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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-10 · 373 added, 699 removed, 536 unchanged (67% of the section changed)

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Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm  (PCAOB ID:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Shareholders’

Equity for the Years Ended December 31, 2022, 2021, and 2020

Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2023, 2022, and 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

ACCOUNTING STANDARDS UPDATES

BUSINESS ACQUISITION 36

ASSET SALE 37

SALE OF SERVUS BRAND AND RELATED ASSETS 38

SALE OF NEOS BRAND AND RELATED ASSETS 38

INVENTORIES 38

PROPERTY, PLANT, AND EQUIPMENT

IDENTIFIED INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

LONG-TERM DEBT

SHAREHOLDERS' EQUITY 

SHARE-BASED COMPENSATION

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We have audited the accompanying consolidated balance sheets of Rocky Brands, Inc.

and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, shareholders’

equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes and the financial statement schedule listed in the index at Item 15(a)(2), (collectively referred to as the “financial statements”). 

and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and the financial statement schedule listed in the index at Item 15(a)(2), (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2022, based on 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 10, 2023 expressed an unqualified opinion.

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, 2023, based on 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 15, 2024 expressed an unqualified opinion.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Description of the Matter

At December 31, 2022, the Company’s indefinite-lived intangible assets were approximately $178.3 million, which included $128.1 million of trade names and trademarks and $50.2 million of goodwill.

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.

At December 31, 2023, the Company’s indefinite-lived intangible assets were approximately $126.5 million, which included $78.7 million of trade names and trademarks and $47.8 million of goodwill.

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 occurre d.

This test was performed in the fourth quarter of 2023 .

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

In particular, the fair value estimates were sensitive to significant judgment assumptions including future cash flows, long-term growth rates of the business, financial projections, 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 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 evaluated the reasonableness of 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 and performed a sensitivity analysis on certain key assumptions.

We evaluated the reasonableness of the Company’s financial projections used in the analysis.

We evaluated the incorporation of the applicable assumptions into the model and tested the model’s computational accuracy and performed a sensitivity analysis on certain key assumptions.

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

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Cash and cash equivalents

$ 5,719  

$ 5,909  

Trade receivables –

94,953  

126,807  

$ 4,470 $ 5,719

Trade receivables – net

77,028 94,953

Contract receivables

Other receivables

Inventories –

235,400  

232,464  

Inventories – net

169,201 235,400

Income tax receivable

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Total current assets

341,047  

375,285  

258,173 341,047

LEASED ASSETS

11,014  

11,428  

PROPERTY, PLANT & EQUIPMENT –

57,359  

59,989  

50,246  

50,641  

IDENTIFIED INTANGIBLES –

121,782  

126,315  

$ 582,390  

$ 624,575  

PROPERTY, PLANT & EQUIPMENT – net

51,976 57,359

47,844 50,246

IDENTIFIED INTANGIBLES – net

112,618 121,782

$ 479,385 $ 582,390

LIABILITIES AND SHAREHOLDERS' EQUITY:

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Accounts payable

$ 69,686  

$ 114,632  

$ 49,840 $ 69,686

Contract liabilities

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Salaries and wages

Taxes –

Taxes – other

Accrued freight

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Total current liabilities

96,294  

140,136  

71,529 96,294

LONG-TERM DEBT

253,646  

266,794  

170,480 253,646

LONG-TERM TAXES PAYABLE

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DEFERRED INCOME TAXES

10,293  

DEFERRED LIABILITIES

TOTAL LIABILITIES

366,917  

426,720  

255,830 366,917

SHAREHOLDERS' EQUITY:

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December 31, 2022 - 7,339,011

69,752  

68,061  

71,973 69,752

Retained earnings

145,721  

129,794  

151,582 145,721

Total shareholders' equity

215,473  

197,855  

223,555 215,473

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 582,390  

$ 624,575  

$ 479,385 $ 582,390

See notes to Consolidated Financial Statements

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(In thousands, except per share amounts)

$ 615,475  

$ 514,227  

$ 277,309  

COST OF GOODS SOLD

390,256  

319,691  

172,574  

225,219  

194,536  

104,735  

OPERATING EXPENSES

181,181  

158,564  

77,565  

INCOME FROM OPERATIONS

44,038  

35,972  

27,170  

INTEREST AND OTHER EXPENSES

( 18,270 )  

( 10,603 )  

INTEREST EXPENSE AND OTHER – net

INCOME BEFORE INCOME TAX EXPENSE

25,768  

25,369  

26,965  

INCOME TAX EXPENSE

$ 20,465  

$ 20,559  

$ 20,964  

INCOME PER SHARE

$ 2.80  

$ 2.82  

$ 2.87  

$ 2.78  

$ 2.77  

$ 2.86  

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

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and Subsidiaries

Consolidated Statement of Shareholders’

Consolidated Statement of Shareholders’ Equity

(In thousands, except per share amounts)

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BALANCE - December 31, 2020

$ 67,993  

$ 96,663  

$ 164,656  

$ 20,964  

7,248 $ 65,971 - $ 113,534 $ 179,505

$ 20,559 $ 20,559

Dividends paid on common stock ($ 0.59 per share) (1)

( 4,093 )  

( 4,299 ) ( 4,299 )

Repurchase of common stock

( 129 )  

$ ( 2,938 )  

Stock issued for options exercised, including tax benefits

47 $ 825 - 825

Stock compensation expense

7 1,265 - 1,265

BALANCE - December 31, 2021

$ 65,971  

$ 113,534  

$ 179,505  

$ 20,559  

7,302 $ 68,061 - $ 129,794 $ 197,855

$ 20,465 $ 20,465

Dividends paid on common stock ($ 0.62 per share)

( 4,299 )  

( 4,538 ) ( 4,538 )

Repurchase of common stock

Stock issued for options exercised, including tax benefits

26 $ 461 - 461

Stock compensation expense

11 1,230 - 1,230

BALANCE - December 31, 2022

$ 68,061  

$ 129,794  

$ 197,855  

$ 20,465  

7,339 $ 69,752 - $ 145,721 $ 215,473

$ 10,426 $ 10,426

Dividends paid on common stock ($ 0.62 per share)

( 4,538 )  

( 4,565 ) ( 4,565 )

Repurchase of common stock

Stock issued for options exercised, including tax benefits

39 $ 977 - 977

Stock compensation expense

34 1,244 - 1,244

BALANCE - December 31, 2023

$ 69,752  

$ 145,721  

$ 215,473  

Quarterly dividend was increased from $0.14 per share to $0.155 per share in the third quarter of 2021.

7,412 $ 71,973 $ - $ 151,582 $ 223,555

(1) Quarterly dividend was increased from $0.14 per share to $0.155 per share in the third quarter of 2021.

See notes to Consolidated Financial Statements

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CASH FLOWS FROM OPERATING ACTIVITIES:

$ 20,465  

$ 20,559  

$ 20,964  

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

12,320  

11,342  

Amortization of debt issuance costs

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Deferred income taxes

( 2,209 )  

(Gain) Loss on disposal of assets

( 789 )  

Loss (gain) on disposal of assets

Gain on sale of business

Stock compensation expense

Change in assets and liabilities:

28,222  

( 42,245 )  

Contract receivables

( 4,986 )  

( 114,226 )  

Other current assets

( 9,791 )  

( 152 )  

Accounts payable

( 45,921 )  

78,626  

Accrued and other liabilities

( 5,313 )  

Contract liabilities

( 1,062 )  

( 4,520 )  

Net cash provided by (used in) operating activities

19,123  

( 54,875 )  

31,441  

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of fixed assets

( 6,702 )  

( 21,055 )  

Acquisition of business, net of cash acquired

( 212,408 )  

Proceeds from sales of fixed assets

Proceeds from the sale of assets

Net cash used in investing activities

( 1,234 )  

( 233,463 )  

Acquisition of business, net of cash acquired

Proceeds from sale of business

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from revolving credit facility

37,492  

180,072  

20,000  

Repayments on revolving credit facility

( 40,263 )  

( 34,000 )  

Proceeds from term loan

130,000  

Repayments on term loan

( 11,231 )  

( 2,438 )  

Debt issuance costs

( 4,266 )  

Proceeds from stock options

Repurchase of common stock

Dividends paid on common stock

( 4,538 )  

( 4,299 )  

Net cash (used in) provided by financing activities

( 18,079 )  

265,894  

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

( 190 )  

( 22,444 )  

12,835  

DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS:

BEGINNING OF PERIOD

28,353  

15,518  

END OF PERIOD

$ 5,719  

$ 5,909  

$ 28,353  

See notes to Consolidated Financial Statements

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Notes to the Consolidated Financial Statements

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The accompanying Consolidated Financial Statements include the accounts of Rocky Brands, Inc.

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("Lifestyle"), Five Star Enterprises Ltd.

("Five Star"), Rocky Brands Canada, Inc.

("Rocky Brands Canada"), Rocky Brands US, LLC, Rocky Brands International, LLC, Lehigh Outfitters, LLC, US Footwear Holdings, LLC, Rocky Brands (Australia) Pty Ltd., Mexico FW Holdings, S.

("Five Sta r"), Rocky Brands Canada, Inc.

("Rocky Brands Canada"), Rocky Brands US, LLC, Rocky Brands International, LLC, Lehigh Outfitters, LLC, US Footwear Holdings, LLC, Rocky Brands (Australia) Pty Ltd., Mexico FW Holdings, S.

de C.V., Rocky Footwear (Chuzhou) Co.

Ltd., UK Footwear Holdings Limited and Rocky Outdoor Gear Store, LLC (collectively referred to as the "Company").

Ltd., UK Footwear Holdings Limited and Rocky Outdoor Gear Store, LLC (collectively referred to as the "Company").

All inter-company transactions have been eliminated.

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, Muck, XTRATUF, Servus, Ranger and the licensed brand Michelin.

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, Muck, Georgia Boot, Durango, XTRATUF, Lehigh, Ranger 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 six target markets:

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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.

We report our segment information in accordance with prov isions of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280,  

Segment Reporting .

We evaluate business performance based upon several metrics, using segment profit as the primary financial measure.

Each of our reporting segments continue to employ consistent accounting policies.

As a result of this assessment, we now report our activities in the following three reporting segments:

Our products are distributed through three distinct business segments:

Wholesale, Retail and Contract Manufacturing.

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Military, private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer.

Note 18  for further information.

See Note 19 for further information.

Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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We also hold cash outside of the U.S.

that is not federally insured. 

Trade Receivables - Trade receivables are presented net of the related allowance for uncollectible accounts of approximately $ 3.5  million and $ 0.6  million at December 31, 2022 and 2021 , respectively.

We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy.

that is not federally insured.

Allowance for Credit Losses - We maintain an allowance for credit losses on accounts receivable that represents estimated losses resulting from customers’ failure to make required payments.

We evaluate the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions.

Trade Receivables - Trade receivables are presented net of the related allowance for credit losses of approximately $ 1.8 million and $ 3.5 million at December 31, 2023 and 2022 , respectively.

We record the allowance based on historical experience, the age of the receivables, and identification of customer accounts that are likely to prove difficult to collect due to various criteria including pending bankruptcy.

However, estimates of the allowance in any future period are inherently uncertain and actual allowances may differ from these estimates.

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Our credit policy generally provides that trade receivables will be deemed uncollectible and written-off once we have pursued all reasonable efforts to collect on the account.

In accordance with ASC 606, the return reserve liability netted against trade receivables was $ 2.1  million and $ 1.7 million at December 31, 2022 and 2021 , respectively.

In accordance with ASC 606, the return reserve liability netted against trade receivables was $ 1.5 million and $ 2.1 million at December 31, 2023 and 2022 , respectively.

Concentration of Credit Risk - We have significant transactions with a large number of customers.

No customer represented 10% of net trade receivables as of December 31, 2022 and 2021 .

No customer represented 10% of net trade receivables as of December 31, 2023 and 2022 .

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

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

We produce a portion of our shoes and boots in our Dominican Republic, Puerto Rico, Illinois and China operations.

We produce a portion of our shoes and boots in our Dominican Republic, Puerto Rico and China operations.

We are not aware of any governmental or economic restrictions that would alter these current operations.

We source a significant portion of our footwear, apparel and gloves from manufacturers in Asia, and primarily in China and Vietnam.

We source a significant portion of our footwear, apparel and gloves from manufacturers in Asia, primarily in China and Vietnam.

We are not aware of any governmental or economic restrictions that would alter our current sourcing operations.

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Buildings and improvements

5 - 40  

Machinery and equipment

1 unchanged sentence

Lasts, dies, and patterns

For income tax purposes, we generally compute depreciation utilizing accelerated methods.

Goodwill - 

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill arose from the Acquisition and largely consists of the workforce acquired, expected cost synergies and economies of scale resulting from the business combination.

The amount of our goodwill that is deductible for tax purposes is $ 49.4 million.

GAAP has established guidance for reporting information about a company's operating segments, including disclosures related to a company's products and services, geographic areas and major customers.

We monitor and review our segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our reportable segments, as well as our reporting units.

As previously stated, our operations represent three reporting segments, Wholesale, Retail and Contract Manufacturing.

Goodwill impairment analysis will be performed for our Wholesale and Retail reporting segments.

There is no goodwill allocated to our Contract Manufacturing segment.

As of December 31, 2022, goodwill allocated to our Wholesale and Retail reporting segments was $ 25.4  million and $ 24.8  million, respectively.

Goodwill is subject to impairment tests at least annually.

We review the carrying amounts of goodwill by reporting unit at least annually, or when indicators of impairment are present, to determine if goodwill may be impaired.

We include assumptions about the expected future operating performance as part of a discounted cash flow analysis to estimate fair value.

If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value.

Goodwill is considered impaired if the recorded value exceeds the fair value.

We may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value.

We would not be required to quantitatively determine the fair value of goodwill unless we determine, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value.

Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projection and operating plans.

We perform our annual testing for goodwill at the beginning of the fourth quarter of each fiscal year, starting with our fiscal year ended December 31, 2021.

Identified intangible assets - Identified intangible assets consist of indefinite lived trademarks and definite lived trademarks, patents and customer relationships.

Indefinite lived intangible assets are not amortized.

If events or circumstances change, a determination is made by management, in accordance with the accounting standard for "Property, Plant and Equipment" to ascertain whether property, equipment and certain finite-lived intangibles have been impaired based on the sum of expected future undiscounted cash flows from operating activities.

If the estimated net cash flows are less than the carrying amount of such assets, we will recognize an impairment loss in an amount necessary to write down the assets to fair value as determined from expected future discounted cash flows.

In accordance with the accounting standard for "Intangibles –

Goodwill and Other", we test intangible assets with indefinite lives for impairment annually or when conditions indicate impairment may have occurred.

We perform such testing of our indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

See Note 7  for more information.

Leases - Our leases primarily consist of  office buildings, distribution centers, manufacturing facilities, and equipment.

For income tax purposes, we generally compute depreciation utilizing accelerated methods.

Goodwill and Other Intangible Assets - Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses.

Indefinite-lived intangibles include trademarks and trade names.

Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairments tests at least annually.

The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired.

The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible assets are less than their carrying value.

The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value.

The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment in the fourth quarter of the fiscal year for all reporting units.

Goodwill is quantitatively evaluated for possible impairment by comparing the estimated fair value of the reporting unit with its carrying value, including the goodwill assigned to that reporting unit.

An impairment charge is recorded if the carrying value of the reporting unit exceeds its estimated fair value.

An indefinite-lived intangible asset is quantitatively evaluated for possible impairment by comparing the estimated fair value of the asset with its carrying value.

An impairment charge is recorded if the carrying value of the asset exceeds its estimated fair value.

Other intangible assets determined to have a finite life primarily consist of customer relationships and patents, which are amortized over their estimated useful lives using straight-line amortization.

We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

Determining whether an impairment loss occurred requires a comparison of the carrying amount to the sum of the future forecasted undiscounted cash flows expected to be generated by the asset group.

For additional details on goodwill and intangible assets, including information related to our annual test, see Note 8 .

Leases - Our leases primarily consist of office buildings, distribution centers, manufacturing facilities and equipment.

We lease assets in the normal course of business to meet our current and future needs while providing flexibility to our operations.

We enter into contracts with

third parties to lease specifically identified assets.

Most of our leases have contractually specified renewal periods. Our operating leases expire at various dates through

2027, and contain various provisions for rental adjustments renewal provisions for varying periods.

We determine the lease term for each lease based on the terms of each contract and factor in renewal and early termination options if such options are reasonably certain to be exercised.

We enter into contracts with third parties to lease specifically identified assets.

Most of our leases have contractually specified renewal periods.

Our operating leases expire at various dates through 2027, and contain various provisions for rental adjustments and renewal provisions for varying periods.

We determine the lease term for each lease based on the terms of each contract and factor in renewal and early termination options if such options are reasonably certain to be exercised.

Under FASB ASC Topic

842,  Leases, we have elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all leases.

In addition, we have elected to account for multiple lease components as a single lease component. Our leases

842, Leases, we have elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all leases.

In addition, we have elected to account for multiple lease components as a single lease component.

may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease.

We recognize variable lease payments when the amounts are incurred and determinable.

We have elected to account for leases of

twelve  months or less as short-term leases and accordingly do 

We recognize variable lease payments when the amounts are incurred and determinable.

We have elected to account for leases of

twelve months or less as short-term leases and accordingly do

not recognize a right-of-use asset or lease liability for these leases.

We recognize lease expense for these leases on a straight-line basis over the lease term.

We recognize lease expense for these leases on a straight-line basis over the lease term.

Comprehensive Income - Comprehensive income includes changes in equity that result from transactions and economic events from non-core operations.

Comprehensive income is composed of two subsets –

net income and other comprehensive income.

Comprehensive income is composed of two subsets – net income and other comprehensive income.

There were no material other comprehensive income items therefore no Statements of Comprehensive Income were presented.

Advertising - We expense advertising costs as incurred.

Advertising expense was approximately $ 15.4  million, 

$ 17.9  million and $ 8.4  million for 2022 , 

2021  and 

2020 , respectively.

The decrease from 2021 to 2022 is due to a decrease in discretionary spending.

The increase from 2020 to 2021 in advertising expense was attributed to the Acquired Brands.

Revenue Recognition - Revenue is recognized when a performance obligation is completed at a point in time and when the customer has obtained control.

Control passes to the customer when they have the ability to direct the use of and obtain substantially all the remaining benefits from the goods transferred.

We recognize wholesale and e-commerce revenue at the time the products are shipped and retail store revenue transactions at the point of sale.

The amount of revenue recognized is based on the transaction price, which represents the invoiced amount less estimated sales discounts and returns based upon specific customer agreements and historical trends.

The Company presents revenue gross of fees and sales commissions.

Sales commissions are expensed as incurred and are recorded in operating expenses in the accompanying consolidated statements of operations.

The Company's customer contracts do not have a significant financing component due to their short durations, which are typically effective for one year or less and have payment terms that generally range from net 30 to net 120 days.

Cost of Goods Sold - Cost of goods sold represents our costs to manufacture products in our own facilities, including raw materials costs and all overhead expenses related to production, as well as the cost to purchase finished products from our third -party manufacturers.

Cost of goods sold also includes the cost to transport these products to our distribution centers.

- We expense advertising costs as incurred.

Advertising expense was approximately $ 16.6

million, $ 15.4

million and $ 17.9 million for

and 2021 , 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 

$ 38.5  million, 

$ 25.1  million and $ 10.5  million in 2022 , 

2021  and 

2020 , respectively.

The increase in shipping costs from 2021 to 2022  is due to increased freight rates, increased sales and product mix. The increase in shipping costs from 2020 to 2021 was due to the Acquired Brands.

Stock Compensation Expense - 

We recognize compensation expense for awards of stock options, restricted stock units ("RSUs"), and director stock units based on the fair value on the grant date and on a straight-line basis over the requisite service period for the awards that are expected to vest, with forfeitures estimated based on our historical experience and future expectations.

All outbound shipping costs to customers have been included in operating expenses and totaled approximately $ 25.1 million, $ 38.5 million and $ 25.1 million in 2023 , 2022 and 2021 , respectively.

Stock Compensation Expense - We recognize compensation expense for awards of stock options, restricted stock units ("RSUs"), and director stock units based on the fair value on the grant date and on a straight-line basis over the requisite service period for the awards that are expected to vest, with forfeitures estimated based on our historical experience and future expectations.

Stock-based compensation is included in operating expenses in the consolidated statements of operations.

Fair Value Measurements –

The fair value accounting standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

Fair Value Measurements - The fair value accounting standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

This standard clarifies how to measure fair value as permitted under other accounting pronouncements.

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The three levels of inputs used to measure fair value are as follows:

Level 1 –

Quoted prices in active markets for identical assets or liabilities.

Level 2 –

Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 –

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The fair values of cash and cash equivalents, receivables, and payables approximated their carrying values because of the short-term nature of these instruments.

Receivables consist primarily of amounts due from our customers, net of allowances, amounts due from employees (salespersons’

advances in excess of commissions earned and employee travel advances);

Receivables consist primarily of amounts due from our customers, net of allowances;

amounts due from employees (salespersons’ advances in excess of commissions earned and employee travel advances);

other customer receivables, net of allowances;

and expected insurance recoveries.

The carrying amounts of our long-term credit facilities and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year.

The carrying amounts of our long-term credit facilities and other short-term financing obligations also approximate fair value, as they are comparable to the available financing in the marketplace during the year.

The fair value of our revolving line of credit is categorized as Level 2.

Deferred Compensation Plan Assets and Liabilities

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

Deferred Compensation Plan Assets and Liabilities - On December 14, 2018, our Board of Directors adopted the Rocky Brands, Inc.

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

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

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

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

The fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1 ).

Effective August 18, 2020, our Board of Directors adopted a second deferred compensation plan (the "Dominican Plan").

The Dominican Plan is an unfunded nonqualified deferred compensation plan for key employees at our Dominican Republic manufacturing facility.

Effective August 18, 2020, our Board of Directors adopted a second deferred compensation plan (the "Dominican Plan").

The Dominican Plan is an unfunded nonqualified deferred compensation plan for key employees at our Dominican Republic manufacturing facility.

The funds are held in a separate trust, which has been established for the administration of the Dominican Plan.

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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 Periods

Effect on the financial statements or other significant matters

ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures

This pronouncement is intended to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analysis.

Q4 2024 (fiscal year) Q1 2025 (interim period)

We are currently evaluating the impact adopting this standard will have on our Consolidated Financial Statements.

ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures

The amendments in this update improve the transparency, effectiveness, and comparability of income tax disclosures by requiring ( 1 ) consistent categories and greater disaggregation by jurisdiction.

The amendments allow investors to better assess, in their capital allocation decisions, how an entity's worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows.

We are currently evaluating the impact adopting this standard will have on our Consolidated Financial Statements.

In addition to the recently issued accounting pronouncements, the SEC recently issued its final rule regarded climate change disclosures.

We are evaluating the impact this final rule will have on our Consolidated Financial Statements.

Accounting Standards Adopted in Current Year

Effect on the financial statements or other significant matters

ASU 2016 - 13, Measurement of Credit Losses on Financial Instruments

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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.

We do not anticipate that adopting this standard will have a material impact on our consolidated financial statements.

Accounting Standards Adopted in 2021

Effect on the financial statements or other significant matters

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

Simplifying the Accounting for Income Taxes  

This pronouncement is intended to simplify various aspects related to accounting for income taxes.

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

We adopted the new standard in Q1 2021 and the standard did not have a significant impact on our Consolidated Financial Statements.

We adopted this standard in Q1 2023 and it did not have a material impact on our financial statements.

BUSINESS ACQUISITION

The Performance and Lifestyle Footwear Business of Honeywell International Inc.

The Performance and Lifestyle Footwear Business of Honeywell International Inc.

On January 24, 2021, we entered into a Purchase Agreement (the "Purchase Agreement") with certain subsidiaries of Honeywell International Inc.

(collectively, "Honeywell"), to purchase Honeywell's performance and lifestyle footwear business, including brand names, trademarks, assets and liabilities associated with Honeywell's performance and lifestyle footwear business (the "Acquisition") for an aggregate, adjusted purchase price of $ 212  million.

On March 15, 2021 ( the "Acquisition Date"), pursuant to the terms and conditions set forth in the Purchase Agreement, we completed the Acquisition for an aggregate preliminary closing price of approximately $ 207 million, net of cash acquired, based on preliminary working capital and other adjustments. Upon a final agreement of net working capital as of the Acquisition Date, we owed Honeywell an additional $ 5.4 million.

On March 15, 2021 ( the "Acquisition Date"), pursuant to the terms and conditions set forth in the Purchase Agreement, we completed the Acquisition for an aggregate preliminary closing price of approximately $ 207 million, net of cash acquired, based on preliminary working capital and other adjustments.

Upon a final agreement of net working capital as of the Acquisition Date, we owed Honeywell an additional $ 5.4 million.

The Acquisition was funded through cash on hand and borrowings under two new credit facilities.

Note 9  for information regarding the two credit facilities.

The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, Ranger, and NEOS brands (the "Acquired Brands").

See Note 10 for information regarding the two credit facilities.

The Acquisition expanded our brand portfolio to include Muck, XTRATUF, Servus, Ranger and NEOS brands (the "Acquired Brands").

We acquired 100 % of the voting interests of certain subsidiaries and additional assets comprising the performance and lifestyle footwear business of Honeywell with the Acquisition.

On March 30, 2023, we completed the sale of the Servus brand and the related assets.

See Note 4 for additional information.

On September 30, 2022, we completed the sale of the NEOS brand and the related assets.

See Note 4  for additional information. 

See Note 5 for additional information.

Through the Acquisition, we have greatly enhanced our powerful portfolio of footwear brands and significantly increased our sales and profitability.

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In connection with the Acquisition, we also entered into employment agreements with seven key employees from the performance and lifestyle footwear business of Honeywell, 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 us.

We acquired multiple leases through the Acquisition including the lease of our Rock Island and China manufacturing facilities and an office building lease in Westwood, Massachusetts.

We closed the office in Westwood, Massachusetts on December 

The Acquisition contributed net sales of $ 242.8  million to our consolidated operating results for the year ended December 31, 2022.

The Acquisition contributed net income of $ 9.3  million to our consolidated operating results for the year ended December 31, 2022.

We acquired multiple leases through the Acquisition including the lease of our Rock Island and China manufacturing facilities and an office building lease in Westwood, Massachusetts.

We closed the Rock Island manufacturing Facility in September 2023 and we closed the office in Westwood, Massachusetts in December 2022.

The Acquisition contributed net sales of $ 161.9 million, $ 242.8 million, and $ 179.0 million to our consolidated operating results for the years ended December 31, 2023, 2022 and 2021, respectively.

The Acquisition contributed net income of $ 16.4 million, $ 9.3 million, and $ 16.5 million to our consolidated operating results for the years ended December 31, 2023, 2022 and 2021, respectively.

Acquisition-related costs

Costs incurred to complete and integrate the Acquisition are expensed as incurred and included in "operating expenses" in the accompanying consolidated statements of operations.

During the years e nded December 31, 2022, 

2021, and 2020 there were approximately $ 3.5  million, $ 11.9  million and $ 0.7 million, respectively, of acquisition-related costs recognized.

These costs represent investment banking fees, legal and professional fees, transaction fees, integration costs, amortization and consulting fees associated with the Acquisition.

Costs incurred to complete and integrate the Acquisition are expensed as incurred and included in "operating expenses" in the accompanying consolidated statements of operations.

During the years ended December 31, 2023, 2022, and 2021 there were approximately $ 2.8 million, $ 3.5 million and $ 11.9 million, respectively, of Acquisition-related costs recognized.

These costs represent investment banking fees, legal and professional fees, transaction fees, integration costs, amortization and consulting fees associated with the Acquisition.

Purchase Price Allocation

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Additionally, estimated fair values are based, in part, upon outside valuation for certain assets, including specifically identified intangible assets.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill is not finalized and is subject to adjustment until the final valuation related to assets acquired and liabilities assumed is obtained (up to one year from the Acquisition Date).

The following table summarizes the consideration paid and estimated fair value of the assets acquired and liabilities assumed as of the Acquisition Date.

The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill was as follows:

($ in thousands)

$ 2,655  

Accounts receivable (1)

36,734  

Inventories (2)

41,057  

Property, plant and equipment

16,243  

50,246  

Intangible assets

98,620  

Accounts payable

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Total identifiable net assets

215,063  

Cash acquired

Total cash paid, net of cash acquired

$ 212,408  

( 1 )  The recorded amount for accounts receivable considers expected uncollectible amounts of approximately $ 0.6  million in its determination of fair value.

( 2 )  Fair value of finished goods inventories included step up value of approximately $ 3.5 million, all of which was expensed during the 

twelve months ended December 31, 2021, and is included in "Cost of Goods Sold" in the accompanying consolidated statement of operations.

( 3 )  Goodwill largely consists of the acquired workforce, expected costs synergies and economies of scale resulting from the Acquisition.

Unaudited Pro Forma Financial Information 

( 1 ) The recorded amount for accounts receivable considers expected uncollectible amounts of approximately $ 0.6 million in its determination of fair value.

( 2 ) Fair value of finished goods inventories included step up value of approximately $ 3.5 million, all of which was expensed during the twelve months ended December 31, 2021, and is included in "Cost of Goods Sold" in the accompanying consolidated statement of operations.

( 3 ) Goodwill largely consists of the acquired workforce, expected costs synergies and economies of scale resulting from the Acquisition.

Unaudited Pro Forma Financial Information

The following unaudited pro forma results of operations assume that the Acquisition occurred at the beginning of the periods presented.

These unaudited pro forma results are presented for information purposes only and are not necessarily indicative of what the results of operations would have been if the Acquisition had occurred at the beginning of the periods presented, nor are they indicative of the future results of operations.

The pro forma results presented below are adjusted for the removal of the step up value of finished goods inventory associated with the Acquisition of approximately $ 3.5 million for the year ended December 31, 2021. 

The pro forma results presented below are also adjusted for the removal of acquisition-related costs of approxi mately $ 3.5 million, $ 11.9  million  and $ 0.7 million for the 

twelve months ended December 31, 2022, 

2021, and 2020, respectively. 

The pro forma results presented below are adjusted for the removal of the step up value of finished goods inventory associated with the Acquisition of approximately $ 3.5 million for the year ended December 31, 2021.

The pro forma results presented below are also adjusted for the removal of Acquisition-related costs of approximately $ 2.8 million, $ 3.5 million and $ 11.9 million for the twelve months ended December 31, 2023, 2022 and 2021, respectively.

Year Ended December 31,

($ in thousands, except per share amount)

$ 615,475  

$ 552,905  

$ 482,562  

$ 23,250  

$ 40,248  

$ 41,726  

Diluted earnings per share

$ 3.16  

$ 5.43  

$ 5.69  

SALE OF SERVUS BRAND AND RELATED ASSETS

On March 30, 2023, we completed the sale of the Servus brand and related assets to PQ Footwear, LLC and Petroquim S.R.L.

(collectively "the Buyer").

Total consideration for this transaction was approximately $ 19.0 million, of which $ 17.3 million was received at closing.

The remaining $ 1.7 million will be paid out in accordance with the purchase agreement.

The sale of the Servus brand included the sale of inventory, fixed assets, customer relationships, tradenames and goodwill, all of which related to our Wholesale segment.

In connection with the sale of the Servus brand we also are licensing the rights to certain proprietary processes to the Buyer.

We recorded a gain on the sale of Servus of approximately $ 1.3 million which is recorded within Interest Expense and Other - net on the accompanying consolidated statement of operations for the twelve months ended December 31, 2023.

SALE OF NEOS BRAND AND RELATED ASSETS

On September 30, 2022, we completed the sale of the NEOS brand and related assets to certain entities controlled by SureWerx pursuant to terms of an asset purchase agreement dated September 30, 2022.

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The remaining $ 0.3 million was deposited in escrow and shall be managed and paid out in accordance with the terms of the asset purchase agreement and the escrow agreement.

The sale of the NEOS brand included the sale of inventory, fixed assets, customer relationships, tradenames, all of which related to our Wholesale segment.

This transaction resulted in the sale of inventory of approximately $ 3.6 million recorded in net sales and approximately $ 2.4 million recorded in costs of goods sold in the accompanying condensed consolidated Statement of Operations for the twelve months ended December 31, 2022.

Fixed assets, customer relationships and tradenames sold in connection with the sale of the NEOS brand resulted in reduction of operating expenses of approximately $ 0.7 million recorded in the accompanying unaudited condensed consolidated statement of operations for the twelve months ended December 31, 2022.

The sale of the NEOS brand included the sale of inventory, fixed assets, customer relationships, and tradenames, all of which related to our Wholesale segment.

This transaction resulted in the sale of inventory of approximately $ 3.6 million recorded in net sales and approximately $ 2.4 million recorded in costs of goods sold in the accompanying consolidated statement of operations for the twelve months ended December 31,

Fixed assets, customer relationships and tradenames sold in connection with the sale of the NEOS brand resulted in reduction of operating expenses of approximately $ 0.7 million recorded in the accompanying consolidated statement of operations for the twelve months ended December 31,

Inventories are comprised of the following:

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Raw materials

$ 16,541  

$ 20,933  

Work-in-process

Finished goods

217,926  

210,215  

$ 235,400  

$ 232,464  

In accordance with ASC 606, the returns reserve asset included within inventories was approximately $ 1.1  million and $ 0.9  million at December 31, 2022  and 

December 31, 2021 , respectively.

In accordance with ASC 606, the returns reserve included within inve ntories was approximatel y $ 0.8 million and $ 1.1 million at December 31, 2023 and December 31, 2022 , respectively.

PROPERTY, PLANT, AND EQUIPMENT

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($ in thousands)

37,601  

36,456  

Machinery and equipment

60,942  

57,304  

Furniture and fixtures

Lasts, dies and patterns

13,973  

12,360  

Construction work-in-progress

11,798  

14,452  

127,308  

124,092  

Less - accumulated depreciation

( 69,949 )  

Net Property, Plant and Equipment

$ 57,359  

$ 59,989  

We incurred approximately $ 9.2 million, $ 8.8 million, and $ 5.2 million in depreciation expense for 2022 , 2021, and 2020, respectively.

IDENTIFIED INTANGIBLE ASSETS

Net Fixed Assets

We incurred approximately $ 8.1 million, $ 9.2 million, and $ 8.8 million in depreciation expense for 2023 , 2022 and 2021 , respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and indefinite-lived intangibles are tested for impairment at least annually by comparing the estimated fair values of our reporting units and indefinite-lived intangible assets to their respective carrying values.

For goodwill, we estimated the fair value of each reporting unit by weighing the results of the income and market approaches.

These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business.

When performing the income approach, we utilize the present value of cash flows to estimate fair value.

The future cash flows for our reporting units were projected based on our estimates, at that time, of future revenues, operating income, and other factors (such as working capital and capital expenditures).

The discount rates used were based on a weighted-average cost of capital determined from relevant market comparisons and take into consideration the risk and nature of the respective reporting unit's cash flows.

For the market approach, we use the guideline public company method which relies upon valuation multiples derived from stock prices and enterprise values of publicly traded companies that are comparable to the reporting unit being evaluated.

To further confirm fair value, we compare the aggregate fair value of our reporting units to our total market capitalization.

The fair value of our trade names was determined based on the income approach using the Relief from Royalty Method.

This method requires us to estimate the future revenues for the related brands, the appropriate royalty rate, and the weighted-average cost of capital.

We consider the assumptions used in our determination of the estimated fair value of our reporting units and indefinite-lived intangible assets to be reasonable and comparable to those that would be used by other marketplace participants;

however, actual events and results could differ substantially from the estimates used in our valuations.

These assumptions include, among other things, estimating future cash flows, including projected revenue and operating results, as well as selecting appropriate discount rates, pricing multiples, and an assumed royalty rate.

If an event occurs that would cause us to revise our estimates and assumptions used in analyzing the fair value of our goodwill and other intangible assets, the revision could result in a non-cash impairment charge that could have a material impact on our financial results.

Estimates utilized in the projected cash flows include consideration of macroeconomic conditions, expected growth rates, cost containment and margin expansion, business plans, market position, and the discount rate applied to the cash flows.

Unanticipated market or macroeconomic events and circumstances such as supply chain disruptions and the loss of key customers could negatively affect key assumptions used for the recent fair value test and potentially result in goodwill impairment.

After completing our annual impairment test for each reporting unit and our indefinite-lived intangible assets during the fourth quarter of 2023 and 2022, we concluded there was no impairment in either of these years.

We did not have any reporting units that were at risk of failing the first step of the goodwill impairment test.

The estimated fair values of the Wholesale and the Retail reporting unit exceeded their carrying amounts at the date of testing by more than 20 % for both 2023 and 2022.

The amount of our goodwill that is deductible for tax purposes is $ 47.0 million.

The changes in the carrying amount of goodwill are as follows:

($ in thousands)

Goodwill balance at beginning of the year

$ 50,246 $ 50,246

Sale of Business (1)

Goodwill balance at end of the year (2)

$ 47,844 $ 50,246

( 1 ) Relates to the divesture of the Servus brand during the year ended December 31, 2023, see Note 4 for additional information.

( 2 ) As of December 31, 2023, goodwill allocated to our Wholesale and Retail reporting segments was $ 23.0 million and $ 24.8 million, respectively.

As of December 31, 2022, goodwill allocated to our Wholesale and Retail reporting segments was $ 25.4 million and $ 24.8 million, respectively.

No goodwill was allocated to our Contract Manufacturing segment for either period presented.

A schedule of identified intangible assets is as follows:

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December 31, 2023

Wholesale (1)

$ 71,979  

Trademarks (1)

$ 78,654 - $ 78,654

Customer relationships (2)

46,006  

40,514  

41,659 7,745 33,914

Total Intangibles

$ 128,100  

$ 6,318  

$ 121,782  

$ 45.4 million of the total resulted from our Acquisition that occurred on

March 15, 2021.

$ 121,208 $ 8,590 $ 112,618

( 1 ) Servus trademarks were reduced from approximately $ 2.5 million to zero at March 30, 2023 as a result of the sale of the Servus brand (see Note 4 ).

( 2 ) Customer relationships relating to the Servus brand of approximately $ 4.3 million and related amortization of approximately $ 0.6 million were reduced to zero at March 30, 2023 as a result of the sale of the Servus brand (see Note 4 ).

($ in thousands)

December 31, 2022

Trademarks (1)

$ 81,199 - $ 81,199

Customer relationships (2)

46,006 5,492 40,514

Total Intangibles

$ 128,100 $ 6,318 $ 121,782

( 1 ) NEOS trademarks were reduced from approximately

$0.6 million to

December 31, 2022 as a result of the sale of the NEOS bran

$ 6.3 million of the total resulted from our Acquisition that occurred on

March 15, 2021.

( 3 )  Resulted from our Acquisition that occurred on

March 15, 2021.

2022 as a result of the sale of the NEOS bran

( 2 ) Customer relationships relating to the NEOS brand of approximately

$ 0.9 million and related amortization of approximately

$ 0.1 million was reduced to

December 31, 2022 as a result of the sale of the NEOS br

$ 0.1 million were reduced to

2022 as a result of the sale of the NEOS br

and (see Note

The weighted average remaining life for our patents is 6.0 years.

A schedule of approximate amortization expense related to finite-lived intangible assets for the twelve months ended December 31, 2023 , 2022 and 2021 is as follows:

Twelve Months Ended

($ in thousands)

Amount  

Amortization  

Amount  

December 31, 2021

Wholesale (1)

$ 72,579  

Customer relationships (3)

46,900  

44,425  

Total Intangibles

$ 129,594  

$ 3,279  

$ 126,315  

( 1 )  $ 45.4 million of the total resulted from our Acquisition that occurred on March 15, 2021.

( 2 )  $ 6.3 million of the total resulted from our Acquisition that occurred on March 15, 2021.

( 3 )  Resulted from our Acquisition that occurred on March 15, 2021. 

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:

Amortization expense

$ 2,878 $ 3,131 $ 2,514

A schedule of approximate expected remaining amortization expense related to finite-lived intangible assets for the years ending December 31 is as follows:

($ in thousands)

25,297  

Indefinite lived intangible assets, such as trademarks are reviewed for impairment testing annually, more frequently if necessary.

We perform such testing of indefinite-lived intangible assets in the fourth quarter of each year or as events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount.

Fair value of other indefinite-lived intangible assets is determined using the relief from royalty method.

Definite lived intangible assets, such as patents and customer relationships are only reviewed for impairment if a triggering event has occurred to indicate that its fair value of the asset is below its carrying value.

In assessing whether indefinite-lived intangible assets are impaired, we must make certain estimates and assumptions regarding future cash flows, long-term growth rates of our business, operating margins, weighted average cost of capital and other factors such as: discount rates, royalty rates, cost of capital, and market multiples to determine the fair value of our assets.

Future events could cause us to conclude that indications of intangible asset impairment exist.

Impairment may result from, among other things, deterioration in the performance of our business, adverse market conditions, adverse changes in applicable laws and regulations, competition, or the sale or disposition of a reporting segment.

Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

2022 and 2021 Impairment Testing

We evaluate our finite and indefinite lived intangible assets under the terms and provisions of the accounting standards for "Intangibles - Goodwill and Other" and "Property, Plant and Equipment." These pronouncements require that we compare the fair value of an intangible asset with its carrying amount.

The results of our 2022 and 2021  finite and indefinite-lived intangible impairment testing indicated that all reporting unit intangible asset fair values exceed their respective carrying values.

Other assets consist of the following:

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NQDC plan assets

LONG-TERM DEBT

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

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

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

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

After this date, interest was 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 4.00, the effective interest rate will be SOFR plus 7.50 % (or at our option, Prime Rate plus 6.50 %).

If our total leverage ratio is greater than or equal to 4.00, the effective interest rate will be SOFR plus 7.50 % (or at our option, Prime Rate plus 6.50 %).

If our total leverage ratio is less than 4.00, but greater than 3.00, the effective interest rate will be SOFR plus 7.00 % (or at our option, Prime Rate plus 6.00 %).

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The Term Facility also has a SOFR floor rate of 1.00 %.

In June 2022, we entered into a second amendment with TCW to further amend our Term Facility to consent to modifications in our borrowing capacity under the ABL Facility as described below, and to adjust certain pricing and prepayment terms, among other things.

In June 2022, we entered into a second amendment with TCW to amend our Term Facility to consent to modifications in our borrowing capacity under the ABL Facility as described below, and to adjust certain pricing and prepayment terms, among other things.

The second amendment also modified the interest index whereas SOFR will be used to calculate interest rather than LIBOR.

The effective interest rate was increased to SOFR plus 7.50 % through November 2022.

In November 2022, the Term Facility was amended to increase the effective interest rate to LIBOR plus 7.00 % until June 2023 and to 

provide certain EBITDA adjustments with response to financial covenants, among other things. 

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.

In November 2022, the Term Facility was amended to increase the effective interest rate to LIBOR plus 7.00 % until June 2023 and to provide certain EBITDA adjustments with response to financial covenants, among other things.

In May 2023, we entered into a fourth amendment with TCW to further amend our Term Facility to provide certain EBITDA adjustments in respect of the financial covenants, adjust the method to calculate total debt, continue certain pricing terms, extend certain prepayment terms, and pay such lenders certain amendment fees, among other things.

In October 2023, we entered into a sixth amendment with TCW to further amend our Term Facility to provide certain EBITDA adjustments with respect to the financial covenants, adjust the performance pricing grid, and adjust the total leverage ratio periodically through June 30, 2025, among other things.

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 also entered into a senior secured asset-based credit facility ("ABL Facility") with Bank of America, N.A.

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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 up to an additional $ 50 million at the Borrowers’

request and the Lenders’

option, subject to customary conditions.

In December of 

2021, we amended our ABL Facility to temporarily increase our borrowing capacity from $ 150 million to $ 175 million until June 2022, at which time our borrowing capacity will go down to $ 165 million.

In June 2022, we further amended our ABL Facility to temporarily increase our borrowing capacity by $ 25 million to $ 200 million through December 31, 2022, which thereafter will be reduced to $ 175 million.

In November 2022, we entered into a third amendment to our ABL Facility to provide certain EBITDA adjustments with respect to our financial covenants.

The ABL Facility may be increased up to an additional $ 50 million at the Borrowers’ request and the Lenders’ option, subject to customary conditions.

In December of 2021, we amended our ABL Facility to temporarily increase our borrowing capacity from $ 150 million to $ 175 million until June 2022, at which time our borrowing capacity would have went down to $ 165 million.

In June 2022, we further amended our ABL Facility to temporarily increase our borrowing capacity by $ 25 million to $ 200 million through December 31, 2022, which thereafter would have been reduced to $ 175 million .

In November 2022, we entered into a third amendment to our ABL Facility to provide certain EBITDA adjustments with respect to our financial covenant.

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.

As of December 31, 2022, we had borrowing capacity of $ 56.2  million.

Interest expense was approximately $ 18.3 million, $ 10.6  million and $ 0.2 million, respectively for the years ended December 31, 2022, 2021 and 2020.

In October 2023, we entered into a fifth amendment to our ABL Facility to provide certain EBITDA adjustments with respect to our financial covenant.

As of December 31, 2023, we had borrowing capacity of $ 31.1 million.

Interest expense was approximately $ 22.7 million, $ 18.3 million and $ 10.6 million, respectively, for the years ended December 31, 2023 , 2022 and 2021 .

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.

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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

Percentage of Commitments

Average Availability as a Percentage of Commitments

Term SOFR Loan

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Term SOFR FILO Loans

0.00 %  

1.25 %  

0.50 %  

0.00 % 1.25 % 0.50 % 1.75 %

>33.3% and < or equal to 66.7%

0.00 %  

1.50 %  

0.50 %  

0.00 % 1.50 % 0.50 % 2.00 %

< or equal to 33.3%

0.25 %  

1.75 %  

0.75 %  

0.25 % 1.75 % 0.75 % 2.25 %

( 1 ) Tier II applied until June 30, 2021.

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

Current and long-term debt consisted of the following: 

($ in thousands)

Term Facility that matures in 2026 with an effective interest rate of 13.20 % and 12.14 % as of December 31, 2023 and December 31, 2022, respectively

$ 116,332  

$ 127,563  

$ 77,932 $ 116,332

ABL Facility that matures in 2026:

LIBOR borrowings with an effective interest rate of 5.47% and 1.88% as of December 31, 2022 and December 31, 2021, respectively

140,000  

SOFR borrowings with an effective interest rate of 7.31 % and 5.47 % as of December 31, 2023 and December 31, 2022, respectively

83,144 140,000

Prime borrowings with an effective interest rate of 8.75 % and 7.27 % as of December 31, 2023 and December 31, 2022, respectively

259,633  

273,635  

175,014 259,633

Unamortized debt issuance costs

( 2,737 )  

( 1,884 ) ( 2,737 )

Total debt, net of debt issuance costs

256,896  

270,044  

173,130 256,896

Debt maturing within one year

( 3,250 )  

( 2,650 ) ( 3,250 )

Long-term debt

$ 253,646  

$ 266,794  

$ 170,480 $ 253,646

Credit Facility Covenants

The Term Facility contains restrictive covenants which require us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio, as defined in the agreement. We are in compliance with all Term Facility covenants as of 

December 31, 2022 .

The Term Facility contains restrictive covenants which require us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio, as defined in the agreement.

We are in compliance with all Term Facility covenants as of December 31, 2023 .

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 ABL Facility agreement).

During the 

twelve months ended 

December 31, 2022 , there were no triggering events and the covenant was not in effect.

Huntington Credit Facility

The Huntington credit facility was terminated in March 2021 and was replaced by the ABL Facility. We had no outstanding borrowings against Huntington Credit Facility at fiscal year ending December 31, 

The operating ROU asset and operating lease liabilities as of December 31, 2022 and December 31, 2021  were as follows:

During the twelve months ended December 31, 2023 , there were no triggering events and the covenant was not in effect.

The operating ROU assets and operating lease liabilities as of December 31, 2023 and December 31, 2022 were as follows:

($ in thousands)

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Operating ROU Assets

$ 11,014  

$ 11,428  

Leased assets

$ 3,071  

$ 2,985  

Other accrued expenses

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Total leased liabilities

$ 11,287  

$ 11,794  

Maturity of our operating lease liabilities are as follows:

Maturities of our operating lease liabilities are as follows:

($ in thousands)

$ 3,240  

Total lease payments

14,271  

Present value of lease liabilities

$ 11,287  

For the twelve months ended December 31, 2023 and December 31, 2022 , the weighted average remaining lease term and discount rate were as follows:

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Operating leases

For the twelve months ended December 31, 2022 ,  

December 31, 2021  and 

December 31, 2020 the supplemental cash flow information was as follows:

For the twelve months ended December 31, 2023 , December 31, 2022 and December 31, 2021 the supplemental cash flow information was as follows:

($ in thousands)

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Operating cash flows from operating leases

$ 1,492  

$ 1,230  

Right-of-use assets obtained in exchange for lease obligations

Operating leases

$ 2,786  

$ 13,186  

The breakdown of rent expense for our operating leases for the twelve months ended December 31, 2022 and December 31, 2021  were as follows:

The breakdown of rent expense for our operating leases for the twelve months ended December 31, 2023 and December 31, 2022 were as follows:

Twelve Months Ended

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Total lease expenses

$ 5,379  

$ 2,230  

$ 1,111  

( 1 ) Includes short-term lease expenses of approximately $2,166,000,  $ 1,310,000  and $ 103,000 for the twelve months ended December 31, 2022 , 

December 31, 2021  and December 31, 2020, respectively.

   BENEFIT PLAN  

( 1 ) Includes short-term lease expenses of approximately $ 0.5 million, $ 2.2 million and $ 1.3 million for the twelve months ended December 31, 2023 , December 31, 2022 and December 31, 2021 , respectively.

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

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Additionally, we match eligible employee contributions at a rate of 0.25 %, per one percent of applicable salary contributed to the plan by the employee.

This matching contribution will be made by us up to a maximum of 1 % of the employee’s applicable salary for all qualified employees.

Our approximate contributions to the 401 (k) Plan were as follows:

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401k plan sponsor contributions

$ 1,798  

$ 1,311  

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 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.

Participants may elect to receive payment in a lump sum cash payment or, in the event of the participant’s retirement, in annual installments for a period of up to ten years.

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.

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.

Participants may elect to receive payment in a lump sum cash payment or, in the event of the participant’s retirement, in annual installments for a period of up to ten years.

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 $ 335,000  and $ 311,000  as of 

December 31, 2022  and 

December 31, 2021 , respectively, and are classified as trading securities within other assets in the accompanying consolidated balance sheets.

The liabilities by the trust were approximately $ 120,000 and $ 119,000 , as of 

December 31, 2022 and December 31, 2021 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets. Changes in the deferred compensation assets and liabilities are charged to operating expenses in the accompanying consolidated statements of operations.

The assets held by the trust were approximately $ 0.4 million and $ 0.3 million as of December 31, 2023 and December 31, 2022 , respectively, and are classified as trading securities within other assets in the accompanying consolidated balance sheets.

The liabilities held under the Executive Deferred Compensation Plan were approximately $ 0.2 million and $ 0.1 million, as of December 31, 2023 and December 31, 2022 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets.

Changes in the deferred compensation assets and liabilities are charged to operating expenses in the accompanying consolidated statements of operations.

In 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.

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

The total liabilities held under the Dominican Plan were approximately $ 187,000  and 

$ 107,000  

December 31, 2022  and 

December 31, 2021 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets.

The total liabilities held under the Dominican Plan were approximately $ 0.3 million and $ 0.2 million as of December 31, 2023 and December 31, 2022 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets.

We account for income taxes in accordance with the accounting standard for "Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes.

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)

$ 5,993  

$ 1,554  

$ 4,942  

( 1,417 )  

Total Federal

State & local:

( 247 )  

( 176 )  

Total State & local

( 623 )  

( 37 )  

Total Foreign

( 441 )  

$ 5,303  

$ 4,810  

$ 6,001  

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: 

Year Ended December 31,

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Expected expense at statutory rate

$ 5,414  

$ 5,327  

$ 5,662  

Increase (decrease) in income taxes resulting from:

Exempt income from Dominican Republic operations due to tax holiday

( 632 )  

( 1,238 )  

Tax Rate Differential effect of Foreign Operations

2 unchanged sentences

Foreign Tax Credit

( 348 )  

( 547 )  

Meals and entertainment

Nondeductible penalties

Provision to return filing adjustments and other

( 352 )  

$ 5,303  

$ 4,810  

$ 6,001  

Provision to return filing adjustments

Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2023 and 2022 consisted of the following:

2 unchanged sentences

Asset valuation allowances and accrued expenses

$ 2,257  

State and local income taxes

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Total deferred tax assets

10,371  

Valuation allowances

Total deferred tax assets

Deferred tax liabilities:

Intangible assets

10,262  

Tollgate tax on Lifestyle earnings

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Total deferred tax liabilities

18,377  

15,478  

Net deferred tax liability

$ 8,006  

$ 10,293  

We have provided Puerto Rico tollgate taxes on approximately $ 3.7  million 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 

 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 as of December 31, 2022. 

The valuation allowance as of December 31, 2023 is related to certain foreign income tax net operating loss carry forwards.

We have provided Puerto Rico tollgate taxes on approximately $ 3.7 million 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, $ 0.2 million of tollgate tax would be due as of December 31, 2023.

We are subject to tax examinations in various taxing jurisdictions.

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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.

SHAREHOLDERS' EQUITY

Repurchase of Common Stock 

A summary of our previously authorized share repurchase plans, both of which are expired by their terms, is as follows:

($ in thousands, except share and per share amounts)

Maximum authorized share repurchase amount (1)

$ 7,500  

Date of plan's authorization by the Board

March 2021  

February 2020  

Funding source

Working capital  

Number of shares repurchased under the plan (shares)

129,095  

Amount paid for shares repurchased

$ 2,938  

Weighted average price paid per share

$ 22.76  

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

$ 7,500  

$ 4,562  

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

Our previous shareholder repurchase program terminated expired on March 4, 2022. 

T here has not been an announcement for a new repurchase program since the expiration prior program expired in March 2022.

Repurchase of Common Stock

Our previous shareholder repurchase program expired on March 4, 2022.

We have not announced a new repurchase program since the prior program expired.

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 $0.06 per share, of which no shares are issued or outstanding at December 31, 2022 and 2021 , respectively.

SHARE-BASED COMPENSATION 

7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan and in May 2021 this plan was amended as our shareholders authorized an additional 600,000 shares (as amended, the "2014 Plan").

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 $0.06 per share, of which no shares are issued or outstanding at December 31, 2023 and 2022 .

SHARE-BASED COMPENSATION

On May 7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan and in May 2021 this plan was amended as our shareholders authorized an additional 600,000 shares (as amended, the "2014 Plan").

The 2014 Plan includes 1,100,000 of our common shares that may be granted under various types of awards as described in the 2014 Plan.

As of December 31, 2022 , we were authorized to issue 526,106  shares under the 2014 Plan.

On January 24, 2021, we adopted the 2021 Inducement Option Plan (the "2021 Plan") pursuant to which 25,000 non-qualified stock options were granted to seven key employees acquired with the Acquisition.

As of December 31, 2023 , we were authoriz ed to issue 502,325 shares und er the 2014 Plan.

On January 24, 2021, we adopted the 2021 Inducement Option Plan (the "2021 Plan") pursuant to which 25,000 non-qualified stock options were granted to seven key employees acquired with the Acquisition.

The 2021 Plan did not require shareholder approval under Nasdaq Listing Rule 5635 (c).

As of December 31, 2022 , there were no remaining shares available to grant under the 2021 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 

As of December 31, 2023 , no shares were available for grant under the 2021 Plan.

Stock Options

There were no options granted for the year ended December 31, 2023.

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:

Risk-free interest rate

0.82 %  

Expected dividend yield

2.15 %  

Expected volatility of Rocky Brand's common stock

54.70 %  

Expected volatility of Rocky's common stock

Expected option term (years)

Weighted-average grant date fair value per share

$ 12.85  

$ 12.16  

For the years ended December 31, 2023 and 2022 , we recognized share-based compensation expense and the corresponding tax benefit as follows:

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Share-based compensation expense

$ 1,230  

$ 1,265  

The following summarizes stock option activity for the year ended December 31, 2023 :

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Options outstanding at January 1, 2023

328,000  

$ 26.94  

85,500  

( 26,050 )  

Forfeited or expired

( 46,014 )  

Options outstanding at December 31, 2023

341,436  

$ 28.87  

$ 363,595  

Expected to vest

118,736  

$ 31.70  

$ 34,364  

Exercisable at December 31, 2023

222,700  

$ 27.37  

$ 329,231  

In the first quarter of 2022 , our officers and certain employees were granted 

54,000 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 December 31, 

2021 , and 2020,  cash received for the exercise of stock options was approximately $ 461,000 , $ 825,000 , and $ 136,000 respectively.

In the first quarter of 2022 , Board of Director members were granted 

31,500 stock options that vest over a year and will expire in 5 years.

For the years ended December 31, 2023 , 2022 , and 2021 cash received for the exercise of stock options was approximately $ 1.0 million, $ 0.5 million, and $ 0.8 million, respectively.

Restricted Stock Units

The following table summarizes the status of the Company's restricted stock units and activity as of 

December 31, 2022 :

The following table summarizes the status of the Company's restricted stock units and activity as of December 31, 2023 :

Restricted Stock Units

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Nonvested at December 31, 2023

$ 25.58  

As of December 31, 2022 , the total unrecognized compensation cost related to non-vested stock options and restricted stock units was approximately $ 148,000 with a weighted-average expense recognition period of 3.8 years.

During the years ended December 31, 2022 and 2021 , and 2020 we issued 

10,762  shares, 6,868 shares and 

10,456  shares of common stock to members of our Board of Directors, respectively.

EARNINGS PER SHARE 

As of December 31, 2023 , the total unrecognized compensation cost related to non-vested stock options and restricted stock units was approxi mately $ 1.1 million with a weighted-average expense recogniti on period of 3.0 years.

During the years ended December 31, 2023 and 2022 , and 2021 we issued 34,418 shares, 10,762 shares and 6,868 shares of common stock to members of our Board of Directors, respectively.

EARNINGS PER SHARE

Basic 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.

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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Basic - weighted average shares outstanding

Dilutive restricted share units

Dilutive stock options

1 unchanged sentence

Anti-dilutive securities

16 .   REVENUE

Nature of Performance Obligations

1 unchanged sentence

Wholesale, Retail and Contract Manufacturing.

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, mainly Europe.

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.

3 unchanged sentences

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied;

this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our product passes to the customer.

this generally occurs upon shipment of our product to our customer, which is when the transfer of control of our product passes to the customer.

The duration of our arrangements with our customers are typically one year or less.

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Components of variable consideration include prompt payment discounts, volume rebates and product returns.

These reserves, as detailed below, are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

These reserves, as detailed below, are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer).

The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

Our analyses also contemplated application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates as of December 31, 2023 .

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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 Note 1 and Note 5  for additional information.

Please see Note 1 and Note 6 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 and other customers 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.

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Taxes assessed by a governmental authority that are both imposed on, and concurrent with, a specific revenue producing transaction, that are collected from customers, are excluded from revenue.

Costs associated with our manufacturer’s warranty continue to be recognized as expense when the products are sold in accordance with guidance surrounding product warranties.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in operating expenses.

6 unchanged sentences

Contract liabilities

$ 1,062  

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

2 unchanged sentences

Balance, December 31, 2022

$ 1,062  

Non-cancelable contracts with customers entered into during the period

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Because all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with ASC 606 disaggregation requirements.

See Note 18  for segment disclosures.

SUPPLEMENTAL CASH FLOW INFORMATION 

Supplemental cash flow for the years ended December 

31, as follows:

See Note 19 for segment disclosures.

SUPPLEMENTAL CASH FLOW INFORMATION

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

Twelve Months Ended

1 unchanged sentence

Interest paid

$ 17,501  

$ 7,930  

Federal, state, and local income taxes paid, net

$ 1,930  

$ 8,638  

$ 4,669  

Change in contract receivables, net

$ 1,062  

$ 4,108  

Change in contract liabilities, net

$ ( 1,062 )  

$ ( 4,520 )  

Property, plant, and equipment purchases in accounts payable

$ 2,191  

$ 2,316  

SEGMENT INFORMATION

1 unchanged sentence

Wholesale, Retail and Contract Manufacturing.

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., Canada, U.K.

and other international markets, mainly Europe.

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., Canada, U.K.

and other international markets, mainly in Europe.

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 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 Outdoor Gear Store.

Through our outdoor gear 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.

Contract Manufacturing.

 In our Contract Manufacturing segment, we include sales to the U.S.

In our Contract Manufacturing segment, we include sales to the U.S.

Military, private label sales and any sales to customers in which we are contracted to manufacture or source a specific footwear product for a customer.

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

Twelve Months Ended

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

($ in thousands)

$ 484,779  

$ 391,070  

$ 185,554  

115,354  

94,658  

72,877  

Contract Manufacturing

15,342  

28,499  

18,878  

Total Net Sales

$ 615,475  

$ 514,227  

$ 277,309  

GROSS MARGIN:

$ 165,059  

$ 140,166  

$ 66,336  

57,817  

47,792  

34,283  

Contract Manufacturing

Total Gross Margin

$ 225,219  

$ 194,536  

$ 104,735  

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 

($ in thousands)

Work footwear

$ 256,162  

41.6 %  

$ 280,235  

54.5 %  

$ 126,268  

Outdoor footwear

183,121  

76,031  

21,074  

108,697  

87,425  

61,127  

Duty and commercial military footwear

46,177  

39,715  

41,005  

Military footwear

15,342  

22,767  

18,878  

$ 615,475  

100.0 %  

$ 514,227  

100.0 %  

$ 277,309  

Net sales to foreign countries represented approximately 6.2 % of net sales in 2022 , 6.9 % of net sales in 2021  and 0.8 % of net sales in 

Net sales to foreign countries represented approximately 5.1 % of net sales in 2023 , 6.2 % of net sales in 2022 and 6.9 % of net sales in 2021 .

The net book value of fixed assets located outside of the U.S.

$ 12.6  million at

December 31, 2022, of which approx

imately $ 4.6  mill ion resides in the Dominican Republic and approximatel

y $ 8.0 mil lion resides in China. 

$ 11.9 million at

2023 , of which approx

imately $ 3.9 mill ion resides in the Dominican Republic and approximatel

y $ 8.0 mil lion resides in China.

RESTRUCTURING CHARGES

2022, we completed a cost savings review aimed at operating efficiencies to better position us for profitable growth.

In 2023 , we completed a cost savings review aimed at operating efficiencies to better position us for profitable growth.

Following the integration of the Acquired Brands, we identified a number of operational synergies and cost savings opportunities, including a reduction in workforce.

In addition to the accrued expenses below, we incurred  approximately 

$1.0 million in restructuring costs that are included in operating expenses in the accompanying consolidated statements of operations for the year ended December 31, 2022.

In addition to the accrued expenses below, we incurred approximately $ 1.5 million in restructuring costs that are included in operating expenses in the accompanying consolidated statements of operations for the year ended December 31, 2023 .

For the year ended

December 31, 2022, the following activity was recorded:

Employee Severance, Benefits and

2023 , the following activity was recorded:

Employee Severance, Benefits and Related Costs

Twelve Months Ended December 31,

($ in thousands)

Related Costs

Accrued expenses, January 1, 2022

Accrued expenses, beginning of period

Restructuring charges

$ 1,201  

Cash payments

Accrued expenses, December 31, 2022

COMMITMENTS AND CONTINGENCIES 

Accrued expenses, end of period

COMMITMENTS AND CONTINGENCIES

We are, from time to time, a party to litigation which arises in the normal course of business.

2 unchanged sentences

While it is not possible to predict the outcome of this litigation with certainty, we do not anticipate the resolution will have a material, adverse impact on our financial position.

We believe that the likelihood of the resolution being materially adverse to our financial statements is remote and as such have not recorded any contingent liabilities within the accompanying Consolidated Financial Statements.

In addition, we have not recorded any potential favorable resolution to the litigation due in accordance with ASC 450 - 30, Gain Contingencies.

We believe that the likelihood of the resolution being materially adverse to our financial statements is remote and as such have not recorded any contingent liabilities within the accompanying Consolidated Financial Statements.

In addition, we have not recorded any potential favorable resolution to the litigation due in accordance with ASC 450 - 30, Gain Contingencies.

Gain Contingency

1 unchanged sentence

Customs and Border Protection (U.S.

Customs) on certain products imported in the U.S.

Customs) on certain products imported into the U.S.

associated with the Acquired Brands during 2021 and 2022.

1 unchanged sentence

We are in the process of filing multiple post summary corrections with U.S.

customs to see refunds of duties paid in excess of the correct HTS codes.

As of December 31, 2022, we have the potential to recover approximately $ 7.7 million from overpaid duties of which we have received $ 3.2 million in refunds.

All refunds received were and will be recognized as a reduction to the cost of goods sold as received. We are accounting for these post summary corrections as a gain contingency, and as such have not recorded these potential refunds within the accompanying unaudited condensed consolidated balance sheet due to uncertainty of collection.

Any refunds received will be recognized as a reduction to the cost of goods sold when and if the refunds are received. 

Customs to seek refunds of duties paid in excess of the correct HTS codes.

We have the potential to recover the total amount of overpaid duties resulting in a potential refund of approximately $ 7.7 million, of which we have received $ 1.9 million in refunds during the year ended December 31, 2023 and $ 3.2 million in refunds during the year ended December 31, 2022.

We are accounting for these post summary corrections as a gain contingency, and as such have not recorded these potential refunds within the accompanying unaudited condensed consolidated balance sheet due to uncertainty of collection.

Refunds received will be recognized as a reduction to the cost of goods sold when, and if, the refunds are received.

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