension liability, net of tax benefit
(831,161)
Comprehensive income (loss)
$
699,661
$
96,542
$
(5,129,757)
The 2001 minimum pension liability is net of a deferred tax benefit of $323,229.
F - 21
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and Federal, state and local income taxes was as follows:
Year Ended December 31,
2001
2000
1999
Interest
$
2,644,998
$
3,279,905
$
2,547,104
Federal, state and local
income taxes - net of refunds
$
(36,309)
$
(3,450,000)
$
2,370,588
Non Cash Transaction - Increase (decrease) in additional minimum pension liability as follows:
Deferred pension asset
Deferred tax benefit
Total
$
1,154,390
(323,229)
$
831,161
Accounts payable at December 31, 2001, 2000 and 1999 include a total of $5,310, $12,098 and
$189,659, respectively, relating to the purchase of fixed assets.
12. SUBSEQUENT PURCHASE OF LICENSING RIGHTS
On January 4, 2002, the Company re-acquired the licensing rights to ROCKY Kids. The rights to
ROCKY Kids were purchased from Philip’s Kids, LLC (“Philip’s”), an entity owned by a
member of the Company’s Board of Directors. The purchase price for the licensing rights was
approximately $500,000. An additional purchase price is contingent based upon future sales of
these products.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for the years ended
December 31, 2001 and 2000:
2001
Net sales
Gross m argin
Net incom e (loss)
Net incom e (loss) per
com m on share:
Basic
Diluted
2000
Net sales
Gross m argin
Net incom e (loss)
Net incom e (loss) per
com m on share:
1st Q uarter
2nd Q uarter
3rd Q uarter
4th Q uarter
Total Year
$
16,063,895
3,167,074
(906,094)
$
22,006,132
6,152,129
702,339
$
38,490,267
9,804,424
1,479,694
$
26,759,512
4,128,313
254,883
$
$
$
103,319,806
23,251,940
1,530,822
$
$
(0.20)
(0.20)
$
$
0.16
0.16
$
$
0.33
0.32
$
$
0.06
0.06
$
$
0.34
0.34
$
15,131,033
3,532,682
(1,615,568)
$
23,114,100
5,471,727
343,288
$
37,230,069
8,744,165
1,262,972
$
27,753,785
6,863,321
105,850
$
$
$
103,228,987
24,611,895
96,542
Basic and diluted
$
(0.36)
$
0.08
$
0.28
$
0.02
$
0.02
No cash dividends were paid during 2001 and 2000.
COLUMBUS/962081 v.01
F - 22
MARKET MAKERS
The following broker-dealer firms are market makers in the Company's Common Stock:
Herzog, Heine, Geduld, LLC.
Knight Securities, L.P.
McDonald Investments
Mitchell Securities Corporation of Oregon
NDB Capital Markets, L.P.
Spear Leeds & Kellogg Capital Markets
Wedbush Morgan Securities, Inc.
The Annual Meeting of Shareholders will be held on Wednesday, May 15, 2002 at 9:30 a.m., at Stuarts Opera
House, located at 34 Public Square, Nelsonville, Ohio.
ANNUAL MEETING
Mike Brooks
Chairman of the Board,
President and
Chief Executive Officer
David Fraedrich
Senior Vice President
and Treasurer
BOARD OF DIRECTORS
Leonard L. Brown
President
Leonard L. Brown, Inc.
Stanley I. Kravetz
President
The Kravetz Group
Glenn E. Corlett
Dean and Philip J. Gardner, Jr.
Leadership Professor of the
College of Business at Ohio
University
Curtis A. Loveland
Secretary, Partner,
Porter, Wright, Morris & Arthur
LLP
Robert D. Rockey
Former Chairman and CEO
Duck Head Apparel Company, Inc.
James L. Stewart
Proprietor
Rising Wolf Ranch, Inc.
Mike Brooks
Chairman of the Board,
President and
Chief Executive Officer
Corporate Offices
39 E. Canal Street
Nelsonville, Ohio 45764
(740) 753-1951
OFFICERS
David Fraedrich
Senior Vice President
and Treasurer
David Sharp
Executive Vice President
and Chief Operating
Officer
James E. McDonald
Vice President and Chief
Financial Officer
Stock Listing
NASDAQ National Market
Symbol: RCKY
Internet
Corporate and investor
information on Rocky Shoes &
Boots, Inc. can be accessed on the
Internet at:
http://www.rockyboots.com
Independent Accountants
Deloitte & Touche LLP
Columbus, Ohio
Legal Counsel
Porter, Wright, Morris & Arthur LLP
Columbus, Ohio
Transfer Agent and Registrar
Communications regarding changes of address, transfer
of shares, and lost certificates should be directed to the
Company's stock transfer and registrar:
Form 10-K
Copies of the signatures, exhibit index and exhibits
contained therein as filed with the Securities and Exchange
Commission are available without charge upon written
request to:
Fifth Third Bank
Corporate Trust Services
38 Fountain Square Plaza
Mail Drop #10AT66
Cincinnati, Ohio 45202
(800) 837-2755
James E. McDonald
Vice President and CFO
Rocky Shoes & Boots, Inc.
39 E. Canal Street
Nelsonville, Ohio 45764
F24.flg 4/10/02 6:39 PM Page 1
Rocky®
Products
Outdoor/Casual
Work
Uniform
2001cover.flg 4/10/02 3:38 PM Page 2
Rocky Shoes & Boots, Inc.
39 East Canal Street
Nelsonville, Ohio 45764
Phone (740) 753-1951
Fax
(740) 753-4024
www.rockyboots.com