Rocky Shoes and Boots in ‘Watershed’ Deal with EJ Footwear Acquisition…

December 13, 2004
SGB Update

In a deal that has been in the making for several months, Rocky Shoes & Boots will acquire EJ Footwear for $87.7 million in cash plus 484,261 shares of RCKY common stock, which were valued at $10 million at the date of the definitive agreement.

The increased operating costs associated with being a small public company under Sarbanes-Oxley necessitated rapid growth for the company. With this deal, Rocky will be adding three owned brands and two licensed brands, more than doubling the company’s size.

Rocky is expecting $133 million in sales for 2004 and net income of approximately $1.75 per diluted share for the year. If this deal goes through and is completed by mid-January, as expected, then Rocky’s 2005 sales are expected to be in the $280 to $285 million range. The acquisition will be immediately accretive to earnings with EPS of $2.35 to $2.45.

Rocky CEO Mike Brooks said that the corporate cultures of the two companies are very similar, while the brand portfolio offers diversification. Rocky has historically focused on outdoor and security footwear, while EJ’s wholly owned brands-Georgia Boot, Lehigh, and Durango-focus on outdoor, work, and western footwear. EJ’s licensed brands – Dickies and John Deere-focus on the safety and farming market.

Georgia Boot is EJ’s largest brand, making up 42% of the company’s revenues. It is primarily distributed through The Tractor Supply Company, and Ace Hardwear. Rocky would like to see its existing brands in both locations. Lehigh is the second largest brand with 35% of revenues, all of which c ome from direct sales of non-slip safety work footwear. Durango makes up 15% of EJ’s sales, primarily from specialty footwear retailers and western retailers.

The Dickies footwear license runs through 2007, and accounted for 6% of revenues last year. The John Deer license was recently signed, but Rocky expects to place the brand in home improvement stores like Home Depot and Lowes. Overall, EJ’s revenue was said to be “moderately higher” than Rocky’s.

Rocky will be bringing all of EJ’s senior management team on-board except for CEO Jerry Cohen. There will be no inventory write-offs, and EJ’s headquarters will remain in Franklin, Tennessee because of previous lease agreements.
Mr. Brooks said there will be little or no cost savings in 2005, but the company should see the benefits from synergies in 2006 and beyond.

“When we look back on this, I am confident this deal will represent a watershed moment in Rocky’s history,” Brooks said in his closing statement. Most analysts seemed to agree as Rocky’s stock was up 32.1% for the week to close at $27.35 on Friday.

Rocky Shoes and Boots in ‘Watershed’ Deal with EJ Footwear Acquisition…

SGB Update

In a deal that has been in the making for several months, Rocky Shoes & Boots will acquire EJ Footwear for $87.7 million in cash plus 484,261 shares of RCKY common stock, which were valued at $10 million at the date of the definitive agreement.

The increased operating costs associated with being a small public company under Sarbanes-Oxley necessitated rapid growth for the company. With this deal, Rocky will be adding three owned brands and two licensed brands, more than doubling the company’s size.

Rocky is expecting $133 million in sales for 2004 and net income of approximately $1.75 per diluted share for the year. If this deal goes through and is completed by mid-January, as expected, then Rocky’s 2005 sales are expected to be in the $280 to $285 million range. The acquisition will be immediately accretive to earnings with EPS of $2.35 to $2.45.

Rocky CEO Mike Brooks said that the corporate cultures of the two companies are very similar, while the brand portfolio offers diversification. Rocky has historically focused on outdoor and security footwear, while EJ’s wholly owned brands-Georgia Boot, Lehigh, and Durango-focus on outdoor, work, and western footwear. EJ’s licensed brands – Dickies and John Deere-focus on the safety and farming market.

Georgia Boot is EJ’s largest brand, making up 42% of the company’s revenues. It is primarily distributed through The Tractor Supply Company, and Ace Hardwear. Rocky would like to see its existing brands in both locations. Lehigh is the second largest brand with 35% of revenues, all of which come from direct sales of non-slip safety work footwear. Durango makes up 15% of EJ’s sales, primarily from specialty footwear retailers and western retailers.

The Dickies footwear license runs through 2007, and accounted for 6% of revenues last year. The John Deer license was recently signed, but Rocky expects to place the brand in home improvement stores like Home Depot and Lowes. Overall, EJ’s revenue was said to be “moderately higher” than Rocky’s.

Rocky will be bringing all of EJ’s senior management team on-board except for CEO Jerry Cohen. There will be no inventory write-offs, and EJ’s headquarters will remain in Franklin, Tennessee because of previous lease agreements.
Mr. Brooks said there will be little or no cost savings in 2005, but the company should see the benefits from synergies in 2006 and beyond.

“When we look back on this, I am confident this deal will represent a watershed moment in Rocky’s history,” Brooks said in his closing statement. Most analysts seemed to agree as Rocky’s stock was up 32.1% for the week to close at $27.35 on Friday.

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