What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-16 compared with 2020-03-06 · 435 added, 127 removed, 544 unchanged (51% of the section changed)

5 unchanged sentences

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018

Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Shareholders’

1 unchanged sentence

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

N ATURE OF OPERATIONS AND BASIS OF PRESEN TATION

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

ACCOUNTING STANDARDS UPDATES

2 unchanged sentences

LONG-TERM DEBT

SHAREHOLDERS' EQUITY

SHARE-BASED COMPENSATION

4 unchanged sentences

COMMITMENTS AND CONTINGENCIES

SUBSEQUENT EVENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

To the Shareholders and Board of Directors of

Rocky Brands, Inc.

6 unchanged sentences

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 201 9 , based upon criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 6 , 20 20 expressed an unqualified opinion.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2021 expressed an unqualified opinion.

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2007.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgment.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Indefinite-Lived Identified Intangibles

Description of the Matter

At December 31, 2020, the Company’s indefinite-lived intangible assets were approximately $30.2 million.

As discussed in Note 1 to the financial statements, indefinite-lived intangible assets are tested for potential impairment annually or when conditions indicate impairment may have occurred.

This test was performed in the fourth quarter of 2020.

Auditing management’s indefinite-lived intangible assets was challenging because there is significant judgment required in determining the methodologies and assumptions used to estimate the fair values of the Company’s trade names and trademarks.

In particular, the fair value estimates were sensitive to significant judgment assumptions including future cash flows, long-term growth rates of the business, operating margins, weighted average cost of capital and other factors such as;

discount rates, royalty rates, cost of capital, and market multiples.

These estimates and assumptions require management’s judgment, and changes to these estimates and assumptions could materially affect the determination of fair value and/or impairment for each of the Company’s indefinite-lived intangible assets.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s intangible asset impairment review process.

To test the estimated fair value of the Indefinite-Lived Intangible Assets, we performed audit procedures that included, among others, involving our valuation specialists in evaluating the methodologies used and significant assumptions described above, and testing the underlying data used by the Company in its analysis for completeness and accuracy.

We compared the significant assumptions used by management to current industry and economic trends, recent historical performance, changes to the reporting unit’s business model and other relevant factors.

We performed a sensitivity analysis over the Company’s financial projections used in the analysis.  We assessed the historical accuracy of management’s estimates and significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions.

We evaluated the incorporation of the applicable assumptions into the model and tested the model’s computational accuracy.

We have served as the Company's auditor since 2007

/s/ Schneider Downs & Co., Inc.

7 unchanged sentences

Cash and cash equivalents

$ 28,353  

$ 15,518  

Trade receivables –

48,010  

45,585  

Contract receivables

1 unchanged sentence

Inventories –

Income tax receivable

77,576  

76,731  

Income tax receivable  

Prepaid expenses

Total current assets

163,186  

146,126  

LEASED ASSETS

PROPERTY, PLANT & EQUIPMENT –

33,750  

27,423  

IDENTIFIED INTANGIBLES –

30,209  

30,240  

$ 229,091  

$ 205,826  

LIABILITIES AND SHAREHOLDERS' EQUITY:

1 unchanged sentence

Accounts payable

20,090  

15,776  

Contract liabilities

3 unchanged sentences

Accrued freight

Income tax payable

Total current liabilities

39,983  

31,534  

LONG-TERM TAXES PAYABLE

3 unchanged sentences

TOTAL LIABILITIES

49,586  

41,170  

SHAREHOLDERS' EQUITY:

3 unchanged sentences

December 31, 2019 - 7,354,970

65,971  

67,993  

Retained earnings

113,534  

96,663  

Total shareholders' equity

179,505  

164,656  

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 229,091  

$ 205,826  

See notes to consolidated financial statements

3 unchanged sentences

(In thousands, except per share amounts)

Twelve Months Ended

COST OF GOODS SOLD

1 unchanged sentence

INCOME FROM OPERATIONS

OTHER INCOME (EXPENSES)

OTHER (EXPENSES) INCOME

INCOME BEFORE INCOME TAXES

1 unchanged sentence

INCOME PER SHARE

WEIGHTED AVERAGE NUMBER OF

COMMON SHARES OUTSTANDING

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

See notes to consolidated financial statements

8 unchanged sentences

BALANCE - December 31, 2018

$ 68,387  

$ 83,188  

$ 151,575  

TWELVE MONTHS ENDED DECEMBER 31, 2019

$ 17,462  

Dividends paid on common stock ($ 0.54 per share) (1)

( 3,987 )  

Repurchase of common stock

( 54 )  

$ ( 1,500 )  

Stock issued for options exercised, including tax benefits

1 unchanged sentence

BALANCE - December 31, 2019

$ 67,993  

$ 96,663  

$ 164,656  

TWELVE MONTHS ENDED DECEMBER 31, 2020

$ 20,964  

Dividends paid on common stock ($ 0.56 per share)

( 4,093 )  

Repurchase of common stock

( 129 )  

$ ( 2,938 )  

Stock issued for options exercised, including tax benefits

1 unchanged sentence

BALANCE - December 31, 2020

Dividend was increased from $0.11 per share to $0.12 per share in the second quarter of 2018

$ 65,971  

$ 113,534  

$ 179,505  

Dividend was increased from $0.12 per share to $0.14 per share in the second quarter of 2019

44 unchanged sentences

Business Activity - We are a leading designer, manufacturer and marketer of premium quality footwear marketed under a portfolio of well recognized brand names including Rocky, Georgia Boot, Durango, Lehigh and the licensed brand Michelin.

Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around seven target markets:

outdoor, work, duty, commercial military, western, lifestyle and military.

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 military.

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.

Our products are distributed through three distinct business segments:

W holesale, R etail and M ilitary.

In our wholesale business, we distribute our products through a wide range of distribution channels representing over 10,000 retail store locations in the U.S.

Our W holesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers.

Our R etail business includes direct sales of our products to consumers through our business to business web-platform, e-commerce websites, third-party marketplaces, and our Rocky outlet store.

Wholesale, Retail and Military.

In our Wholesale business, we distribute our products through a wide range of distribution channels representing over 

10,000 retail store locations in the U.S.

Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers.

Our Retail business includes direct sales of our products to consumers through our business to business web-platform, e-commerce websites, third -party marketplaces, and our Rocky outlet store.

We also sell footwear under the Rocky label to the U.S.

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Our exposure to credit risk is impacted by the economic climate affecting the retail shoe industry.

We manage this risk by performing ongoing credit evaluations of our customers and maintain reserves for potential uncollectible accounts.

We manage this risk by performing ongoing credit evaluations of our customers, maintaining reserves for potential uncollectible accounts and utilizing credit insurance for some of our key customers.

Supplier and Labor Concentrations - We purchase raw materials from a number of domestic and foreign sources.

7 unchanged sentences

Buildings and improvements

5 - 40  

Machinery and equipment

16 unchanged sentences

Advertising - We expense advertising costs as incurred.

Advertising expense was approximately $8,106,000 and $7,583,000 for 2019 and 2018, respectively.

Revenue Recognition –

Effective January 1, 2018 , we adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective method.

The adoption of this standard did not have a material impact on our consolidated financial statements.

For additional information see Note 14 .

Advertising expense was approximately $ 8,406,000 and $ 8,106,000 for 2020 and 2019 , respectively.

Shipping Costs - All shipping costs billed to customers have been included in net sales.

All outbound shipping costs to customers have been included in operating expenses and totaled approximately $10,641,000 and $8,932,000 in 2019 and 2018, respectively.

All outbound shipping costs to customers have been included in operating expenses and totaled approximately $ 10,523,000 and $ 10,641,000 in 2020 and 2019 , respectively.

Fair Value Measurements –

23 unchanged sentences

On December 14, 2018, our Board of Directors adopted the Rocky Brands, Inc.

Executive Deferred Compensation Plan (the “Deferred Compensation Plan”), which became effective January 1, 2019.

The Deferred Compensation Plan is an unfunded nonqualified deferred compensation plan in which certain executives are eligible to participate.

The deferrals are held in a separate trust, which has been established for the administration of the Deferred Compensation Plan.

Executive Deferred Compensation Plan (the “

Executive Deferred Compensation Plan”), which became effective January 1, 2019.

The Executive Deferred Compensation Plan is an unfunded nonqualified deferred compensation plan in which certain executives are eligible to participate.

The deferrals are held in a separate trust, which has been established for the administration of the Executive Deferred Compensation Plan.

The trust assets are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

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Rocky Brands, Inc.

is currently evaluating the impact of certain ASUs on its Consolidated Financial Statements or Notes to the Consolidated Financial Statements:

Anticipated Adoption Period

is currently evaluating the impact of certain ASUs on its Consolidated Financial Statements or Notes to the Consolidated Financial Statements:

Anticipated Adoption Period  

Effect on the financial statements or other significant matters

2 unchanged sentences

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 2023 as long as we continue to qualify as an SRC

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

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 —

Notes to Financial Statements.

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

Q1 2023 as long as we continue to qualify as a smaller reporting company

We are evaluating the impacts of the new standard on our existing financial instruments, including trade receivables.

ASU 2019 - 12, Income Taxes (Topic 740 ):

2 unchanged sentences

ASU 2019 - 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

The Company is evaluating the impacts of the new standard on its Audited Consolidated Financial Statements.

We are evaluating the impacts of the new standard on our Consolidated Financial Statements but do not anticipate it will have a material impact.

Accounting Standards Adopted in the Current Year

Effect on the financial statements or other significant matters

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 8.

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 Audited Consolidated Financial Statements.

Standard 

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.

We adopted the new standard in Q1 2020 and the standard did not have a significant impact on our Consolidated Financial Statements.

Inventories are comprised of the following:

3 unchanged sentences

Finished goods

In accordance with ASC 606, the return s reserve asset included within inventories was approximately $613,000 at December 31, 2019.

The returns reserve was $ 694,000 as of December 31, 2018 .

In accordance with ASC 606, the returns reserve asset included within inventories was approximately $ 744,000 at December 31, 2020 .

The returns reserve was $ 613,000 as of December 31, 2019 .

PROPERTY, PLANT, AND EQUIPMENT

1 unchanged sentence

($ in thousands)

27,596  

20,810  

Machinery and equipment

44,472  

41,727  

Furniture and fixtures

Lasts, dies and patterns

10,833  

11,596  

Construction work-in-progress

91,815  

83,931  

Less - accumulated depreciation

( 58,065 )  

Net Fixed Assets

We incurred approximately $5.0 million and $5.3 million in depreciation expense for 2019 and 2018, respectively.

33,750  

27,423  

We incurred approximately $ 5.2 million and $ 5.0 million in depreciation expense for 2020 and 2019 , respectively.

IDENTIFIED INTANGIBLE ASSETS

2 unchanged sentences

December 31, 2020

$ 27,192  

Total Intangibles

$ 30,987  

$ 30,209  

December 31, 2019

$ 27,192  

Total Intangibles

The weighted average remaining life for our patents is 3.8 years.

$ 30,987  

$ 30,240  

The weighted average remaining life for our patents is 

A schedule of approximate actual and expected amortization expense related to finite-lived intangible assets is as follows:

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In February 2019, we deferred financing costs of approximately $ 174,000 related to the new credit agreement with Huntington National Bank that will be amortized over the life of the loan.

LONG-TERM DEBT

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The Credit Agreement matures on February 13, 2024.

This new Credit Agreement replaced our previous financing agreement with PNC Bank (“PNC”).

This Credit Agreement replaced our previous financing agreement with PNC Bank (“PNC”).

Spread Rates for

Applicable Spread Rates

Domestic Rate

Average Excess Revolver Availability

for Eurodollar Rate

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

for Previous Quarter

Revolving Advances

1.00 %  

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

1.25 %  

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

1.50 %  

$< 10,000,000

1.75 %  

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 December 31, 2019, we had total capacity of $74.9 million.

In December 2014, we amended and restated our financing agreement with PNC Bank (“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 is the current prime rate less 0.25%, however the credit facility provides 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 is determined based on the fixed loan maturities, which vary from 30, 60, 90, or 180 days.

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

As of December 31, 2020 , we had total capacity of $ 70.8 million.

We had no outstanding borrowings against the Credit Facility for fiscal years ending December 31, 2020 or December 31, 2019 .

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 twelve months ended December 31, 2019, there were no triggering events and the covenant was not in effect for the new Credit Facility.

Our Credit Facility contains 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 the agreement).

Our Credit Facility contains restrictions on the amount of dividends that may be paid.

During the twelve months ended December 31, 2020 , there were no triggering events and the covenant was not in effect for our Credit Facility.

On March 15, 2021, we entered into a senior secured asset-based credit facility with Bank of America, N.A.

("Bank of America"), as agent, for the lenders party thereto and a senior secured term loan facility with TCW Asset Management Company LLC ("TCW"), as agent, for the lenders party thereto, which collectively replaced our existing Credit Agreement with Huntington.

Refer to Note 19  for additional information regarding these new credit agreements with Bank of America and TCW.

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.

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.

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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.

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.

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 Audited Consolidated Balance Sheets.

S pecifically, 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;

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.

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we do not currently have a significant economic incentive to exercise these options).

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

(Upon ASC 842 Adoption)

The operating ROU asset and operating lease liabilities as of December 31, 2020 and December 31, 2019 are as follows:

($ in thousands)

1 unchanged sentence

Operating ROU Assets

$ 1,572  

$ 1,743  

Leased assets

2 unchanged sentences

Total leased liabilities

$ 1,573  

$ 1,744  

Maturity of our operating lease liabilities are as follows:

2 unchanged sentences

Present value of lease liabilities

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

$ 1,573  

For the twelve months ended December 31, 2020 and December 31, 2019 the weighted average remaining lease term and discount rate were as follows:

Weighted-average remaining lease term (years)

2 unchanged sentences

Operating leases

For the twelve months ended December 31, 2019 the supplemental cash flow information is as follows:

For the twelve months ended December 31, 2020 and December 31, 2019 the supplemental cash flow information is as follows:

($ in thousands)

3 unchanged sentences

Operating leases

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

$ 1,419  

The breakdown of rent expense for our operating leases for the twelve months ended December 31, 2020 and December 31, 2019 are as follows:

Twelve Months Ended

6 unchanged sentences

Total lease expenses

(1) Includes short-term lease expenses of approximately $126,000 for the twelve months ended December 31, 2019.

$ 1,111  

$ 1,003  

( 1 ) Includes short-term lease expenses of approximately $ 103,000  and $ 126,000  for the twelve months ended December 31, 2020  and 

December 31, 2019 , respectively.

   BENEFIT PLAN

We sponsor a 401 (k) savings plan for eligible employees.

5 unchanged sentences

401k plan sponsor contributions

Deferred Compensation Plan

The Deferred Compensation Plan, which became effective January 1, 2019 , is an unfunded nonqualified deferred compensation plan in which certain executives are eligible to participate.

Under the Deferred Compensation Plan, participants may elect to defer up to 75% of their base compensation and up to 100% of their bonuses, commissions, and other compensation.

Deferred Compensation Plans

The Executive Deferred Compensation Plan, which became effective January 1, 2019, is an unfunded non-qualified deferred compensation plan in which certain executives are eligible to participate.

Under the Executive Deferred Compensation Plan, participants may elect to defer up to 75 % of their base compensation and up to 100 % of their bonuses, commissions, and other compensation.

The deferred amounts are paid in accordance with each participant’s elections made on or before December 31 of the prior year.

In addition to elective deferrals, the Deferred Compensation Plan permits the Company to make discretionary contributions to eligible participants, provided that any participant who is employed on the last day of a plan year will receive a Company contribution equal to no less than 3% of the participant’s base compensation, bonus earned, and non-equity incentive plan compensation in the plan year.

In addition to elective deferrals, the Executive Deferred Compensation Plan permits the Company to make discretionary contributions to eligible participants, provided that any participant who is employed on the last day of a plan year will receive a Company contribution equal to no less than 3 % of the participant’s base compensation, bonus earned, and non-equity incentive plan compensation in the plan year.

Company contributions will vest in accordance with the vesting schedule determined by the Committee, except in the event of the participant’s death, disability or retirement, in which case the contributions will vest 100% upon such event.

1 unchanged sentence

In the event of a participant’s termination of employment, deferred amounts will generally be paid within 60 days following the later of the date (i) of such termination or (ii) the participant attains age 60, except where such termination is due to such participant’s death, in which case deferred amounts will be paid to such participant’s beneficiary within 30 days of confirmation of the participant’s death.

The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan.

The deferrals are held in a separate trust, which has been established by the Company to administer the Executive Deferred Compensation Plan.

The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent.

Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”).

The assets held by the trust were approximately $40,000 as of December 31, 2019 and are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

The assets held by the trust were approximately $ 150,000 and $ 40,000 as of 

December 31, 2020 and December 31, 2019 , respectively, and are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to operating expenses in the accompanying consolidated statements of operations.

During 2020, we entered into a second deferred compensation plan ("the Dominican Plan"), which became effective August 18, 2020 and is a non-qualified deferred compensation plan for certain key employees at our Dominican Republic manufacturing facility.

Under the Dominican Plan, key employees will receive a set dollar amount, as defined in the agreement, at the later of five years following the effective date of the agreement or upon the employee attaining the age of 65.

Payments are due within 30 days of the employee's retirement.

If the employee terminates their employment, for any reason, prior to their retirement and five years after the effective date of the agreement, the employee is not eligible to receive a payout.

The funds are accrued based on service and are not held in an investment or trust account.

The total assets held under the Dominican Plan were approximately $ 150,000 as of 

December 31, 2020 .

The Company accounts for income taxes in accordance with the accounting standard for “Income Taxes,”

1 unchanged sentence

Accordingly, deferred income taxes have been provided for the temporary differences between the financial reporting and the income tax basis of the Company’s assets and liabilities by applying enacted statutory tax rates applicable to future years to the basis differences.

A breakdown of our income tax expense (benefit) for the years ended December 31 is as follows:

A breakdown of our income tax expense (benefit) for the years ended December 

31 is as follows:

($ in thousands)

$ 4,942  

$ 3,706  

Total Federal

2 unchanged sentences

Total Foreign

$ 6,001  

$ 4,769  

A reconciliation of recorded Federal income tax expense to the expected expense computed by applying the applicable Federal statutory rate for all periods to income before income taxes follows:

1 unchanged sentence

($ in thousands)

Expected expense at statutory rate (21% in 2019, 21% in 2018)

Expected expense at statutory rate (21% in 2020 and 2019)

$ 5,662  

$ 4,682  

Increase (decrease) in income taxes resulting from:

Toll tax on CFC accumulated earnings and profits

Exempt income from Dominican Republic operations due to tax holiday

Impact of Canadian deemed dividend

( 942 )  

State and local income taxes

Foreign Tax Credit/Expense

( 30 )  

Meals and entertainment

1 unchanged sentence

Provision to return filing adjustments and other

$ 6,001  

$ 4,769  

Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2020 and 2019 consist of the following:

5 unchanged sentences

Net operating losses

Lease asset  

Total deferred tax assets

Valuation allowances

( 298 )  

Total deferred tax assets

3 unchanged sentences

State and local income taxes

Lease Liability  

Total deferred tax liabilities

Net deferred tax liability

$ 8,271  

$ 8,108  

The valuation allowance is related to certain state and local income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 30, 1994, that would be payable if such earnings were repatriated to the United States.

In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 30, 1994, thus no other provision for tollgate tax has been made on earnings after that date.

We have provided Puerto Rico tollgate taxes on approximately $ 3,684,000 of accumulated undistributed earnings of Lifestyle prior to the fiscal year ended June 

30, 1994, that would be payable if such earnings were repatriated to the United States.

In 2001, we received abatement for Puerto Rico tollgate taxes on all earnings subsequent to June 

30, 1994, thus no other provision for tollgate tax has been made on earnings after that date.

If we repatriate the earnings from Lifestyle, $ 227,563 of tollgate tax would be due.

7 unchanged sentences

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.

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 our financial condition or results of operations.

4 unchanged sentences

Maximum authorized share repurchase amount (1)

$ 7,500  

Date of plan's authorization by the Board

February 2020

February 2019

Funding source

2 unchanged sentences

Number of shares repurchased under the plan (shares)

129,095  

54,249  

Amount paid for shares repurchased

$ 2,938  

$ 1,500  

Weighted average price paid per share

$ 22.76  

$ 27.65  

Remaining amount of shares authorized to be purchased under the plan (in dollars)

$ 4,562  

$ 6,000  

Common shares can be purchased in the open market or privately negotiated transactions over the next twelve months from the date of plan authorization.

On March 2 , 20 20 , we announced a new $7,500,000 share repurchase program that will terminate on February 28 , 202 1 .

On March 8, 2021, we announced a new $ 7,500,000 share repurchase program that will terminate on March 4, 2022 .

This program is replacing the 2020 share repurchase program that expired on February 27, 2021 .

Preferred Shares

The Company has authorized 250,000 shares of voting preferred stock with no par value.

The Company has authorized 

250,000 shares of voting preferred stock with no par value.

No shares are issued or outstanding.

Also, the Company has authorized 250,000 shares of non-voting preferred stock with no par value.

Of these, 125,000 shares have been designated Series A non-voting convertible preferred stock with a stated value of $.06 per share, of which no shares are issued or outstanding at December 31, 2019 and 2018 , respectively.

Also, the Company has authorized 

250,000 shares of non-voting preferred stock with no par value.

Of these, 

125,000 shares have been designated Series A non-voting convertible preferred stock with a stated value of $ .06 per share, of which no shares are issued or outstanding at December 31, 2020 and 2019 , respectively.

SHARE-BASED COMPENSATION

On May 7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”).

7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”).

The 2014 Plan includes 500,000 of our common shares that may be granted under various types of awards as described in the 2014 Plan.

As of December 31, 2019, we were authorized to issue 187,141 shares under th e 2014 P lan.

As of December 31, 2020 , we were authorized to issue 94,560  shares under the 2014 Plan.

Stock options

The following table presents the weighted average assumptions used in the option-pricing model at the grant date for options granted during the years ended December 31:

The following table presents the weighted average assumptions used in the option-pricing model at the grant date for options granted during the years ended December 

Risk-free interest rate

1.61 %  

Expected dividend yield

2.00 %  

Expected volatility of Rocky's common stock

42.27 %  

Expected option term (years)

Weighted-average grant date fair value per share

$ 9.36  

$ 8.77  

For the years ended December 31, 2020 and 2019 , we recognized share-based compensation expense and the corresponding tax benefit as follows:

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($ amounts are per share)

Weighted Average Exercise Price

Weighted Average Remaining Actual Term

Aggregate Intrinsic Value

Exercise Price

Intrinsic Value

Options outstanding at January 1, 2020

192,000  

$ 19.46  

78,000  

( 8,800 )  

Forfeited or expired

( 3,800 )  

Options outstanding at December 31, 2020

257,400  

$ 22.61  

$ 1,510,216  

Expected to vest

150,500  

$ 24.91  

$ 580,937  

Exercisable at December 31, 2020

In the first quarter of 2019, our officers and certain employees were granted 43,000 options.

106,900  

$ 19.38  

$ 929,279  

In the first quarter of 2020 , our officers and certain employees were granted 

42,000 options.

The plans generally provided 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.

For the years ended 2019 and 2018 , cash received for the exercise of stock options was approximately $444,000 and $135,000 , respectively.

In the first quarter of 2019, Board of Director members were granted 32,000 stock options that vest over a year and will expire in 5 years.

Restricted stock units and performance share units

The following table summarizes the status of the Company’s restricted stock units and performance share units and activity as of December 31, 2019:

For the years ended 2020 and 2019 , cash received for the exercise of stock options was approximately $ 136,000 and $ 444,000 , respectively.

In the first quarter of 2020 , Board of Director members were granted 

36,000 stock options that vest over a year and will expire in 5 years.

Restricted stock units

The following table summarizes the status of the Company’s restricted stock units and activity as of December 31, 2020 :

Restricted Stock Units

Weighted-Average Grant Date

($ amounts are per share)

Weighted-Average Grant Date Fair Value Per Share

Fair Value Per Share

Nonvested at January 1, 2020

$ 11.35  

( 2,500 )  

Nonvested at December 31, 2020

As of December 31, 2020 , the total unrecognized compensation cost related to non-vested stock options and restricted stock units was $ 190,939 with a weighted-average expense recognition period of 3.7 years.

During the years ended December 31, 2019 and 2018, we issued 7,925 and 9,376 shares of common stock to members of our Board of Directors, respectively.

During the years ended December 31, 2020 and 2019 , we issued 

10,456 and 

7,925 shares of common stock to members of our Board of Directors, respectively.

EARNINGS PER SHARE

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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 years ended December 31, as follows:

A reconciliation of the shares used in the basic and diluted income per common share computation for the years ended December 

31, as follows:

Twelve Months Ended

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Anti-dilutive securities

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.

1 4 .   REVENUE

Nature of Performance Obligations

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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.

In our Wholesale business, we distribute our products through a wide range of distribution channels representing over 

10,000 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.

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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 1 and 3 for additional information.

Please see Note 1 and Note 3  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.

Military and other customers 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 and other customers.

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

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Contract liabilities

$ 5,582  

$ 4,746  

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

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SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow for the years ended December 31, as follows:

Supplemental cash flow for the years ended December 

31, as follows:

($ in thousands)

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Federal, state, and local income taxes paid, net

Income tax receivable applied to long-term taxes payable

Change in contract receivables, net

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Reportable Segments - We operate our business through three reportable segments:

W holesale, R etail and M ilitary.

In our W holesale segment, our products are offered in over 10,000 retail locations representing a wide range of distribution channels in the U.S.

Wholesale, Retail and Military.

In our Wholesale segment, our products are offered in over 

10,000 retail locations representing a wide range of distribution channels in the U.S.

These distribution channels vary by product line and target market and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers.

In our R etail segment, we market directly to consumers through our Lehigh business-to-business including direct sales and through our CustomFit websites, consumer e-commerce websites, third-party marketplaces, and our Rocky outlet store.

In our Retail segment, we market directly to consumers through our Lehigh business-to-business including direct sales and through our CustomFit websites, consumer e-commerce websites, third -party marketplaces, and our Rocky outlet store.

Through our outlet store, we generally sell first quality or discontinued products in addition to a limited amount of factory damaged goods, which typically carry lower gross margins.

While we are focused on continuing to build our W holesale and R etail business, we also actively bid, from time to time, on footwear contracts with the U.S.

While we are focused on continuing to build our Wholesale and Retail business, we also actively bid, from time to time, on footwear contracts with the U.S.

Our sales under such contracts are dependent on us winning the bids for these contracts.

We are currently fulfilling several multiyear contracts for the U.S.

The following is a summary of segment results for the Wholesale, Retail, and Military segments for the years ended December 31 ,

The following is a summary of segment results for the Wholesale, Retail, and Military segments for the years ended December 

Twelve Months Ended

($ in thousands)

$ 185,554  

$ 179,519  

72,877  

64,824  

18,878  

26,065  

Total Net Sales

$ 277,309  

$ 270,408  

GROSS MARGIN:

$ 66,336  

$ 61,133  

34,283  

28,941  

Total Gross Margin

$ 104,735  

$ 97,685  

Segment asset information is not prepared or used to assess segment performance.

Product Group Information - The following is supplemental information on net sales by product group for the years ended December 31:

Product Group Information - The following is supplemental information on net sales by product group for the years ended December 

($ in thousands)

Work footwear

$ 126,268  

45.5 %  

$ 123,021  

Western footwear

61,127  

52,976  

Duty and commercial military footwear

Lifestyle footwear

41,005  

42,583  

Outdoor footwear

21,074  

18,494  

Military footwear

Net sales to foreign countries represented approximately 1.4% of net sales in 2019 and 1.9% of net sales in 2018.

18,878  

26,064  

$ 277,309  

100.0 %  

$ 270,408  

Net sales to foreign countries represented approximately 

0.8 % of net sales in 2020 and 

1.4 % of net sales in 2019 .

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2020 and 2019 :

$ 55,720  

$ 56,186  

$ 77,785  

$ 87,618  

$ 277,309  

$ 19,320  

$ 19,462  

$ 29,832  

$ 36,121  

$ 104,735  

$ 1,188  

$ 2,442  

$ 7,613  

$ 9,721  

$ 20,964  

Dividends paid

$ 1,030  

$ 1,023  

$ 1,017  

$ 4,093  

Net income per common share:

$ 0.16  

$ 0.33  

$ 1.04  

$ 1.34  

$ 2.87  

$ 0.16  

$ 0.33  

$ 1.04  

$ 1.33  

$ 2.86  

$ 65,929  

$ 61,959  

$ 67,179  

$ 75,341  

$ 270,408  

$ 22,978  

$ 21,441  

$ 25,014  

$ 28,252  

$ 97,685  

$ 3,605  

$ 3,156  

$ 5,616  

$ 5,085  

$ 17,462  

Dividends paid

$ 1,035  

$ 1,036  

$ 1,029  

$ 3,987  

Net income per common share:

$ 0.49  

$ 0.43  

$ 0.76  

$ 0.68  

$ 2.36  

$ 0.48  

$ 0.42  

$ 0.75  

$ 0.70  

$ 2.35  

COMMITMENTS AND CONTINGENCIES

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Although the ultimate resolution of pending proceedings cannot be determined, in the opinion of management, the resolution of such proceedings in the aggregate will not have a material adverse effect on our financial position, results of operations, or liquidity.

SUBSEQUENT EVENTS

Subsequent to year-end, we closed on the acquisition of the performance and lifestyle footwear business of Honeywell International, Inc., which expanded our brand portfolio to include The Original Muck Boot Company, XTRATUF, Servus, NEOS and Ranger Brands.

We acquired 100 % of the voting interests of the performance and lifestyle footwear business of Honeywell International, Inc.

with this acquisition.

The total purchase price for these brands was $ 230 million, funded through cash on hand and two new credit facilities.

With the acquisition of The Original Muck Boot Company along with the XTRATUF, Servus, NEOS and Ranger brands, we will greatly enhance our powerful portfolio of footwear brands and significantly increase our sales and profitability.

We are acquiring a well-run business with a corporate culture and a customer base similar to ours, which provides meaningful growth opportunities within our existing categories as well as an entry into new market segments.

Its innovative and authentic product collections complement our existing offering with minimal overlap, which will allow us to strengthen our wholesale relationships and serve a wider consumer audience.

At the same time, we plan to leverage our existing advanced fulfillment capabilities to improve distribution of the new brands to wholesale customers and accelerate direct-to-consumer penetration.

In connection with this acquisition, we incurred approximately $ 705,000 of transaction related expenses for year ended December 31, 2020, which are included in operating expenses in the consolidated statements of operations.

From the period January 1, 2021 to March 15, 2021, we incurred approximately $4.5 million of transaction related costs.

We also entered into employment agreements with seven key employees from the performance and lifestyle footwear business of Honeywell International, Inc., pursuant to which, among other things, we agreed to grant 25,000 non-qualified stock options in the aggregate to the seven employees as an inducement for continuing their employment with the us.

Certain financial information and related disclosures pertaining to the acquisition completed on March 15, 2021 are not available as of March 16, 2021, the date of issuance of this filing because the closing statements have not yet been completed by the Seller.

On March 15, 2021, we entered into a senior secured term loan facility (“Term Facility”) with TCW, as agent, for the lenders party thereto in the amount of $ 130 million.

The Term Facility provides for quarterly payments of principal and bears interest of LIBOR plus 7.00 % through June 30, 2021.

After this date, interest will be assessed quarterly based on our total leverage ratio.

The total leverage ratio is calculated as (a) Total Debt to (b) EBITDA.

If our total leverage ratio is greater than or equal to 3.25, the effective interest rate will be LIBOR plus 7.00% (or at our option, Prime Rate plus 6.00 %).

If our total leverage ratio is less than 3.25, the effective interest rate will be LIBOR plus 6.50 % (or at our option, Prime Rate plus 5.50 %).

The term facility also has a LIBOR floor rate of 1.00 %.

Our Term Facility is collateralized by a second -lien on accounts receivable, inventory, cash and related assets and a first -lien on substantially all other assets.

The term facility matures on March 15, 2026.

On March 15, 2021, we entered into a senior secured asset-based credit facility (“ABL Facility”) with Bank of America as agent, for the lenders party thereto.

The ABL Facility provides a new senior secured asset-based revolving credit facility up to a principal amount of $ 150 million, which includes a sub-limit for the issuance of letters of credit up to $ 5 million.

The ABL facility may be increased to an additional $ 50 million at the Borrowers’

request and the Lenders’

option, subject to customary conditions.

As of March 16, 2021, the total amount available on the ABL Facility was $ 150 million, with $ 80 million funded at the close of our recent acquisition.

The ABL Facility includes a separate first in, last out (FILO) tranche, which allows the Company to borrow at higher advance rates on eligible accounts receivables and inventory balances.

The ABL Facility is collateralized by first -lien on accounts receivable, inventory, cash and related assets and a second -lien on substantially all other assets.

The ABL Facility matures on March 15, 2026.

Interest on the ABL Facility is based on the amount available to be borrowed as set forth on the following chart:

Average Availability as a

Revolver Pricing Level (1)

Percentage of Commitments

Base Rate for FILO

LIBOR Rate for FILO

0.00 %  

1.25 %  

0.50 %  

>33.3% and < or equal to 66.7%

0.00 %  

1.50 %  

0.50 %  

< or equal to 33.3%  

0.25 %  

1.75 %  

0.75 %  

( 1 ) Until June 30, 2021, Tier II shall apply

Credit Facility Covenants

The Term Facility contains restrictive covenants which requires us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio.

The fixed charge coverage ratio is calculated as (a) EBITDA minus the sum of (i) Capital Expenditures (except those financed with Borrowed Money other than under the Financing Agreements) and (ii) cash income taxes paid, to (b) Fixed Charges, with Fixed Charges being the sum of ( x ) interest expense (other than payment-in-kind), (y) scheduled principal payments made on Borrowed Money, and (c) Distributions paid in cash by the Company.

Our ABL Facility contains a restrictive covenant which requires us to maintain a fixed charge coverage ratio upon a triggering event taking place (as defined in the agreement).

Both the Term Facility and the ABL Facility contain restrictions on the amount of dividends that may be paid.

Deferred Financing Fees

In connection with the Term Facility and ABL Facility, we had to pay certain fees that will be capitalized and amortized over the life of each respective loan.

In addition, the ABL Facility requires us to pay an annual collateral management in the amount of $ 75,000 due on each anniversary of the ABL Facility issuance date, until it matures.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data