##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    31-1364046
(I.R.S. Employer
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 June 30, 2008 and 2007 (Unaudited), and December 31, 2007
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)
    
    4Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 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
    
    25Item 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
 June 30, 2008
    
    
    
    
    
    
    June 30, 2007(Unaudited)
    
    
    December 31, 2007
    
    
    (Unaudited)ASSETS:CURRENT ASSETS:Cash and cash equivalents
    
    $
    3,025,144
    
    
    $
    6,537,884
    
    
    $
    1,446,022Trade receivables  net
    
    
    59,245,156
    
    
    
    65,931,092
    
    
    
    60,117,677Other receivables
    
    
    1,010,254
    
    
    
    674,707
    
    
    
    1,368,863Inventories
    
    
    85,542,820
    
    
    
    75,403,664
    
    
    
    83,973,162Deferred income taxes
    
    
    1,952,536
    
    
    
    1,952,536
    
    
    
    3,902,775Income tax receivable
    
    
    729,024
    
    
    
    719,945
    
    
    
    2,561,538Prepaid expenses
    
    
    3,117,546
    
    
    
    2,226,920
    
    
    
    2,118,034Total current assets
    
    
    154,622,480
    
    
    
    153,446,748
    
    
    
    155,488,071FIXED ASSETS  net
    
    
    24,090,519
    
    
    
    24,484,050
    
    
    
    24,443,562DEFERRED PENSION ASSET
    
    
    
    
    
    
    
    
    
    
    40,432IDENTIFIED INTANGIBLES
    
    
    36,207,210
    
    
    
    36,509,690
    
    
    
    36,823,525GOODWILL
    
    
    
    
    
    
    
    
    
    
    24,874,368OTHER ASSETS
    
    
    1,909,678
    
    
    
    2,284,039
    
    
    
    2,758,801TOTAL ASSETS
    
    $
    216,829,887
    
    
    $
    216,724,527
    
    
    $
    244,428,759LIABILITIES AND SHAREHOLDERS EQUITY:CURRENT LIABILITIES:Accounts payable
    
    $
    13,238,830
    
    
    $
    11,908,902
    
    
    $
    15,471,858Current maturities  long term debt
    
    
    338,314
    
    
    
    324,648
    
    
    
    311,534Accrued expenses:Salaries and wages
    
    
    722,646
    
    
    
    751,134
    
    
    
    502,334Co-op advertising
    
    
    468,922
    
    
    
    840,818
    
    
    
    Interest
    
    
    468,959
    
    
    
    487,446
    
    
    
    580,665Taxes  other
    
    
    840,751
    
    
    
    516,038
    
    
    
    673,098Commissions
    
    
    449,110
    
    
    
    717,564
    
    
    
    697,628Other
    
    
    2,593,954
    
    
    
    2,624,121
    
    
    
    2,310,034Total current liabilities
    
    
    19,121,486
    
    
    
    18,170,671
    
    
    
    20,547,151LONG TERM DEBT  less current maturities
    
    
    101,042,347
    
    
    
    103,220,384
    
    
    
    102,427,204DEFERRED INCOME TAXES
    
    
    12,951,828
    
    
    
    13,247,953
    
    
    
    17,009,025DEFERRED PENSION LIABILITY
    
    
    969,218
    
    
    
    125,724
    
    
    
    DEFERRED LIABILITIES
    
    
    288,388
    
    
    
    235,204
    
    
    
    324,038TOTAL LIABILITIES
    
    
    134,373,267
    
    
    
    134,999,936
    
    
    
    140,307,418COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY:Common stock, no par value;
25,000,000 shares authorized; issued and outstanding June
30, 2008  5,508,278; December 31, 2007  5,488,293; June
30, 2007  5,482,293
    
    
    54,168,292
    
    
    
    53,997,960
    
    
    
    53,802,287Accumulated other comprehensive loss
    
    
    (1,500,197
    )
    
    
    (1,051,232
    )
    
    
    (942,036
    )Retained earnings
    
    
    29,788,525
    
    
    
    28,777,863
    
    
    
    51,261,090Total shareholders equity
    
    
    82,456,620
    
    
    
    81,724,591
    
    
    
    104,121,341TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    216,829,887
    
    
    $
    216,724,527
    
    
    $
    244,428,759
 See notes to the interim unaudited condensed consolidated financial statements.
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ROCKY BRANDS, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007NET SALES
    
    $
    60,507,421
    
    
    $
    58,797,664
    
    
    $
    120,992,137
    
    
    $
    120,454,688COST OF GOODS SOLD
    
    
    36,111,328
    
    
    
    34,871,210
    
    
    
    70,646,379
    
    
    
    70,447,548GROSS MARGIN
    
    
    24,396,093
    
    
    
    23,926,454
    
    
    
    50,345,758
    
    
    
    50,007,140SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    20,875,459
    
    
    
    22,790,579
    
    
    
    43,936,946
    
    
    
    45,113,520INCOME FROM OPERATIONS
    
    
    3,520,634
    
    
    
    1,135,875
    
    
    
    6,408,812
    
    
    
    4,893,620OTHER INCOME AND (EXPENSES):Interest expense, net
    
    
    (2,409,515
    )
    
    
    (3,344,076
    )
    
    
    (4,816,186
    )
    
    
    (5,842,921
    )Other  net
    
    
    15,723
    
    
    
    6,994
    
    
    
    (2,869
    )
    
    
    (36,001
    )Total other  net
    
    
    (2,393,792
    )
    
    
    (3,337,082
    )
    
    
    (4,819,055
    )
    
    
    (5,878,922
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    1,126,842
    
    
    
    (2,201,207
    )
    
    
    1,589,757
    
    
    
    (985,302
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    394,000
    
    
    
    (814,000
    )
    
    
    556,000
    
    
    
    (364,000
    )NET INCOME (LOSS)
    
    $
    732,842
    
    
    $
    (1,387,207
    )
    
    $
    1,033,757
    
    
    $
    (621,302
    )NET INCOME (LOSS) PER SHAREBasic
    
    $
    0.13
    
    
    $
    (0.25
    )
    
    $
    0.19
    
    
    $
    (0.11
    )Diluted
    
    $
    0.13
    
    
    $
    (0.25
    )
    
    $
    0.19
    
    
    $
    (0.11
    )WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDINGBasic
    
    
    5,508,278
    
    
    
    5,473,919
    
    
    
    5,508,058
    
    
    
    5,465,783Diluted
    
    
    5,520,625
    
    
    
    5,473,919
    
    
    
    5,523,265
    
    
    
    5,465,783
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ROCKY BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six Months EndedJune 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    1,033,757
    
    
    $
    (621,302
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    3,070,687
    
    
    
    2,753,424Deferred compensation and other
    
    
    128,493
    
    
    
    (20,264
    )Deferred debt financing costs
    
    
    
    
    
    
    811,582Gain on disposal of fixed assets
    
    
    (34,478
    )
    
    
    (4,543
    )Stock compensation expense
    
    
    170,332
    
    
    
    234,191Change in assets and liabilitiesReceivables
    
    
    6,350,389
    
    
    
    4,932,484Inventories
    
    
    (10,139,156
    )
    
    
    (6,024,186
    )Other current assets
    
    
    (899,705
    )
    
    
    534,540Other assets
    
    
    374,361
    
    
    
    606,832Accounts payable
    
    
    1,329,118
    
    
    
    5,477,302Accrued and other liabilities
    
    
    (392,779
    )
    
    
    567,474Net cash provided by operating activities
    
    
    991,019
    
    
    
    9,247,534CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of fixed assets
    
    
    (2,347,911
    )
    
    
    (2,687,705
    )Investment in trademarks and patents
    
    
    (30,387
    )
    
    
    (49,951
    )Proceeds from sale of fixed assets
    
    
    38,910
    
    
    
    8,918Net cash used in investing activities
    
    
    (2,339,388
    )
    
    
    (2,728,738
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from revolving credit facility
    
    
    128,927,562
    
    
    
    125,665,531Repayments of revolving credit facility
    
    
    (130,932,955
    )
    
    
    (140,774,353
    )Proceeds from long-term debt
    
    
    
    
    
    
    40,000,000Repayments of long-term debt
    
    
    (158,978
    )
    
    
    (32,644,021
    )Debt financing costs
    
    
    
    
    
    
    (1,380,439
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    329,255Net cash used in financing activities
    
    
    (2,164,371
    )
    
    
    (8,804,027
    )DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,512,740
    )
    
    
    (2,285,231
    )CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
    
    
    6,537,884
    
    
    
    3,731,253CASH AND CASH EQUIVALENTS,
END OF PERIOD
    
    $
    3,025,144
    
    
    $
    1,446,022
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ROCKY BRANDS, INC.
AND SUBSIDIARIES
 
 
 1.
    
    INTERIM FINANCIAL REPORTING
   (Unaudited)
    
    
    (Unaudited)Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    732,842
    
    
    $
    (1,387,207
    )
    
    $
    1,033,757
    
    
    $
    (621,302
    )Other comprehensive income:transition obligation, service cost
and net loss
    
    
    37,853
    
    
    
    25,573
    
    
    
    77,885
    
    
    
    51,146Total comprehensive income (loss)
    
    $
    770,695
    
    
    $
    (1,361,634
    )
    
    $
    1,111,642
    
    
    $
    (570,156
    )
 6




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2.
    
    INVENTORIES
  June 30,
    
    
    
    
    
    June 30,2008
    
    
    December 31,
    
    
    2007(Unaudited)
    
    
    2007
    
    
    (Unaudited)Raw materials
    
    $
    9,388,532
    
    
    $
    6,086,118
    
    
    $
    8,434,319Work-in-process
    
    
    803,294
    
    
    
    144,171
    
    
    
    475,332Finished goods
    
    
    75,469,494
    
    
    
    69,301,375
    
    
    
    75,454,060Reserve for obsolescence or
lower of cost or market
    
    
    (118,500
    )
    
    
    (128,000
    )
    
    
    (390,549
    )Total
    
    $
    85,542,820
    
    
    $
    75,403,664
    
    
    $
    83,973,162
 3.
    
    SUPPLEMENTAL CASH FLOW INFORMATION
  Six Months EndedJune 30,2008
    
    
    2007Interest
    
    $
    4,519,746
    
    
    $
    4,422,762Federal, state and local income taxes
    
    $
    565,244
    
    
    $
    (1,490,000
    )Fixed asset purchases in accounts payable
    
    $
    56,976
    
    
    $
    204,448
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4.
    
    PER SHARE INFORMATION
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Weighted average
shares outstanding
    
    
    5,508,278
    
    
    
    5,473,919
    
    
    
    5,508,058
    
    
    
    5,465,783Diluted stock options
    
    
    12,347
    
    
    
    
    
    
    
    15,207
    
    
    
    Diluted weighted average
shares outstanding
    
    
    5,520,625
    
    
    
    5,473,919
    
    
    
    5,523,265
    
    
    
    5,465,783Anti-diluted weighted average
shares outstanding
    
    
    343,889
    
    
    
    236,721
    
    
    
    343,889
    
    
    
    236,721
 5.
    
    RECENT FINANCIAL ACCOUNTING STANDARDS
 Fair Value Measurements FASB Staff Position No. FAS 157-2, Effective Date of FASB
Statement No. 157
 Employers Accounting for Defined Benefits
Pension and Other Postretirement Plans, an Amendment of FASB Statements 87, 88, 106, and
132(R)
 8




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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
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB No. 133
 9




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6.
    
    INCOME TAXES
    10




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7.
    
    INTANGIBLE ASSETSA schedule of intangible assets is as follows:
 Gross
    
    
    Accumulated
    
    
    CarryingJune 30, 2008 (unaudited)
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks:Wholesale
    
    $
    28,278,595
    
    
    $
    129,377
    
    
    $
    28,149,218Retail
    
    
    6,900,000
    
    
    
    
    
    
    
    6,900,000Patents
    
    
    2,300,438
    
    
    
    1,442,446
    
    
    
    857,992Customer relationships
    
    
    1,000,000
    
    
    
    700,000
    
    
    
    300,000Total Identified Intangibles
    
    $
    38,479,033
    
    
    $
    2,271,823
    
    
    $
    36,207,210
 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
    
    
    CarryingJune 30, 2007 (unaudited)
    
    Amount
    
    
    Amortization
    
    
    AmountTrademarks:Wholesale
    
    $
    28,260,640
    
    
    $
    43,126
    
    
    $
    28,217,514Retail
    
    
    6,900,000
    
    
    
    
    
    
    
    6,900,000Patents
    
    
    2,269,662
    
    
    
    1,063,651
    
    
    
    1,206,011Customer relationships
    
    
    1,000,000
    
    
    
    500,000
    
    
    
    500,000Total Identified Intangibles
    
    $
    38,430,302
    
    
    $
    1,606,777
    
    
    $
    36,823,525
 Amortization expense for intangible assets was $166,507 and $166,012 for the three months ended
June 30, 2008 and 2007, respectively and $332,867 and $331,717 for the six months ended June 30,
2008 and 2007, respectively. The weighted average amortization period for patents is six years and
for customer relationships is five years.Estimate of Aggregate Amortization Expense for the years ending December 31,:
 2009
    
    $
    666,2762010
    
    
    126,1932011
    
    
    124,8132012
    
    
    124,8132013
    
    
    124,813
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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 June 30, 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 June
30, 2008:
 WeightedAverageExerciseShares
    
    PriceOptions outstanding at January 1, 2008
    
    
    472,551
    
    
    $
    15.37Issued
    
    
    
    
    
    $
    Exercised
    
    
    
    
    
    $
    Forfeited
    
    
    (18,000
    )
    
    $
    12.36Options outstanding at June 30, 2008
    
    
    454,551
    
    
    $
    15.49Options exercisable at:January 1, 2008
    
    
    420,801
    
    
    $
    14.97June 30, 2008
    
    
    433,113
    
    
    $
    15.45Unvested options at January 1, 2008
    
    
    51,750
    
    
    $
    18.55Granted
    
    
    
    
    
    $
    Vested
    
    
    (30,313
    )
    
    $
    20.28Forfeited
    
    
    
    
    
    $
    Unvested options at June 30, 2008
    
    
    21,437
    
    
    $
    16.11
 During the six-month period ended June 30, 2008, we issued 19,985 shares of common stock to
members of our Board of Directors. We recorded compensation expense of $122,500, which was
the fair market value of the shares on the grant date. The shares are fully vested but
cannot be sold for one year.
 12




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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)
    
    
    (Unaudited)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
    $
    26,963
    
    
    $
    26,298
    
    
    $
    53,926
    
    
    $
    52,597Interest
    
    
    143,061
    
    
    
    139,507
    
    
    
    286,123
    
    
    
    279,013Expected return on assets
    
    
    (171,313
    )
    
    
    (179,239
    )
    
    
    (342,626
    )
    
    
    (358,478
    )Amortization of unrecognized
net gain or loss
    
    
    17,116
    
    
    
    
    
    
    
    34,442
    
    
    
    Amortization of unrecognized
transition obligation
    
    
    897
    
    
    
    2,691
    
    
    
    2,242
    
    
    
    5,382Amortization of unrecognized
prior service cost
    
    
    19,840
    
    
    
    22,882
    
    
    
    41,201
    
    
    
    45,764Net pension cost
    
    $
    36,564
    
    
    $
    12,139
    
    
    $
    75,308
    
    
    $
    24,278
 13




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Our unrecognized benefit obligations existing at the date of transition for the non-union
plan are being amortized over 21 years. Actuarial assumptions used in the accounting for
the plan were as follows:
 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
    %
 Our desired investment result is a long-term rate of return on assets that is at least 8%.
The target rate of return for the plan has been based upon the assumption that returns will
approximate the long-term rates of return experienced for each asset class in our investment
policy. Our investment guidelines are based upon an investment horizon of greater than five
years, so that interim fluctuations should be viewed with appropriate perspective.
Similarly, the plans strategic asset allocation is based on this long-term perspective.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)
    
    
    (Unaudited)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007NET SALES:Wholesale
    
    $
    42,481,533
    
    
    $
    41,902,607
    
    
    $
    82,217,860
    
    
    $
    86,467,639Retail
    
    
    16,216,348
    
    
    
    16,582,155
    
    
    
    35,122,280
    
    
    
    33,550,119Military
    
    
    1,809,540
    
    
    
    312,902
    
    
    
    3,651,997
    
    
    
    436,930Total Net Sales
    
    $
    60,507,421
    
    
    $
    58,797,664
    
    
    $
    120,992,137
    
    
    $
    120,454,688GROSS MARGIN:Wholesale
    
    $
    15,684,979
    
    
    $
    14,407,268
    
    
    $
    31,959,443
    
    
    $
    31,280,786Retail
    
    
    8,555,574
    
    
    
    8,890,604
    
    
    
    18,047,146
    
    
    
    17,420,961Military
    
    
    155,540
    
    
    
    628,582
    *
    
    
    339,169
    
    
    
    1,305,393
    *Total Gross Margin
    
    $
    24,396,093
    
    
    $
    23,926,454
    
    
    $
    50,345,758
    
    
    $
    50,007,140
 
 *
    
    The gross margin for the three-month and six-month periods ended June 30, 2007
included reductions of cost of goods sold from the reimbursement of contract related
expenses incurred in prior periods of $0.5 million and $1.2 million, respectively. 14




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##### Table of Contents



Segment asset information is not prepared or used to assess segment performance.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 June 30, 2008, we were in compliance with these restrictive covenants.
 15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Net Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost Of Goods Sold
    
    
    59.7
    %
    
    
    59.3
    %
    
    
    58.4
    %
    
    
    58.5
    %Gross Margin
    
    
    40.3
    %
    
    
    40.7
    %
    
    
    41.6
    %
    
    
    41.5
    %Selling, General andAdministrative Expenses
    
    
    34.5
    %
    
    
    38.8
    %
    
    
    36.3
    %
    
    
    37.5
    %Income From Operations
    
    
    5.8
    %
    
    
    1.9
    %
    
    
    5.3
    %
    
    
    4.0
    %
 Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
 Net sales.
 Gross margin.
 SG&A expenses.
 16




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Interest expense.
 Income taxes.
 Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
 Net sales.
 Gross margin.
 SG&A expenses.
 Interest expense.
 17




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Income taxes.
 Liquidity and Capital Resources
      Operating Activities.
 18




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Investing Activities.
 Financing Activities.
 Inflation
  Critical Accounting Policies and Estimates
    19




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Revenue recognition
  Accounts receivable allowances
  Sales returns and allowances
  Inventories
  Intangible assets
  20




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Pension benefits
     Income taxes
  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
 23




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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.
  Proposal 1: The election of Class II Directors of the Company, to serve until the 2010
Annual Meeting of Shareholders or until their successors are elected and qualified.
 Number of Shares VotedWITHHOLDFOR
    
    AUTHORITY
    
    TOTALJ. Patrick Campbell
    
    
    4,712,445
    
    
    
    137,669
    
    
    
    4,850,114Michael L. Finn
    
    
    4,709,307
    
    
    
    140,807
    
    
    
    4,850,114G. Courtney Haning
    
    
    4,709,197
    
    
    
    140,197
    
    
    
    4,850,114Curtis A. Loveland
    
    
    3,764,738
    
    
    
    1,085,376
    
    
    
    4,850,114
 
 Proposal
2: To ratify the selection of Schneider Downs & Co., Inc. as the Companys
independent registered public accounting firm for the fiscal year ending December 31, 2008.
 Number of Shares VotedFOR
    
    AGAINST
    
    ABSTAINED
    
    TOTAL4,710,997
    
    110,956
    
    28,161
    
    4,850,114
 24




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##### Table of Contents



ITEM 5. OTHER INFORMATION.
  
 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: August 6, 2008
    /s/ James E. McDonaldJames 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. 26