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Rocky Brands, Inc. Announces Fourth Quarter and Full Year 2011 Results

Rocky Brands, Inc. (NASDAQ: RCKY) today announced financial results for its fourth quarter and fiscal year ended December 31, 2011.

Fourth Quarter 2011 Income and Sales

The Company reported fourth quarter net income of $0.3 million, or $0.04 per diluted share, including a one-time, non-operational charge of $3.7 million, net of tax, associated with the termination of its defined benefit pension plan (as disclosed in our third quarter earnings release dated October 26, 2011). Excluding the charge, net income was $3.9 million, or $0.52 per diluted share versus net income of $3.0 million, or $0.41 per diluted share, for the fourth quarter of 2010. (See below for a reconciliation of fourth quarter 2011 income per diluted share on a GAAP basis to a non-GAAP basis.)

Fourth quarter net sales were $64.0 million versus net sales of $66.7 million a year ago. The decrease in sales was due to reduced sales under military contracts and the discontinuation of the Dickies license which expired December 31, 2010. Fourth quarter included military segment sales of $0.4 million versus $1.8 million in the fourth quarter a year ago and no sales from the discontinued Dickies license versus $1.9 million in the prior year. These decreases were partially offset by increased sales from other product lines in our wholesale business.

Fiscal Year 2011 Income and Sales

The Company reported net income of $8.3 million, or $1.11 per diluted share, for fiscal year 2011, including the $3.7 million, net of tax, charge associated with the termination of the defined benefit pension plan record in the fourth quarter. Excluding this charge, fiscal year 2011 net income was $12.0 million, or $1.60 per diluted share versus net income of $7.7 million, or $1.14 per diluted share, for fiscal year 2010. (See below for a reconciliation of fiscal year 2011 income per diluted share on a GAAP basis to a non-GAAP basis.)

For fiscal year 2011, net sales were $239.6 million versus net sales of $252.8 million in fiscal year 2010. Fiscal year 2011 included military segment sales of $2.2 million versus $17.0 million in fiscal year 2010 and sales from the discontinued Dickies license of $0.2 million versus $7.6 million in the prior year. These decreases were partially offset by increased sales from other product lines in our wholesale business.

“Our fourth quarter operating performance represents a solid finish to a productive year,” commented David Sharp, President and Chief Executive Officer. “The strategic initiatives aimed at growing our core wholesale business yielded positive results as the year progressed and provide us with good momentum to begin 2012. At the same time our retail division hit an important inflection point during the second half of the year. Sales via our internet / direct ship model surpassed our legacy mobile store platform which helped drive operating profits in both the third and fourth quarters. We are confident the wholesale and retail trends we experienced in 2011 will continue to benefit our future results. In addition, the new strategies we’ve implemented to extend our brands into new categories and new channels of distribution are gaining traction.”

Fourth Quarter Review

Net sales for the fourth quarter were $64.0 million compared to $66.7 million a year ago. Wholesale sales for the fourth quarter were $51.7 million compared to $52.5 million for the same period in 2010. Retail sales for the fourth quarter were $11.8 million compared to $12.4 million for the same period last year. Military segment sales for the fourth quarter were $0.4 million compared to $1.8 million in the same period in 2010.

Gross margin in the fourth quarter of 2011 was $22.5 million, or 35.1% of sales compared to $24.3 million, or 36.5% for the same period last year. The 140 basis point decrease was primarily driven by an inventory adjustment resulting from our annual physical inventory.

Selling, general and administrative (SG&A) expenses decreased 11.7% to $16.7 million or 26.2% of net sales, for the fourth quarter of 2011 compared to $19.0 million, or 28.4% of net sales a year ago. The $2.2 million decrease is primarily due to lower compensation expense, professional fees and operating costs of our retail business.

Income from operations, excluding the aforementioned charge associated with the termination of the defined benefit pension plan, was $5.7 million, or 8.9% of net sales, compared to $5.4 million, or 8.1% of net sales, in the prior year period.

Interest expense decreased to $0.2 million for the fourth quarter of 2011 versus $1.7 million for the same period last year, which included a non-cash charge of approximately $1.0 million associated with deferred financing costs relating to the extinguishment of a previous credit facility and term loans. The remaining decrease is attributable to lower interest rates versus the year ago period.

The Company’s funded debt was $35.0 million at December 31, 2011 versus $35.1 million at December 31, 2010.

Inventory increased 10.5% to $65.0 million at December 31, 2011 compared with $58.9 million on the same date a year ago. The increase in inventory was the result of an increase in cost per unit partially offset by a decrease in units of footwear.

               

Reconciliation of Income per Diluted Share on GAAP Basis to a Non-GAAP Basis

 

Three Months Ended

December 31, 2011

Year Ended

December 31, 2011

GAAP

Basis

Pension Plan

Termination

Non-GAAP

Basis

GAAP

Basis

Pension Plan

Terminatiion

Non-GAAP

Basis

Income before income taxes $ 276,881 $ 5,280,998 $ 5,557,879 $ 12,034,464 $ 5,280,998 $ 17,315,462
 
Income tax expense/(benefit) 3,569 (1,628,495 ) 1,632,064 3,727,569 (1,628,495 ) 5,356,064
           
Net income $ 273,312   $ 3,652,503     $ 3,925,815 $ 8,306,895   $ 3,652,503     $ 11,959,398
 
Income per share - Diluted $ 0.04 $ 0.49 $ 0.52 $ 1.11 $ 0.49 $ 1.60
 

Conference Call Information

The Company’s conference call to review fourth quarter fiscal 2011 results will be broadcast live over the internet today, Wednesday, February 15, 2012 at 4:30 pm Eastern Time. The broadcast will be hosted at http://www.rockybrands.com.

About Rocky Brands, Inc.

Rocky Brands, Inc. is 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®, Lehigh®, and the licensed brands Michelin® and Mossy Oak®.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, 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 intent, beliefs, expectations, projections, forecasts, and plans of the Company and its management, and include statements in this press release regarding future results (paragraph 6). These forward-looking statements involve numerous risks and uncertainties, including, without limitation, the various risks inherent in the Company’s business as set forth in periodic reports filed with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K for the year ended December 31, 2010 (filed March 2, 2011) and the Company’s quarterly reports on Form 10-Q for the quarters ended March 31, 2011 (filed May 3, 2011), June 30, 2011 (filed July 29, 2011) and September 30, 2011 (filed October 28, 2011). One or more of these factors have affected historical results, and could in the future affect the Company’s businesses and financial results in future periods and could cause actual results to differ materially from plans and projections. Therefore there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the Company, or any other person should not regard the inclusion of such information as a representation that the objectives and plans of the Company will be achieved. All forward-looking statements made in this press release are based on information presently available to the management of the Company. The Company assumes no obligation to update any forward-looking statements.

       
Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
 
December 31, 2011 December 31, 2010
Unaudited Audited
ASSETS:
 
CURRENT ASSETS:
Cash and cash equivalents $ 3,650,291 $ 4,362,531
Trade receivables – net 45,008,793 47,593,807
Other receivables 946,686 911,103
Inventories 65,019,048 58,852,556
Income tax receivable 1,164,664 -
Deferred income taxes 1,154,040 1,218,101
Prepaid expenses   2,561,941   1,793,852  
Total current assets 119,505,463 114,731,950
FIXED ASSETS – net 23,557,102 22,129,282
IDENTIFIED INTANGIBLES 30,493,107 30,495,485
OTHER ASSETS   510,293   1,222,712  
TOTAL ASSETS $ 174,065,965 $ 168,579,429  
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
 
CURRENT LIABILITIES:
Accounts payable $ 5,696,363 $ 9,024,851
Current maturities – long term debt - 487,480
Accrued expenses:
Taxes - other 609,992 590,217
Income tax payable - 422,229
Other   4,624,167   6,050,964  
Total current liabilities 10,930,522 16,575,741
 
LONG TERM DEBT – less current maturities 35,000,000 34,608,338
DEFERRED INCOME TAXES 10,987,395 9,374,685
DEFERRED LIABILITIES   488,437   3,017,107  
 
TOTAL LIABILITIES 57,406,354 63,575,871
 
SHAREHOLDERS' EQUITY:
Common stock, no par value;
25,000,000 shares authorized; issued and outstanding
December 31, 2011 - 7,489,995; December 31, 2010 - 7,426,787
 
69,572,270 69,052,101
 
Accumulated other comprehensive loss - (2,828,989 )
Retained earnings   47,087,341   38,780,446  
 
Total shareholders' equity   116,659,611   105,003,558  
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 174,065,965 $ 168,579,429  
 
         
Rocky Brands, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
 
Three Months Ended Years Ended
December 31, December 31,
  2011       2010     2011     2010  
Unaudited Unaudited Unaudited Audited
NET SALES $ 63,989,643 $ 66,729,979 $ 239,599,096 $ 252,792,263
 
COST OF GOODS SOLD   41,532,318     42,397,793     151,668,341     163,419,549  
 
GROSS MARGIN 22,457,325 24,332,186 87,930,755 89,372,714
 
OPERATING EXPENSES
Selling, general and administrative expenses 16,744,251 18,955,677 69,852,696 72,303,259
Pension termination charges   5,280,998     -     5,280,998     -  
Total operating expenses 22,025,249 18,955,677 75,133,694 72,303,259
 
INCOME FROM OPERATIONS 432,076 5,376,509 12,797,061 17,069,455
 
OTHER INCOME AND (EXPENSES):
Interest expense (218,667 ) (1,743,273 ) (979,511 ) (6,464,449 )
Other – net   63,472     365,762     216,914     652,213  
Total other - net (155,195 ) (1,377,511 ) (762,597 ) (5,812,236 )
 
INCOME BEFORE INCOME TAXES 276,881 3,998,998 12,034,464 11,257,219
 
INCOME TAX EXPENSE   3,569     960,487     3,727,569     3,573,487  
 
NET INCOME $ 273,312   $ 3,038,511   $ 8,306,895   $ 7,683,732  
 
INCOME PER SHARE
Basic $ 0.04 $ 0.41 $ 1.11 $ 1.14
Diluted $ 0.04 $ 0.41 $ 1.11 $ 1.14
 
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic   7,489,995     7,417,854     7,486,655     6,747,847  
Diluted   7,489,995     7,436,060     7,487,196     6,764,190  

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