Company Quick10K Filing
Quick10K
Rocky Brands
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$25.04 7 $185
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-21 Shareholder Vote, Other Events, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-02-25 Earnings, Exhibits
8-K 2019-02-19 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-07 Officers, Exhibits
8-K 2018-12-20 Officers, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-05-21 Shareholder Vote, Other Events, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-03-05 Other Events, Exhibits
8-K 2018-02-20 Earnings, Exhibits
JPM JPMorgan Chase 365,010
SNP China Petroleum & Chemical 88,870
CPL Cpfl Energy 7,770
FCNCA First Citizens Bancshares 5,100
IART Integra Lifesciences 4,510
CAMP Calamp 459
CYTR Cytrx 18
VCOR Visiber57 0
OUNZ Vaneck Merk Gold Trust 0
HJV MS Structured Saturns Series 2002-14 0
RCKY 2019-03-31
Part 1 – Financial Information
Item 1 – Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II -- Other Information
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 rcky-20190331xex31_1.htm
EX-31.2 rcky-20190331xex31_2.htm
EX-32 rcky-20190331xex32.htm

Rocky Brands Earnings 2019-03-31

RCKY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 rcky-20190331x10q.htm 10-Q 2019 Q1 10-Q 03312019 2018 Taxonomy

United States

Securities and Exchange Commission

Washington, D.C. 20549



FORM 10-Q

(Mark One)

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34382

Picture 1

ROCKY BRANDS, INC.

(Exact name of Registrant as specified in its charter)



 

 

Ohio

 

No. 31‑1364046

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)



 

 

39 East Canal Street, Nelsonville, Ohio 45764

(Address of principal executive offices, including zip code)



 

 

Registrant's telephone number, including area code: (740) 753‑9100

 



 

 

 

 



 

 

 

 

Title of class

 

Trading symbol

 

Name of exchange on which registered

Common Stock – No Par Value

 

RCKY

 

Nasdaq



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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes   No 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in 12b-2 of the Exchange Act.

 Large accelerated filer   Accelerated filer 

 Non-accelerated filer Smaller reporting company 

 Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 



There were 7,393,851 shares of the Registrant's Common Stock outstanding on April 30, 2019.



 

 


 

TABLE OF CONTENTS





 

 



 

 



 

Page

PART I

Financial Information

 

Item 1.

Financial Statements

 



Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited), December 31, 2018, and March 31, 2018 (Unaudited)



Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018 (Unaudited)



Condensed Consolidated Statements of Shareholders’ Equity as of March 31, 2019 and 2018 (Unaudited)



Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (Unaudited)



Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21 

Item 4.

Controls and Procedures

21 

PART II

Other Information

 

Item 1A.

Risk Factors

21 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22 

Item 6.

Exhibits

23 

SIGNATURES 

24 



 



 

 

1


 

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS



Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

(Unaudited)







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

March 31,

 

December 31,

 

March 31,



 

 

2019

 

2018

 

2018

ASSETS:

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,630 

$

10,173 

$

10,116 

Trade receivables, net

 

 

41,161 

 

43,337 

 

41,231 

Contract receivables

 

 

817 

 

2,602 

 

13,518 

Other receivables

 

 

161 

 

331 

 

411 

Inventories – net

 

 

69,905 

 

72,822 

 

65,151 

Income tax receivable

 

 

348 

 

30 

 

997 

Prepaid expenses

 

 

3,383 

 

1,890 

 

2,442 

Total current assets

 

 

133,405 

 

131,185 

 

133,866 

LEASED ASSETS

 

 

1,037 

 

 -

 

 -

PROPERTY, PLANT & EQUIPMENT – net

 

 

23,438 

 

23,057 

 

23,738 

IDENTIFIED INTANGIBLES – net

 

 

30,264 

 

30,273 

 

30,304 

OTHER ASSETS

 

 

262 

 

148 

 

190 

TOTAL ASSETS

 

$

188,406 

$

184,663 

$

188,098 



 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

17,271 

$

13,543 

$

14,130 

Contract liabilities

 

 

817 

 

2,602 

 

13,518 

Accrued expenses:

 

 

 

 

 

 

 

Salaries and wages

 

 

1,518 

 

3,339 

 

1,789 

Taxes - other

 

 

638 

 

556 

 

94 

Accrued freight

 

 

455 

 

668 

 

712 

Commissions

 

 

494 

 

560 

 

415 

Accrued duty

 

 

2,124 

 

2,334 

 

2,261 

Other

 

 

1,746 

 

1,416 

 

1,183 

     Total current liabilities

 

 

25,063 

 

25,018 

 

34,102 

LONG TERM TAXES PAYABLE

 

 

169 

 

169 

 

2,287 

LONG TERM LEASE

 

 

517 

 

 -

 

 -

DEFERRED INCOME TAXES

 

 

7,780 

 

7,780 

 

7,726 

DEFERRED LIABILITIES

 

 

121 

 

121 

 

155 

TOTAL LIABILITIES

 

 

33,650 

 

33,088 

 

44,270 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

 

Common stock, no par value;

 

 

 

 

 

 

 

25,000,000 shares authorized; issued and outstanding March 31, 2019 - 7,391,660December 31, 2018 - 7,368,494 and March 31, 2018 - 7,406,801 

 

 

68,849 

 

68,387 

 

69,273 

Retained earnings

 

 

85,907 

 

83,188 

 

74,555 

Total shareholders' equity

 

 

154,756 

 

151,575 

 

143,828 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

188,406 

$

184,663 

$

188,098 



See Notes to Unaudited Condensed Consolidated Financial Statements

 

2


 

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)







 

 

 

 



 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

NET SALES

$

65,929 

$

61,387 

COST OF GOODS SOLD

 

42,951 

 

40,422 

GROSS MARGIN

 

22,978 

 

20,965 



 

 

 

 

OPERATING EXPENSES

 

18,479 

 

16,737 



 

 

 

 

INCOME FROM OPERATIONS

 

4,499 

 

4,228 



 

 

 

 

OTHER INCOME (EXPENSES)

 

65 

 

(139)



 

 

 

 

INCOME BEFORE INCOME TAXES

 

4,564 

 

4,089 



 

 

 

 

INCOME TAX EXPENSE (BENEFIT)

 

959 

 

838 



 

 

 

 

NET INCOME

$

3,605 

$

3,251 



 

 

 

 

INCOME PER SHARE

 

 

 

 

Basic

$

0.49 

$

0.44 

Diluted

$

0.48 

$

0.44 

WEIGHTED AVERAGE NUMBER OF

 

 

 

 

COMMON SHARES OUTSTANDING

 

 

 

 

Basic

 

7,382 

 

7,407 

Diluted

 

7,434 

 

7,431 



See Notes to Unaudited Condensed Consolidated Financial Statements

 

3


 





Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except per share amounts)

(Unaudited)







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Common Stock and

 

Accumulated

 

 

 

 



Additional Paid-in Capital

 

Other

 

 

 

Total



Shares

 

 

 

Comprehensive

 

Retained

 

Shareholders'



Outstanding

 

Amount

 

Income

 

Earnings

 

Equity



 

 

 

 

 

 

 

 

 

BALANCE - December 31, 2018

7,368 

$

68,387 

$

 -

$

83,188 

$

151,575 



 

 

 

 

 

 

 

 

 

QUARTER ENDED MARCH 31, 2019

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

$

3,605 

$

3,605 

Dividends paid on common stock ($0.12 per share)

 

 

 

 

 

 

(886)

 

(886)

Repurchase of common stock

 -

$

 -

 

 

 

 

 

 -

Stock issued for options exercised, including tax benefits

17 

 

294 

 

 

 

 

 

294 

Stock compensation expense

 

168 

 

 

 

 

 

168 

BALANCE - March 31, 2019

7,391 

$

68,849 

$

 -

$

85,907 

$

154,756 



 

 

 

 

 

 

 

 

 

BALANCE - December 31, 2017

7,399 

 

68,974 

 

 

 

72,119 

 

141,093 



 

 

 

 

 

 

 

 

 

QUARTER ENDED MARCH 31, 2018

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

$

3,251 

$

3,251 

Dividends paid on common stock ($0.11 per share)

 

 

 

 

 

 

(815)

 

(815)

Repurchase of common stock

 -

$

 -

 

 

 

 

 

 -

Stock issued for options exercised, including tax benefits

 -

 

 -

 

 

 

 

 

 -

Stock compensation expense

 

299 

 

 

 

 

 

299 

BALANCE - March 31, 2018

7,407 

$

69,273 

$

 -

$

74,555 

$

143,828 





See Notes to Unaudited Condensed Consolidated Financial Statements

 

4


 

Rocky Brands, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)







 

 

 

 



 

Three Months Ended



 

March 31,



 

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

Net income

$

3,605 

$

3,251 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

1,262 

 

1,379 

Stock compensation expense

 

168 

 

299 

Change in assets and liabilities:

 

 

 

 

Receivables

 

2,030 

 

5,044 

Inventories

 

2,916 

 

471 

Other current assets

 

(2,530)

 

(243)

Other assets

 

(113)

 

Accounts payable

 

3,890 

 

1,238 

Accrued and other liabilities

 

(1,382)

 

(583)

Net cash provided by operating activities

 

9,846 

 

10,864 



 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

Purchase of fixed assets

 

(1,802)

 

(1,415)

Proceeds from sales of fixed assets

 

 

 -

Net cash used in investing activities

 

(1,797)

 

(1,415)



 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

Proceeds from revolving credit facility

 

 -

 

157 

Repayments on revolving credit facility

 

 -

 

(2,356)

Proceeds from stock options

 

294 

 

 -

Dividends paid on common stock

 

(886)

 

(815)

Net cash used in financing activities

 

(592)

 

(3,014)



 

 

 

 

INCREASE IN CASH AND CASH EQUIVALENTS                   

 

7,457 

 

6,435 



 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 BEGINNING OF PERIOD

 

10,173 

 

3,681 

 END OF PERIOD

$

17,630 

$

10,116 



 

 

 

 



See Notes to Unaudited Condensed Consolidated Financial Statements

 

5


 



Rocky Brands, Inc. and Subsidiaries



Notes to Unaudited Condensed Consolidated Financial Statements

1.    NATURE OF OPERATIONS AND BASIS OF PRESENTATION



We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky, Georgia Boot, Durango and Lehigh. Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around six target markets: outdoor, work, duty, commercial military, western and lifestyle. In addition, as part of our strategy of outfitting consumers from head-to-toe, we market complementary branded apparel and accessories that we believe leverage the strength and positioning of each of our brands.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments that are necessary for a fair presentation of the financial results. All such adjustments reflected in the unaudited condensed consolidated financial statements are considered to be of a normal and recurring nature. The results of operations for the three months ended March 31, 2019 and 2018 are not necessarily indicative of the results to be expected for the whole year. The December 31, 2018 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). This Quarterly Report on Form 10-Q should be read in connection with our Annual Report on Form 10-K for the year ended December 31, 2018, which includes all disclosures required by GAAP.

 



2.   ACCOUNTING STANDARDS UPDATES



Recently Issued Accounting Pronouncements



Rocky Brands, Inc. is currently evaluating the impact of certain Accounting Standards Updates (“ASU”) on its Unaudited Condensed Consolidated Financial Statements or Notes to the Unaudited Condensed Consolidated Financial Statements:





 

 

 

 

 

 

Standard 

 

Description

 

Anticipated Adoption Period

 

Effect on the financial statements or other significant matters

ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

 

This pronouncement changes the fair value measurement disclosure requirements of ASC 820. The amendments in this ASU are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements.

 

Q1 2020

 

The Company is evaluating the impact of the new standard on its Unaudited Condensed Consolidated Financial Statements, but does not anticipate the standard will have a significant impact.

 ASU 2016-13, Measurement of Credit Losses on Financial Instruments

 

The pronouncement seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

 

Q1 2020

 

The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables.



 

6


 

Accounting Standards Adopted in the Current Year





 

 

 

 

Standard 

 

Description

 

Effect on the financial statements or other significant matters

ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting

 

The pronouncement simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.

 

The Company adopted this ASU in the first quarter of 2019, which did not have a material effect on the Unaudited Condensed Consolidated Financial Statements.

 ASU 2016-02, Leases (Topic 842)

 

The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

 

This standard was adopted on its effective date, January 1, 2019 using the modified retrospective approach. For additional information see Note 9.

 



3.   FAIR VALUE



Generally accepted accounting standards establish a framework for measuring fair value. The fair value accounting standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard clarifies how to measure fair value as permitted under other accounting pronouncements.

 

The fair value accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This standard also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:



·

Level 1 – Quoted prices in active markets for identical assets or liabilities.



·

Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.



·

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

   

The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-term nature of these instruments. Receivables consist primarily of amounts due from our customers, net of allowances, amounts due from employees (sales persons’ advances in excess of commissions earned and employee travel advances); other customer receivables, net of allowances; and expected insurance recoveries. The carrying amounts of our long-term credit facility and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year. The fair value of our revolving line of credit is categorized as Level 2.





4.   REVENUE



On January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“New Revenue Standard”) for all contracts not yet completed as of January 1, 2018 using the modified retrospective method. This method requires a cumulative effect adjustment to reflect the impact of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings. The New Revenue Standard did not result in a material impact to the opening balance of retained earnings, and therefore no adjustment was made.



 

7


 

Nature of Performance Obligations



Our products are distributed through three distinct channels, which represent our business segments: Wholesale, Retail, and Military. In our Wholesale business, we distribute our products through a wide range of distribution channels representing over ten thousand retail store locations in the U.S., Canada, and internationally. Our Wholesale channels vary by product line and include sporting goods stores, outdoor specialty stores, online retailers, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores. Our Retail business includes direct sales of our products to consumers through our e-commerce websites, our Rocky outlet store, and Lehigh business. We also sell footwear under the Rocky label to the U.S. Military.



Significant Accounting Policies and Judgements



Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our products passes to the customer. The duration of our arrangements with our customers are typically one year or less. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products at a point in time and consists of either fixed or variable consideration or a combination of both.



Revenues from sales are recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. Components of variable consideration include prompt payment discounts, volume rebates, and product returns. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).



The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of March 31, 2019. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net revenue and earnings in the period such variances become known.



When a customer has a right to a prompt payment discount, we estimate the likelihood that the customer will earn the discount using historical data and adjust our estimate when the estimate of the likelihood that a customer will earn the discount changes or the consideration becomes fixed, whichever occurs earlier. The estimated amount of variable consideration is recognized as a credit to trade receivables and a reduction in revenue until the uncertainty of the variable consideration is alleviated. Because most of our customers have payment terms less than six months there is not a significant financing component in our contracts with customers.



When a customer is offered a rebate on purchases retroactively this is accounted for as variable consideration because the consideration for the current and past purchases is not fixed until it is known if the discount is earned. We estimate the expected discount the customer will earn at contract inception using historical data and projections and update our estimates when projections materially change or consideration becomes fixed.  The estimated rebate is recognized as a credit to trade receivables and offset against revenue until the rebate is earned or the earning period has lapsed.



When a right of return is part of the arrangement with the customer, we estimate the expected returns based on an analysis using historical data. We adjust our estimate either when the most likely amount of consideration we expect to receive changes or when the consideration becomes fixed, whichever occurs earlier. Please see Notes 5 and 6 for additional information. 



Trade receivables represent our right to unconditional payment that only relies on the passage of time.



Contract receivables represent contractual minimum payments required under non-cancellable contracts with the U.S. Military with a duration of one year or less. 



Contract liabilities are performance obligations that we expect to satisfy or relieve within the next twelve months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancellable contracts before the transfer of goods or services to the customer has occurred. Our contract liability represents unconditional obligations to provide goods under non-cancellable contracts with the U.S. Military.



Items considered immaterial within the context of the contract are recognized as an expense.



 

8


 

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction, that are collected from customers, are excluded from revenue.



Costs associated with our manufacturer’s warranty continue to be recognized as expense when the products are sold in accordance with guidance surrounding product warranties.



Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in operating expenses.



Costs associated with obtaining a contract are expensed as incurred in accordance with the practical expedient in ASC 340-40 in instances where the amortization period is one year or less. We anticipate substantially all of our costs incurred to obtain a contract would be subject to this practical expedient.



Contract Balances



The following table provides information about contract liabilities from contracts with our customers.







 

 

 

 

 

 



 

March 31,

 

December 31,

 

March 31,

($ in thousands)

 

2019

 

2018

 

2018

Contract liabilities

$

817 

$

2,602 

$

13,518 



Significant changes in the contract liabilities balance during the period are as follows:







 

 

($ in thousands)

 

Contract liabilities

Balance, December 31, 2018

$

2,602 

Non-cancelable contracts with customers entered into during the period

 

654 

Revenue recognized related to non-cancelable contracts with customers during the period

 

(2,439)

Balance, March 31, 2019

$

817 



Disaggregation of Revenue



All revenues are recognized at a point in time when control of our products pass to the customer at point of shipment. Because all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with ASC 606 disaggregation requirements. See Note 13 for segment disclosures.





 

9


 

5.      TRADE RECEIVABLES

 

Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $1,313,000, $1,268,000 and $215,000 at March 31, 2019,  December 31, 2018 and March 31, 2018, respectively.  We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy. However, estimates of the allowance in any future period are inherently uncertain and actual allowances may differ from these estimates. If actual or expected future allowances were significantly greater or less than established reserves, a reduction or increase to bad debt expense would be recorded in the period this determination was made. Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have pursued all reasonable efforts to collect on the account.



In accordance with ASC 606, the return reserve liability netted against trade receivables is approximately $950,000,  $1,154,000, and $1,079,000 at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.  



6.   INVENTORY



Inventories are comprised of the following:









 

 

 

 

 

 



 

March 31,

 

December 31,

 

March 31,

($ in thousands)

 

2019

 

2018

 

2018

Raw materials

$

13,103 

$

12,986 

$

11,557 

Work-in-process

 

1,129 

 

715 

 

1,013 

Finished goods

 

55,673 

 

59,121 

 

52,581 

Total

$

69,905 

$

72,822 

$

65,151 

 

In accordance with ASC 606, the return reserve asset netted against inventories is approximately $572,000, $694,000, and $649,000 at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.



 

10


 

7.  IDENTIFIED INTANGIBLE ASSETS



A schedule of identified intangible assets is as follows:







 

 

 

 

 

 

 



 

 

Gross

 

Accumulated

 

Carrying

($ in thousands)

 

 

Amount

 

Amortization

 

Amount

March 31, 2019

 

 

 

 

 

 

 

Trademarks

 

 

 

 

 

 

 

Wholesale

 

$

27,192 

 

 -

$

27,192 

Retail

 

 

2,900 

 

 -

 

2,900 

Patents

 

 

895 

$

723 

 

172 

Total Intangibles

 

$

30,987 

$

723 

$

30,264 



 

 

 

 

 

 

 



 

 

Gross

 

Accumulated

 

Carrying

December 31, 2018

 

 

Amount

 

Amortization

 

Amount

Trademarks

 

 

 

 

 

 

 

Wholesale

 

$

27,192 

 

 -

$

27,192 

Retail

 

 

2,900 

 

 -

 

2,900 

Patents

 

 

895 

$

714 

 

181 

Total Intangibles

 

$

30,987 

$

714 

$

30,273 



 

 

 

 

 

 

 



 

 

Gross

 

Accumulated

 

Carrying

March 31, 2018

 

 

Amount

 

Amortization

 

Amount

Trademarks

 

 

 

 

 

 

 

Wholesale

 

$

27,192 

 

 -

$

27,192 

Retail

 

 

2,900 

 

 -

 

2,900 

Patents

 

 

895 

$

683 

 

212 

Total Intangibles

 

$

30,987 

$

683 

$

30,304 



The weighted average life for our patents is 6.0 years.



A schedule of approximate amortization expense related to finite-lived intangible assets for the three months ended March 31, 2019 and 2018 is as follows:







 

 

 

 

 



 

Three Months Ended

 



 

March 31,

 

($ in thousands)

 

2019

 

2018

 

Amortization expense

$

$

11 

 





A schedule of approximate expected amortization expense related to finite-lived intangible assets for the years ending December 31, is as follows:







 

 



 

Amortization

($ in thousands)

 

Expense

2019 

 

25 
2020 

 

31 
2021 

 

26 
2022 

 

22 
2023 

 

20 
2024 

 

17 

2025+

 

31 



 

 

11


 

8.   LONG-TERM DEBT



On February 13, 2019, we entered into a Revolving Credit, Guaranty, and Security Agreement (“Credit Agreement”) with the Huntington National Bank (“Huntington”) as administrative agent.  The Credit Agreement provides for a new senior secured asset-based revolving credit facility up to a principal amount of $75 million, which includes a sublimit for the issuance of letters of credit up to $7.5 million (the “Credit Facility”).  The Credit Facility may be increased up to an additional $25 million at our request and the lenders’ option, subject to customary conditions. The Credit Agreement matures on February 13, 2024. This new Credit Agreement replaced our previous financing agreement with PNC Bank (“PNC”).  







 

 

 

 

 

 

 

 

Revolver Pricing Level

 

Average Excess Revolver Availability for Previous Quarter

 

Applicable Spread Rates for Eurodollar Rate Revolving Advances

 

 

Applicable Spread Rates for Domestic Rate Revolving Advances

 

I

$

25,000,000+

 

1.00 

%

 

(0.50)

%

II

$

17,500,000 to < 25,000,000

 

1.25 

%

 

(0.50)

%

III

$

10,000,000 to < 17,500,000

 

1.50 

%

 

(0.25)

%

IV

$

< 10,000,000

 

1.75 

%

 

0.00 

%



The total amount available under our new Credit Facility is subject to a borrowing base calculation based on various percentages of accounts receivable and inventory. As of March 31, 2019, we had total capacity of $59.1 million.



In December 2014, we amended and restated our financing agreement with PNC to increase the credit facility to $75.0 million and extend the term of the facility an additional five years to November 2019. The credit facility’s base interest rate was the current prime rate less 0.25%, however the credit facility provided us the option to borrow on up to eight fixed loans at LIBOR plus 1.25% in accordance with the 2014 amended and restated credit agreement. The LIBOR rate was determined based on the fixed loan maturities, which vary from 30, 60, 90, or 180 days.



As of March 31, 2019, we had no outstanding borrowings against the new Credit Facility and as of December 31, 2018 and March 31, 2018, respectively, we had no outstanding borrowings against our previously amended and restated credit facility.



Credit Facility Covenants



Both our new Credit Facility and our previously amended and restated credit facility contain restrictive covenants which require us to maintain a fixed charge coverage ratio.  These restrictive covenants are only in effect upon a triggering event taking place (as defined in both agreements).  Both our new Credit Facility and the previously amended and restated credit facility contain restrictions on the amount of dividends that may be paid. During the three months ended March 31, 2019, there were no triggering events and the covenant was not in effect for either credit facility



9.   LEASES



In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements (please see additional detail regarding these updates to Topic 842 below). The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the Unaudited Condensed Consolidated Statements of Operations.



The new standard was effective for us on January 1, 2019, with early adoption permitted. We adopted the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. We adopted the new standard on January 1, 2019 and used the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.



 

12


 

The new standard provides several optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess, under the new standard, our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight with respect to determining the lease term (i.e., considering the actual outcome and updated expectations of lease renewals, termination option and purchase options).  We also did not elect the use of the practical expedient pertaining to land easements because we do not have any such easements.



The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for our leases.



This standard had a material effect on our Unaudited Condensed Consolidated Balance Sheets, specifically, the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our factories in the Dominican Republic and Puerto Rico and various equipment leases, all currently accounted for as operating leases; and (2) providing significant new disclosures about our leasing activities. Adoption of the standard did not have a material impact on our Unaudited Condensed Consolidated Statements of Cash Flows. We do not expect a significant change in our leasing activities as a result of this standard. Many of our leases contain renewal options, most of which are not included in the measurement of the right-of-use asset as they are not considered reasonably certain of exercise (i.e. we do not currently have a significant economic incentive to exercise these options).



The operating ROU asset and operating lease liabilities as of March 31, 2019 and upon adoption of ASC 842 are as follows:







 

 

 

 

 

 



 

 

 

(Upon ASC 842 Adoption)

 

 



 

March 31,

 

January 1,

 

 

($ in thousands)

 

2019

 

2019

 

Financial Statement Line Item

Assets:

 

 

 

 

 

 

Operating ROU Assets

$

1,037 

$

1,136 

 

Leased assets



 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Current

 

 

 

 

 

 

Operating

$

529 

$

626 

 

Other current liabilities

Noncurrent

 

 

 

 

 

 

Operating

 

517 

 

544 

 

Long-term lease liabilities

Total leased liabilities

$

1,046 

$

1,170 

 

 



Maturity of our operating lease liabilities are as follows:







 

 



 

Operating

($ in thousands)

 

Leases

04/01/2019 through 12/31/2019

$

493 
2020 

 

298 
2021 

 

177 
2022 

 

86 
2023 

 

67 

After 2023

 

 -

Total lease payments

 

1,121 

Less: Interest

 

75 

Present value of lease liabilities

$

1,046 





 

13


 

For the three months ended March 31, 2019 the weighted average remaining lease term and discount rate were as follows:







 

 

 



 

March 31,

 



 

2019

 

Weighted-average remaining lease term (years)

 

 

 

Operating leases

 

1.8 

 



 

 

 

Weighted-average discount rate

 

 

 

Operating leases

 

5.3 

%



For the three months ended March 31, 2019 the supplemental cash flow information is as follows:







 

 



 

March 31,

($ in thousands)

 

2019

Cash paid for amounts included in the measurement of lease liabilities

 

 

Operating cash flows from operating leases

$

221 



 

 

Right-of-use assets obtained in exchange for lease obligations

 

 

Operating leases

$

84 



The breakdown of rent expense for our operating leases for the three months ended March 31, 2019 are as follows:







 

 

 

 



 

March 31,

 

 

($ in thousands)

 

2019

 

Financial Statement Line Item

Operating lease expenses - Manufacturing & Sourcing (1)

$

161 

 

Cost of goods sold

Operating lease expenses (1)

 

63 

 

Operating expenses

Total lease expenses

$

224 

 

 



(1) includes short-term lease expenses of approximately $27,000 for the three months ended March 31, 2019. 



10.   TAXES



We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows:







 

 



 

Earliest Exam Year

Taxing Authority Jurisdiction:

 

 

U.S. Federal

 

2015 

Various U.S. States

 

2014 

Puerto Rico (U.S. Territory)

 

2013 

Canada

 

2013 



Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. No such expenses were recognized during the three months ended March 31, 2019.  We do not believe there will be any material changes in our uncertain tax positions over the next 12 months.



Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements.  Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard.  We did not have any unrecognized tax benefits and there was no effect on its financial condition or results of operations.



Our estimated effective tax rate was 21.0% and 20.5% for the three months ended March 31, 2019 and 2018, respectively.

 

14


 



11.    EARNINGS PER SHARE



Basic earnings per share (“EPS”) is computed by dividing net income applicable to common shareholders by the weighted average number of common shares outstanding during each period. The diluted earnings per share computation includes common share equivalents, when dilutive.



A reconciliation of the shares used in the basic and diluted income per common share computation for the three months ended March 31, 2019 and 2018 is as follows:







 

 

 

 

(shares in thousands)

 

2019

 

2018



 

 

 

 

Basic - weighted average shares outstanding

 

7,382 

 

7,407 

Dilutive restricted share units

 

 

 -

Dilutive stock options

 

49 

 

24 

Diluted - weighted average shares outstanding

 

7,434 

 

7,431 

Anti-dilutive securities

 

75 

 

83 

 



12.   SUPPLEMENTAL CASH FLOW INFORMATION



Supplemental cash flow information for the three months ended March 31, 2019 and 2018 is as follows:







 

 

 

 

($ in thousands)

 

2019

 

2018



 

 

 

 

Interest paid

$

72 

$

46 



 

 

 

 

Federal, state, and local income taxes paid (refund), net

$

3,476 

$

(15)



 

 

 

 

Change in contract receivables, net

$

(817)

$

(13,518)



 

 

 

 

Change in contract liabilities, net

$

817 

$

13,518 



 

 

 

 

Property, plant, and equipment purchases in accounts payable

$

520 

$

90 





















 

15


 



13. SEGMENT INFORMATION



We have identified three reportable segments: Wholesale, Retail and Military. Wholesale includes sales of footwear and accessories to several classifications of retailers, including sporting goods stores, outdoor specialty stores, online retailers, independent retailers, mass merchants, retail uniform stores, and specialty safety shoe stores. Our Retail business includes direct sales of our products to consumers through our e-commerce websites, our Rocky outlet store, and Lehigh business. Military includes sales to the U.S. Military. The following is a summary of segment results for the Wholesale, Retail, and Military segments for the three months ended March 31, 2019 and 2018.







 

 

 

 

 

($ in thousands)

 

2019

 

2018

 

NET SALES:

 

 

 

 

 

Wholesale

$

42,389 

$

40,431 

 

Retail

 

15,439 

 

13,058 

 

Military

 

8,101 

 

7,898 

 

Total Net Sales

$

65,929 

$

61,387 

 



 

 

 

 

 

GROSS MARGIN:

 

 

 

 

 

Wholesale

$

14,375 

$

14,014 

 

Retail

 

6,675 

 

5,534 

 

Military

 

1,928 

 

1,417 

 

Total Gross Margin

$

22,978 

$

20,965 

 







 

16


 

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



RESULTS OF OPERATIONS



The following tables set forth, for the periods indicated, information derived from our Unaudited Condensed Consolidated Financial Statements, expressed as a percentage of net sales. The discussion that follows each table should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements as well as our annual report on 10-K for the year ended December 31, 2018.









 

 

 

 

 



 

Three Months Ended



 

March 31,

 



 

2019

 

2018

 

Net sales

 

100.0 

%

100.0 

%

Cost of goods sold

 

65.1 

 

65.8 

 

Gross margin

 

34.9 

 

34.2 

 

Operating expenses

 

28.0 

 

27.3 

 

Income from operations

 

6.8 

%

6.9 

%



Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018





 

 

 

 

 

 

 

 

 



 

Three Months Ended

 



 

March 31,

 

($ in thousands)

 

2019

 

2018

 

Inc./ (Dec.)

 

Inc./ (Dec.)

 

NET SALES:

 

 

 

 

 

 

 

 

 

Wholesale

$

42,389 

$

40,431 

$

1,958 

 

4.8 

%

Retail

 

15,439 

 

13,058 

 

2,381 

 

18.2 

 

Military

 

8,101 

 

7,898 

 

203 

 

2.6 

 

Total Net Sales

$

65,929 

$

61,387 

$

4,542 

 

7.4 

%



Wholesale sales increased as consumers continued to respond favorably to several recent product introductions across our brand portfolio, which we believe is being fueled by new innovations and enhanced marketing programs that are generating increased awareness and demand in our work, outdoor and commercial military categories.



Retail sales increased primarily due to both a strong growth in our Lehigh business, which was primarily attributed to an expansion in our CustomFit model which continued to add larger national accounts as well as increased the retention rate of our existing customers, and a low-double digit increase in our direct to consumer ecommerce business which we believe is attributable to recent investments aimed at increasing traffic and conversion on our websites.



Military sales increased slightly as we benefited from some accelerated shipments that are pulling sales into the first half of the year based on notifications from the Department of Defense.







 

 

 

 

 

 

 



 

Three Months Ended

 



 

March 31,

 

($ in thousands)

 

2019

 

2018

 

Inc./ (Dec.)

 

GROSS MARGIN:

 

 

 

 

 

 

 

Wholesale Margin $'s

$

14,375 

$

14,014 

$

361 

 

Margin %

 

33.9 

%

34.7 

%

(0.8)

%

Retail Margin $'s

$

6,675 

$

5,534 

$

1,141 

 

Margin %

 

43.2 

%

42.4 

%

0.8 

%

Military Margin $'s

$

1,928 

$

1,417 

$

511 

 

Margin %

 

23.8 

%

17.9 

%

5.9 

%

Total Margin $'s

$

22,978 

$

20,965 

$

2,013 

 

Margin %

 

34.9 

%

34.2 

%

0.7 

%

 

17


 

Wholesale gross margin decreased year over year due to selling through some aged discontinued inventory through certain select discount channels.



Retail gross margin increased as we saw stronger margins in both our Lehigh and direct to consumer business due to a concentrated effort to obtain better pricing from our vendors as well as selling less discontinued products.  



Military gross margin increased significantly as we continued to see better efficiency at our Puerto Rico facility.







 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

($ in thousands)

 

March 31,

 



 

2019

 

2018

 

Inc./ (Dec.)

 

Inc./ (Dec.)

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Operating Expenses

$

18,479 

$

16,737 

$

1,742 

 

10.4 

%

% of Net Sales

 

28.0 

%

27.3 

%

0.7 

%

 

 



The increase in operating expenses was primarily related to the increased investments in our core brands to help initiate growth and expand within our respective markets and variable expenses tied to sales increases.







 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

($ in thousands)

 

March 31,

 



 

2019

 

2018

 

Inc./ (Dec.)

 

Inc./ (Dec.)

 

INCOME TAXES:

 

 

 

 

 

 

 

 

 

Income Tax Expense

$

959 

$

838 

$

121 

 

14.4 

%

Effective Tax Rate

 

21.0 

%

20.5 

%

0.5 

%

 

 



The effective tax rate increased to 21.0% for the three months ended March 31, 2019.  





LIQUIDITY AND CAPITAL RESOURCES



Overview



Our principal sources of liquidity have been our income from operations and borrowings under our credit facility and other indebtedness.



Over the last several years our principal uses of cash have been for working capital and capital expenditures to support our growth.  Our working capital consists primarily of trade receivables and inventory, offset by accounts payable and accrued expenses.  Our working capital fluctuates throughout the year as a result of our seasonal business cycle and business expansion and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year.  We typically utilize our revolving credit facility to fund our seasonal working capital requirements.  As a result, balances on our revolving credit facility can fluctuate significantly throughout the year.



Our capital expenditures relate primarily to projects relating to our corporate offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology. Capital expenditures were $1.6 million for the three months ended March 31, 2019 and 2018, respectively.



We lease certain machinery, a  shoe center, and manufacturing facilities under operating leases that generally provide for renewal options.



We believe that our credit facility coupled with cash generated from operations will provide sufficient liquidity to fund our operations for at least the next twelve months. Our continued liquidity, however, is contingent upon future operating performance, cash flows and our ability to meet financial covenants under our credit facility. For more information regarding our credit facility please see Note 8.



 

18


 

Cash Flows







 

 

 

 



 

Three Months Ended



 

March 31,

($ in millions)

 

2019

 

2018

Operating activities

$

9.8 

$

10.9 

Investing activities

 

(1.8)

 

(1.4)

Financing activities

 

(0.6)

 

(3.0)

Net change in cash and cash equivalents

$

7.4 

$

6.5 



Operating Activities.  Cash provided by operating activities was primarily impacted by an increase in accounts payable, partially offset by decreases in accrued liabilities as well as a decrease in accounts receivable and inventory for the three months ended March 31, 2019. Cash provided by operating activities was primarily impacted by a decrease in receivables for the three months ended March 31, 2018.  



Investing Activities. Cash used in investing activities primarily related to investments in molds and equipment associated with our manufacturing operations, for information technology and for improvements to our distribution facility for the three months ended March 31, 2019 and 2018.  

 

Financing Activities.  Cash used in financing activities primarily related to net payments under the revolving credit facility and for the payment of dividends on our common stock for the three months ended March 31, 2019 and 2018.  



Inflation



Our financial performance is influenced by factors such as higher raw material costs as well as higher salaries and employee benefits.  Management attempts to minimize or offset the effects of inflation through increased selling prices, productivity improvements, and cost reductions.  We were able to mitigate the effects of inflation during 2018 due to these factors.  It is anticipated that any inflationary pressures during 2019 could be offset through possible price increases.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES



The preparation of the Company’s Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions.



We have identified the critical accounting policies used in determining estimates and assumptions in the amounts reported in our Management Discussion and Analysis of Financial Conditions and Results of Operations in our 2018 Form 10-K.



On January 1, 2019, we adopted the new accounting standard ASC 842,  Leases, and all the related amendments. For additional information regarding the adoption of ASC 842 see Note 9.

 

 

19


 

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995



This report, including 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 our and management’s intent, belief, and expectations, such as statements concerning our future profitability and our operating and growth strategy.  Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “strategy,” “future,” “likely,” “would,” “could” and similar expressions are intended to identify forward-looking statements.  Investors are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q and in other statements we make involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand and expectations, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 (filed March 13, 2019), and other factors detailed from time to time in our filings with the Securities and Exchange Commission.  Although we believe 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 us or any other person that our objectives and plans will be achieved.  We assume no obligation to update any forward-looking statements.

 



 

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



There have been no material changes to our market risk as disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2018.





ITEM 4.   CONTROLS AND PROCEDURES.



Disclosure Controls and Procedures. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.



As of the end of the period covered by this report, our management, with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 promulgated under the Exchange Act. Based upon this evaluation, our chief executive officer and our chief financial officer concluded that, as of March 31, 2019, our disclosure controls and procedures were (1) designed to ensure that material information relating to our Company is accumulated and made known to our management, including our chief executive officer and chief financial officer, in a timely manner, particularly during the period in which this report was being prepared, and (2) effective, in that they provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.



Management believes, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.



Changes in Internal Controls.  During the first quarter of 2019 we implemented new controls related to the adoption of ASU 2016-02, Leases (Topic 842) and related financial statement reporting. Other than the new controls surrounding ASU 2016-02, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



PART II -- OTHER INFORMATION



ITEM 1A - RISK FACTORS 



There have been no material changes to our risk factors as disclosed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.









































 

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ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 



Unregistered Sales of Equity Securities



None.



Use of Proceeds



Not applicable.



The following table sets forth information concerning the Company’s purchases of common stock for the periods indicated:







 

 

 

 

 

 

Period

 

Total number of shares (or units) purchased (1)

 

Average price paid per share (or units)

 

Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (2)



 

 

 

 

 

 

January 1, 2019 - January 31, 2019

 

 -

 

 -

$

7,500,000 

February 1, 2019 - February 28, 2019

 

 -

 

 -

 

7,500,000 

March 1, 2019 - March 31, 2019

 

 -

$

 -

 

7,500,000 

Total

 

 -

$

 -

$

7,500,000 



(1)

The reported shares were repurchased pursuant to the Company’s publicly announced stock repurchase authorizations.

(2)

The number shown represents, as of the end of each period, the maximum number of shares (approximate dollar value) of Common Stock that may yet be purchased under publicly announced stock repurchase authorizations. The shares may be purchased, from time-to-time, depending on market conditions.



On March 4, 2019,  the Company announced a $7,500,000 share repurchase plan. The repurchase program terminates on February 28, 2020. This program is replacing the $7,500,000 share repurchase plan that was announced on March 1, 2018 that expired on March 1, 2019.

 

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ITEM 6.   EXHIBITS





 

Exhibit

Number

Description

 

 

10.1

Employment Agreement, dated January 1, 2019, by and between the Company and Jason Brooks (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed January 7, 2019).



 

10.2

Employment Agreement, dated January 1, 2019, by and between the Company and Thomas Robertson (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed January 7, 2019).



 

10.3

Employment Agreement, dated January 1, 2019, by and between the Company and David Dixon (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed January 7, 2019).



 

10.4

Employment Agreement, dated January 1, 2019, by and between the Company and Richard Simms (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed January 7, 2019.



 

10.5

Employment Agreement, dated January 1, 2019, by and between the Company and Byron Wortham  (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated December 31, 2018, filed January 7, 2019).



 

10.6

Revolving Credit, Guaranty, and Security Agreement, dated February 13, 2019, among Rocky Brands, Inc., Lehigh Outfitters, LLC, Lifestyle Footwear, Inc., Rocky Brands US, LLC, Rocky Brands International, LLC, and Rocky Outdoor Gear Store, LLC, as borrowers, the financial institutions party thereto as lenders, and The Huntington National Bank, as agent for the lenders. 

 

 

31.1*

Certification Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Principal Executive Officer.



 

31.2*

Certification Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) of the Principal Financial Officer.

 

 

32**

Section 1350 Certification of Principal Executive Officer/Principal Financial Officer.

 

 

101*

Attached as Exhibits 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows, and (vi) related notes to these financial statements.



* Filed with this Report.

** Furnished with this Report.

 

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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





 

 



ROCKY BRANDS, INC.



 

 

Date: May 9, 2019

By:

/s/THOMAS D. ROBERTSON



 

Thomas D. Robertson

Executive Vice President, Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer and Duly Authorized Officer)



 



 

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