##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-21026
 ROCKY BRANDS, INC.
  Ohio
    
    31-1364046(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 39 E. Canal Street, Nelsonville, Ohio 45764
 (740) 753-1951
 Not Applicable
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



FORM 10-Q
 ROCKY BRANDS, INC.
 TABLE OF CONTENTS
 PAGENUMBERPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets
March 31, 2008 and 2007 (Unaudited), and
December 31, 2007
    
    3Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2008 and
2007 (Unaudited)
    
    4Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2008 and
2007 (Unaudited)
    
    5Notes to Interim Unaudited Condensed
Consolidated Financial Statements
    
    6  15Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    16  22Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    23Item 4.
    
    Controls and Procedures
    
    23PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    24Item 1A.
    
    Risk Factors
    
    24Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    24Item 3.
    
    Defaults Upon Senior Securities
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    24Item 5.
    
    Other Information
    
    24Item 6.
    
    Exhibits
    
    25SIGNATURE
    
    26EX-31(A)EX-31(B)EX-32(A)EX-32(B)
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PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 ROCKY BRANDS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31, 2008
    
    
    December 31, 2007
    
    
    March 31, 2007(Unaudited)
    
    
    
    
    
    (Unaudited)ASSETS:CURRENT ASSETS:Cash and cash equivalents
    
    $
    4,407,629
    
    
    $
    6,537,884
    
    
    $
    1,776,893Trade receivables  net
    
    
    56,189,187
    
    
    
    65,931,092
    
    
    
    58,953,715Other receivables
    
    
    947,296
    
    
    
    674,707
    
    
    
    1,222,207Inventories
    
    
    79,841,429
    
    
    
    75,403,664
    
    
    
    71,831,189Deferred income taxes
    
    
    1,952,536
    
    
    
    1,952,536
    
    
    
    3,902,775Income tax receivable
    
    
    607,910
    
    
    
    719,945
    
    
    
    3,079,485Prepaid expenses
    
    
    3,049,971
    
    
    
    2,226,920
    
    
    
    1,873,910Total current assets
    
    
    146,995,958
    
    
    
    153,446,748
    
    
    
    142,640,174FIXED ASSETS  net
    
    
    23,943,273
    
    
    
    24,484,050
    
    
    
    23,897,559DEFERRED PENSION ASSET
    
    
    
    
    
    
    
    
    
    
    26,998IDENTIFIED INTANGIBLES
    
    
    36,361,267
    
    
    
    36,509,690
    
    
    
    36,966,851GOODWILL
    
    
    
    
    
    
    
    
    
    
    24,874,368OTHER ASSETS
    
    
    2,099,762
    
    
    
    2,284,039
    
    
    
    2,416,357TOTAL ASSETS
    
    $
    209,400,260
    
    
    $
    216,724,527
    
    
    $
    230,822,307LIABILITIES AND SHAREHOLDERS EQUITY:CURRENT LIABILITIES:Accounts payable
    
    $
    12,801,456
    
    
    $
    11,908,902
    
    
    $
    12,782,486Current maturities  long term debt
    
    
    331,411
    
    
    
    324,648
    
    
    
    7,294,702Accrued expenses:Salaries and wages
    
    
    575,071
    
    
    
    751,134
    
    
    
    523,406Co-op advertising
    
    
    229,706
    
    
    
    840,818
    
    
    
    163,510Interest
    
    
    1,636,196
    
    
    
    487,446
    
    
    
    1,597,843Taxes  other
    
    
    807,557
    
    
    
    516,038
    
    
    
    510,935Commissions
    
    
    454,462
    
    
    
    717,564
    
    
    
    782,244Other
    
    
    2,964,539
    
    
    
    2,624,121
    
    
    
    1,947,349Total current liabilities
    
    
    19,800,398
    
    
    
    18,170,671
    
    
    
    25,602,475LONG TERM DEBT  less current maturities
    
    
    93,768,649
    
    
    
    103,220,384
    
    
    
    82,567,824DEFERRED INCOME TAXES
    
    
    12,951,828
    
    
    
    13,247,953
    
    
    
    17,009,025DEFERRED PENSION LIABILITY
    
    
    970,507
    
    
    
    125,724
    
    
    
    DEFERRED LIABILITIES
    
    
    246,699
    
    
    
    235,204
    
    
    
    312,542TOTAL LIABILITIES
    
    
    127,738,081
    
    
    
    134,999,936
    
    
    
    125,491,866COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock, no par value;
25,000,000 shares authorized; issued and
outstanding March 31, 2008 - 5,508,278;
December 31, 2007 - 5,488,293;
March 31, 2007 - 5,466,543
    
    
    54,144,545
    
    
    
    53,997,960
    
    
    
    53,649,754Accumulated other comprehensive loss
    
    
    (1,538,049
    )
    
    
    (1,051,232
    )
    
    
    (967,609
    )Retained earnings
    
    
    29,055,683
    
    
    
    28,777,863
    
    
    
    52,648,296Total shareholders equity
    
    
    81,662,179
    
    
    
    81,724,591
    
    
    
    105,330,441TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    209,400,260
    
    
    $
    216,724,527
    
    
    $
    230,822,307
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ROCKY BRANDS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 Three Months EndedMarch 31,2008
    
    
    2007NET SALES
    
    $
    60,484,716
    
    
    $
    61,657,024COST OF GOODS SOLD
    
    
    34,535,051
    
    
    
    35,576,338GROSS MARGIN
    
    
    25,949,665
    
    
    
    26,080,686SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    23,061,487
    
    
    
    22,322,941INCOME FROM OPERATIONS
    
    
    2,888,178
    
    
    
    3,757,745OTHER INCOME AND (EXPENSES):Interest expense, net
    
    
    (2,406,671
    )
    
    
    (2,498,845
    )Other  net
    
    
    (18,592
    )
    
    
    (42,995
    )Total other  net
    
    
    (2,425,263
    )
    
    
    (2,541,840
    )INCOME BEFORE INCOME TAXES
    
    
    462,915
    
    
    
    1,215,905INCOME TAX EXPENSE
    
    
    162,000
    
    
    
    450,000NET INCOME
    
    $
    300,915
    
    
    $
    765,905NET INCOME PER SHAREBasic
    
    $
    0.05
    
    
    $
    0.14Diluted
    
    $
    0.05
    
    
    $
    0.14WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDINGBasic
    
    
    5,507,839
    
    
    
    5,457,556Diluted
    
    
    5,526,479
    
    
    
    5,594,930
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ROCKY BRANDS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Three Months EndedMarch 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    300,915
    
    
    $
    765,905Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    1,495,827
    
    
    
    1,371,353Deferred compensation and other
    
    
    50,241
    
    
    
    (43,899
    )(Gain) Loss on disposal of fixed assets
    
    
    (38,334
    )
    
    
    2,080Stock compensation expense
    
    
    146,584
    
    
    
    170,443Change in assets and liabilitiesReceivables
    
    
    9,469,316
    
    
    
    6,243,102Inventories
    
    
    (4,437,765
    )
    
    
    6,117,787Other current assets
    
    
    (711,016
    )
    
    
    260,717Other assets
    
    
    184,278
    
    
    
    380,419Accounts payable
    
    
    914,624
    
    
    
    2,598,945Accrued and other liabilities
    
    
    730,410
    
    
    
    1,329,001Net cash provided by operating activities
    
    
    8,105,080
    
    
    
    19,195,853CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of fixed assets
    
    
    (810,887
    )
    
    
    (734,363
    )Investment in trademarks and patents
    
    
    (17,937
    )
    
    
    (27,265
    )Proceeds from sale of fixed assets
    
    
    38,461
    
    
    
    Net cash used in investing activities
    
    
    (790,363
    )
    
    
    (761,628
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from revolving credit facility
    
    
    62,497,654
    
    
    
    54,594,784Repayments of revolving credit facility
    
    
    (71,863,957
    )
    
    
    (73,380,198
    )Repayments of long-term debt
    
    
    (78,669
    )
    
    
    (1,843,641
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    240,470Net cash used in financing activities
    
    
    (9,444,972
    )
    
    
    (20,388,585
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,130,255
    )
    
    
    (1,954,360
    )CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    6,537,884
    
    
    
    3,731,253CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    4,407,629
    
    
    $
    1,776,893
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ROCKY BRANDS, INC.
AND SUBSIDIARIES
 
   1.
    
    INTERIM FINANCIAL REPORTINGIn the opinion of management, the accompanying interim 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 interim
consolidated financial statements are considered to be of a normal and recurring nature.
The results of the operations for the three-month periods ended March 31, 2008 and 2007
are not necessarily indicative of the results to be expected for the whole year.
Accordingly, these condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto contained in our
Annual Report on Form 10-K for the year ended December 31, 2007.The components of total comprehensive income are shown below:
 (Unaudited)
    
    
    (Unaudited)Three Months Ended
    
    
    Three Months EndedMarch 31, 2008
    
    
    March 31, 2007Net income
    
    $
    300,915
    
    
    $
    765,905Other comprehensive income:Amortization of unrecognized
transition
obligation, service cost and net loss
    
    
    40,032
    
    
    
    25,573Total comprehensive income
    
    $
    340,947
    
    
    $
    791,478
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2.
    
    INVENTORIESInventories are comprised of the following:
 March 31,
    
    
    December 31,
    
    
    March 31,2008
    
    
    2007
    
    
    2007(Unaudited)
    
    
    
    
    
    (Unaudited)Raw materials
    
    $
    7,462,809
    
    
    $
    6,086,118
    
    
    $
    6,603,390Work-in-process
    
    
    741,731
    
    
    
    144,171
    
    
    
    995,124Finished goods
    
    
    71,781,889
    
    
    
    69,301,375
    
    
    
    64,532,675Reserve for obsolescence or
lower of cost or market
    
    
    (145,000
    )
    
    
    (128,000
    )
    
    
    (300,000
    )Total
    
    $
    79,841,429
    
    
    $
    75,403,664
    
    
    $
    71,831,189
  3.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONSupplemental cash information including, cash paid for interest and Federal, state and
local income taxes, net of refunds, was as follows:
 Three Months EndedMarch 31,2008
    
    
    2007Interest
    
    $
    1,117,351
    
    
    $
    1,033,000Federal, state and local income taxes
    
    $
    49,965
    
    
    $
    97,000Fixed asset purchases in accounts payable
    
    $
    34,096
    
    
    $
    21,250
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4.
    
    PER SHARE INFORMATIONBasic 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. There are no adjustments to net income necessary in the calculation of basic and
diluted earnings per share.A reconciliation of the shares used in the basic and diluted income per common share
computation for the three months ended March 31, 2008 and 2007 is as follows:
 Three Months EndedMarch 31,2008
    
    2007Weighted average
shares outstanding
    
    
    5,507,839
    
    
    
    5,457,556Diluted stock options
    
    
    18,640
    
    
    
    137,374Diluted weighted average
shares outstanding
    
    
    5,526,479
    
    
    
    5,594,930Anti-diluted weighted average
shares outstanding
    
    
    290,464
    
    
    
    264,125
 5.
    
    RECENT FINANCIAL ACCOUNTING STANDARDSIn September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. In
February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2 defers implementation of SFAS 157 for
certain non-financial assets and non-financial liabilities. SFAS 157 is effective for
financial assets and liabilities in fiscal years beginning after November 15, 2007 and for
non-financial assets and liabilities in fiscal years beginning after March 15, 2008. We have
evaluated the impact of the provisions applicable to our financial assets and liabilities
and have determined that there will not be a material impact on our consolidated financial
statements. The aspects that have been deferred by FSP FAS 157-2 pertaining to
non-financial assets and non-financial liabilities will be effective for us beginning
January 1, 2009. We are currently reviewing SFAS 157 and FSP FAS 157-2 to determine the
impact and materiality of their adoption on our consolidated financial statements.In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefits
Pension and Other Postretirement Plans, an Amendment of FASB Statements 87, 88, 106, and
132(R) (SFAS 158). SFAS 158, requires an employer to recognize in its statement of
financial position the funded status of its defined benefit
plans and to recognize as a component of other comprehensive income, net of tax, any
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The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of statement No. 115
 Business Combinations Business Combinations.
 Non-controlling Interests in Consolidated
Financial Statements, an amendment of ARB No, 51
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Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB No. 133
 6.
    
    INCOME TAXESWe file income tax returns in the U.S. Federal jurisdiction and various state and foreign
jurisdictions. An examination of our 2004 Federal income tax return resulted in an
immaterial adjustment. The examination of the 2003 Federal income tax return resulted in no
changes. We are no longer subject to U.S. Federal tax examinations for years before 2003.
State jurisdictions that remain subject to examination range from 2003 to 2006. Foreign
jurisdiction (Canada and Puerto Rico) tax returns that remain subject to examination range
from 2001 to 2006. We do not believe there will be any material changes in our unrecognized
tax positions over the next 12 months.Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits
as a component of income tax expense. As of the date of adoption of FIN 48, accrued interest
or penalties were not material, and no such expenses were recognized during the quarter.We provided for income taxes at estimated effective tax rates of 35% and 37% for the
three-month periods ended March 31, 2008 and 2007, respectively.
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7.
    
    INTANGIBLE ASSETSA schedule of intangible assets is as follows:
 Gross
    
    
    Accumulated
    
    
    CarryingMarch 31, 2008 (unaudited)
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks:Wholesale
    
    $
    28,278,596
    
    
    $
    107,814
    
    
    $
    28,170,782Retail
    
    
    6,900,000
    
    
    
    
    
    
    
    6,900,000Patents
    
    
    2,287,988
    
    
    
    1,347,503
    
    
    
    940,485Customer relationships
    
    
    1,000,000
    
    
    
    650,000
    
    
    
    350,000Total Identified Intangibles
    
    $
    38,466,584
    
    
    $
    2,105,317
    
    
    $
    36,361,267
 Gross
    
    
    Accumulated
    
    
    CarryingDecember 31, 2007
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks:Wholesale
    
    $
    28,272,514
    
    
    $
    86,251
    
    
    $
    28,186,263Retail
    
    
    6,900,000
    
    
    
    
    
    
    
    6,900,000Patents
    
    
    2,276,132
    
    
    
    1,252,705
    
    
    
    1,023,427Customer relationships
    
    
    1,000,000
    
    
    
    600,000
    
    
    
    400,000Total Identified Intangibles
    
    $
    38,448,646
    
    
    $
    1,938,956
    
    
    $
    36,509,690
 Gross
    
    
    Accumulated
    
    
    CarryingMarch 31, 2007 (unaudited)
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks:Wholesale
    
    $
    28,250,046
    
    
    $
    21,563
    
    
    $
    28,228,483Retail
    
    
    6,900,000
    
    
    
    
    
    
    
    6,900,000Patents
    
    
    2,257,570
    
    
    
    969,202
    
    
    
    1,288,368Customer relationships
    
    
    1,000,000
    
    
    
    450,000
    
    
    
    550,000Total Identified Intangibles
    
    $
    38,407,616
    
    
    $
    1,440,765
    
    
    $
    36,966,851
  Estimate of Aggregate Amortization Expense for the years ending December 31,:
 2009
    
    $
    665,4462010
    
    
    125,3632011
    
    
    123,9832012
    
    
    123,9832013
    
    
    123,983
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8.
    
    CAPITAL STOCKOn May 11, 2004, our shareholders approved the 2004 Stock Incentive Plan. The Plan includes
750,000 of our common shares that may be granted for stock options and restricted stock
awards. As of March 31, 2008, we were authorized to issue approximately 406,420 shares
under our existing plans.The plan generally provides for grants with the exercise price equal to fair value on the
date of grant, graduated vesting periods of up to five years, and lives not exceeding ten
years. The following summarizes stock option transactions from January 1, 2008 through
March 31, 2008:
 WeightedAverageExerciseShares
    
    PriceOptions outstanding at January 1, 2008
    
    
    472,551
    
    
    $
    15.37Issued
    
    
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Forfeited
    
    
    (16,250
    )
    
    $
    11.24Options outstanding at March 31, 2008
    
    
    456,301
    
    
    $
    15.51Options exercisable at:January 1, 2008
    
    
    420,801
    
    
    $
    14.97March 31, 2008
    
    
    435,113
    
    
    $
    15.49Unvested options at January 1, 2008
    
    
    51,750
    
    
    $
    18.55Granted
    
    
    
    
    
    $
    Vested
    
    
    (30,562
    )
    
    $
    20.31Forfeited
    
    
    
    
    
    $
    Unvested options at March 31, 2008
    
    
    21,188
    
    
    $
    16.01
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9.
    
    RETIREMENT PLANSWe sponsor a noncontributory defined benefit pension plan covering non-union workers in our
Ohio and Puerto Rico operations. Benefits under the non-union plan are based upon years of
service and highest compensation levels as defined. On December 31, 2005, we froze the
noncontributory defined benefit pension plan for all non-U.S. territorial employees.SFAS 158 requires a fiscal year end measurement of plan assets and benefit obligations,
eliminating the use of earlier measurement dates previously permissible. The new
measurement date requirement is effective for fiscal years ending after December 15, 2008.
As a result, we have changed our measurement date to December 31 and recognized the pension
expense related to the period October 1, 2007 through December 31, 2007 as an adjustment to
beginning retained earnings and accumulated other comprehensive loss.As a result of the change in measurement date, we recognized the increase in the
under-funded status of the defined benefit pension plan between September 30, 2007 and
December 31, 2007 of $846,071, as well as the corresponding increase in accumulated other
comprehensive loss of $526,850 and related decrease in our deferred tax liability of
$296,125. We also recognized the net pension expense of $23,096 relating to the period October 1, 2007
through December 31, 2007 as a reduction of the opening balance of retained earnings as of
January 1, 2008.Net pension cost of the Companys plan is as follows:
 (Unaudited)Three Months EndedMarch 31,2008
    
    
    2007Service cost
    
    $
    26,963
    
    
    $
    26,299Interest
    
    
    143,062
    
    
    
    139,506Expected return on assets
    
    
    (171,313
    )
    
    
    (179,239
    )Amortization of unrecognized
net gain or loss
    
    
    17,326
    
    
    
    Amortization of unrecognized
transition obligation
    
    
    21,361
    
    
    
    2,691Amortization of unrecognized
prior service cost
    
    
    1,345
    
    
    
    22,882Net pension cost
    
    $
    38,744
    
    
    $
    12,139
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2008
    
    2007Discount rate
    
    
    6.00
    %
    
    
    6.00
    %Average rate of increase in compensation levels
    
    
    3.0
    %
    
    
    3.0
    %Expected long-term rate of return on plan assets
    
    
    8.0
    %
    
    
    8.0
    %
  10.
    
    SEGMENT INFORMATIONWe 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, mail order catalogs, independent
retailers, mass merchants, retail uniform stores, and specialty safety shoe stores. Retail
includes all sales from our stores and all sales in our Lehigh division, which includes
sales via shoemobiles to individual customers. Military includes sales to the U.S.
Military. The following is a summary of segment results for the Wholesale, Retail, and
Military segments.
 (Unaudited)Three Months EndedMarch 31,2008
    
    
    2007NET SALES:Wholesale
    
    $
    39,736,327
    
    
    $
    44,565,031Retail
    
    
    18,905,932
    
    
    
    16,967,965Military
    
    
    1,842,457
    
    
    
    124,028Total Net Sales
    
    $
    60,484,716
    
    
    $
    61,657,024GROSS MARGIN:Wholesale
    
    $
    16,274,464
    
    
    $
    16,873,518Retail
    
    
    9,491,572
    
    
    
    8,530,357Military
    
    
    183,629
    
    
    
    676,811
    *Total Gross Margin
    
    $
    25,949,665
    
    
    $
    26,080,686
 
 *
    
    The gross margin for the three-month period ended March 31, 2007 includes a
reduction of cost of goods sold of $0.7 million from the reimbursement of contract
related expenses incurred in prior periods.  14




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11.
    
    LONG-TERM DEBTIn May 2007, we entered into a Note Purchase Agreement, totaling $40 million, with Laminar
Direct Capital L.P., Whitebox Hedged High Yield Partners, L.P. and GPC LIX L.L.C., and
issued notes to each for $20 million, $17.5 million and $2.5 million, respectively, at an
interest rate of 11.5% payable semi-annually over the five year term of the notes.
Principal repayment is due at maturity in May 2012. The proceeds from these notes were used
to pay down the GMAC Commercial Finance (GMAC) term loans which totaled approximately
$17.5 million and the $15 million American Capital Strategies, LTD (ACAS) term loan. The
balance of the proceeds, net of debt acquisition costs of approximately $1.4 million, was
used to reduce the outstanding balance on the revolving credit facility. The Note Purchase
Agreement is secured by a security interest in our assets and is subordinate to the security
interest under the GMAC line of credit.Our credit facilities contain certain restrictive covenants, which require us to maintain a
minimum fixed charge coverage ratio and limit the annual amount of capital expenditures. As
of March 31, 2008, we were in compliance with these restrictive covenants.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
  Three Months EndedMarch 31,2008
    
    2007Net Sales
    
    
    100.0
    %
    
    
    100.0
    %Cost Of Goods Sold
    
    
    57.1
    %
    
    
    57.7
    %Gross Margin
    
    
    42.9
    %
    
    
    42.3
    %Selling,
General and Administrative Expenses
    
    
    38.1
    %
    
    
    36.2
    %Income From Operations
    
    
    4.8
    %
    
    
    6.1
    %
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Net sales.
 Gross margin.
 SG&A expenses.
 16




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Interest expense.
 Income taxes.
 Liquidity and Capital Resources
     17




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Operating Activities.
 Investing Activities.
 Financing Activities.
 Inflation
  Critical Accounting Policies and Estimates
   18




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Revenue recognition
  Accounts receivable allowances
  Sales returns and allowances
  Inventories
  Intangible assets
  19




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Pension benefits
     Income taxes
  20




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21




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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
  22




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4  CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Internal Controls
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 ITEM 5. OTHER INFORMATION.
  24




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ITEM 6. EXHIBITS.
 EXHIBIT
    
    EXHIBITNUMBER
    
    DESCRIPTION31 (a)*
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a) of the Chief Executive Officer.31 (b)*
    
    Certification pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a) of the Chief Financial Officer.32 (a)+
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief
Executive Officer.32 (b)+
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief
Financial Officer.
 
 *
    
    Filed with this report.+
    
    Furnished with this report. 25




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SIGNATURE
  Rocky Brands, Inc.Date:
May 1, 2008
    
    /s/ James E. McDonald

          James E. McDonald, Executive Vice President andChief Financial Officer*
 
 *
    
    In his capacity as Executive Vice President and Chief Financial Officer, Mr. McDonald is duly
authorized to sign this report on behalf of the Registrant.