ROCKY BRANDS, INC. 10-Q

ITEM 1 – FINANCIAL STATEMENTS Rocky Brands, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except share amounts) (Unaudited) September 30, December 31, September 30, 2024 2023 2023 ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 3,705 $ 4,470 $ 4,240 Trade receivables – net 77,130 77,028 97,844 Contract receivables - 927 2,990 Other receivables 177 1,933 2,207 Inventories – net 171,847 169,201 194,734 Income tax receivable - 1,253 2,445 Prepaid expenses 5,205 3,361 4,985 Total current assets 258,064 258,173 309,445 LEASED ASSETS 6,705 7,809 7,982 PROPERTY, PLANT & EQUIPMENT – net 50,380 51,976 53,124 GOODWILL 47,844 47,844 47,844 IDENTIFIED INTANGIBLES – net 110,521 112,618 113,321 OTHER ASSETS 1,503 965 1,015 TOTAL ASSETS $ 475,017 $ 479,385 $ 532,731 LIABILITIES AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 63,148 $ 49,840 $ 62,733 Contract liabilities - 927 2,990 Current portion of long-term debt 8,361 2,650 2,704 Accrued expenses and other liabilities 20,845 18,112 21,275 Total current liabilities 92,354 71,529 89,702 LONG-TERM DEBT 141,929 170,480 211,190 LONG-TERM TAXES PAYABLE - 169 169 LONG-TERM LEASE 4,232 5,461 5,715 DEFERRED INCOME TAXES 7,475 7,475 8,006 DEFERRED LIABILITIES 777 716 1,179 TOTAL LIABILITIES 246,767 255,830 315,961 SHAREHOLDERS' EQUITY: Common stock, no par value; 25,000,000 shares authorized; issued and outstanding September 30, 2024 - 7,449,020 ; December 31, 2023 - 7,412,480 ; September 30, 2023 - 7,366,201 73,537 71,973 70,757 Retained earnings 154,713 151,582 146,013 Total shareholders' equity 228,250 223,555 216,770 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 475,017 $ 479,385 $ 532,731 See Notes to Unaudited Condensed Consolidated Financial Statements 2 Table of Contents Rocky Brands, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 NET SALES $ 114,554 $ 125,614 $ 325,718 $ 335,881 COST OF GOODS SOLD 70,908 79,076 199,886 208,012 GROSS MARGIN 43,646 46,538 125,832 127,869 OPERATING EXPENSES 33,575 32,259 103,271 107,233 INCOME FROM OPERATIONS 10,071 14,279 22,561 20,636 INTEREST EXPENSE AND OTHER – net ( 3,180 ) ( 5,649 ) ( 13,964 ) ( 15,943 ) INCOME BEFORE INCOME TAX EXPENSE 6,891 8,630 8,597 4,693 INCOME TAX EXPENSE 1,612 1,803 2,011 980 NET INCOME $ 5,279 $ 6,827 $ 6,586 $ 3,713 INCOME PER SHARE Basic $ 0.71 $ 0.93 $ 0.89 $ 0.50 Diluted $ 0.70 $ 0.93 $ 0.88 $ 0.50 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 7,449 7,366 7,432 7,355 Diluted 7,503 7,375 7,479 7,374 See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents Rocky Brands, Inc. and Subsidiaries Condensed Consolidated Statements of Shareholders ’ Equity (In thousands, except per share amounts) (Unaudited) Common Stock and Additional Paid-in Capital Total Shares Retained Shareholders' Outstanding Amount Earnings Equity BALANCE - December 31, 2022 7,339 $ 69,752 $ 145,721 $ 215,473 NINE MONTHS ENDED SEPTEMBER 30, 2023 Net loss $ ( 398 ) $ ( 398 ) Dividends paid on common stock ($ 0.155 per share) ( 1,141 ) ( 1,141 ) Stock issued for options exercised, including tax benefits 1 $ 8 - 8 Stock compensation expense 7 347 - 347 BALANCE - March 31, 2023 7,347 $ 70,107 $ 144,182 $ 214,289 Net loss $ ( 2,715 ) $ ( 2,715 ) Dividends paid on common stock ($ 0.155 per share) ( 1,139 ) ( 1,139 ) Stock compensation expense 7 $ 293 - 293 BALANCE - June 30, 2023 7,354 $ 70,400 $ 140,328 $ 210,728 Net income $ 6,827 $ 6,827 Dividends paid on common stock ($ 0.155 per share) ( 1,142 ) ( 1,142 ) Stock issued for options exercised, including tax benefits 4 $ 75 - 75 Stock compensation expense 8 282 - 282 BALANCE - September 30, 2023 7,366 $ 70,757 $ 146,013 $ 216,770 BALANCE - December 31, 2023 7,412 $ 71,973 $ 151,582 $ 223,555 NINE MONTHS ENDED SEPTEMBER 30, 2024 Net income $ 2,550 $ 2,550 Dividends paid on common stock ($ 0.155 per share) ( 1,149 ) ( 1,149 ) Stock compensation expense 5 $ 339 - 339 BALANCE - March 31, 2024 7,417 $ 72,312 $ 152,983 $ 225,295 Net loss $ ( 1,243 ) $ ( 1,243 ) Dividends paid on common stock ($ 0.155 per share) ( 1,151 ) ( 1,151 ) Stock issued for options exercised, including tax benefits - $ 599 - 599 Stock compensation expense 6 312 - 312 BALANCE - June 30, 2024 7,423 $ 73,223 $ 150,589 $ 223,812 Net income $ 5,279 $ 5,279 Dividends paid on common stock ($ 0.155 per share) ( 1,155 ) ( 1,155 ) Stock compensation expense 26 $ 314 - 314 BALANCE - September 30, 2024 $ 7,449 $ 73,537 $ 154,713 $ 228,250 See Notes to Unaudited Condensed Consolidated Financial Statements 4 Table of Contents Rocky Brands, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,586 $ 3,713 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,805 8,251 Noncash lease expense 1,943 - Loss on term loan extinguishment 1,111 - Provision for bad debts 1,172 526 Stock compensation expense 965 922 Amortization of debt issuance costs and loan fees 454 640 Loss on disposal of assets - 143 Gain on sale of business - ( 1,341 ) Change in assets and liabilities: Receivables ( 1,217 ) ( 3,015 ) Contract receivables 927 ( 2,990 ) Inventories ( 2,646 ) 34,502 Other current assets ( 1,843 ) ( 918 ) Other assets ( 131 ) 2,959 Accounts payable 12,363 ( 8,396 ) Operating lease liability ( 1,931 ) - Accrued and other liabilities 2,150 ( 3,315 ) Income taxes 1,591 ( 3,538 ) Contract liabilities ( 927 ) 2,990 Net cash provided by operating activities 28,372 31,133 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ( 3,170 ) ( 2,931 ) Proceeds from sale of business 1,700 17,300 Net cash (used in) provided by investing activities ( 1,470 ) 14,369 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facility 128,394 50,496 Repayments of revolving credit facility ( 118,713 ) ( 66,400 ) Proceeds from long-term debt 50,000 - Repayments of long-term debt ( 82,205 ) ( 27,738 ) Payment of debt issuance costs and loan fees ( 2,287 ) - Proceeds from stock options 599 83 Dividends paid on common stock ( 3,455 ) ( 3,422 ) Net cash used in financing activities ( 27,667 ) ( 46,981 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 765 ) ( 1,479 ) CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD 4,470 5,719 END OF PERIOD $ 3,705 $ 4,240 See Notes to Unaudited Condensed Consolidated Financial Statements 5 Table of Contents Rocky Brands, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements (in thousands, except per share amounts) 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky, The Original Muck Boot Company ("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: outdoor, work, duty, commercial military, military and western. 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. The accompanying Unaudited Condensed Consolidated Financial Statements reflect all adjustments that are necessary for a fair presentation of the financial results. All such adjustments reflected in the Unaudited Condensed Consolidated Financial Statements are considered to be of normal and recurring nature. The results of operations for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results to be expected for the whole year. The December 31, 2023 Unaudited Condensed Consolidated Balance Sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). This Quarterly Report on Form 10 -Q should be read in connection with our Annual Report on Form 10 -K for the year ended December 31, 2023 , which includes all disclosures required by GAAP. The preparation of financial statements in conformity with GAAP 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. Actual results could differ from those estimates. Reclassifications We have reclassified certain amounts in Note 9 - Accrued Expenses and Other Liabilities to conform to current period presentation. 2. ACCOUNTING STANDARDS UPDATES Recently Issued Accounting Pronouncements Rocky Brands, Inc. is currently evaluating the impact of certain ASUs on its Unaudited Condensed Consolidated Financial Statements: Standard Description Anticipated Adoption Periods Effect on Consolidated Financial Statements ASU 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures This pronouncement requires expanded disclosures about an entity’s reportable segments, including more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how an entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. Fiscal year ending December 31, 2024 The Company is still assessing the impact of the new accounting standard but does not expect the adoption of this standard to have a material impact on its financial statements. ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures This pronouncement requires expanded income tax disclosures primarily related to an entity's effective tax rate reconciliation and income taxes paid. Q1 2025 The Company is still assessing the impact of the new accounting standard but does not expect the adoption of this standard to have a material impact on its financial statements. In addition to the recently issued accounting pronouncements, the SEC recently issued its final rule regarding climate change disclosures. We are evaluating the impact this final rule will have on our Unaudited Condensed Consolidated Financial Statements. No other new accounting pronouncement issued or effective during the period had, or is expected to have, a material impact on our Unaudited Condensed Consolidated Financial Statements. 6 Table of Contents 3. FAIR VALUE The fair value accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This standard also establishes a three -level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. 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. 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 approximate their carrying values because of the short-term nature of these instruments. Receivables consist primarily of amounts due from our customers, net of allowances, and expected insurance recoveries. The carrying amounts of our long-term credit facility 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 credit facilities is categorized as Level 2. The Company does not currently have any Level 3 assets or liabilities. We hold assets and liabilities in a separate trust in connection with deferred compensation plans. The deferred compensation assets are classified as trading securities within other assets and the deferred compensation liabilities are classified within deferred liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheet. The fair value of these assets is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1 ). 4. 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 closin g. The remaining $ 1.7 million was received during the nine months ended September 30, 2024 . The s ale of the Servus brand included the sale of inventory, fixed assets, customer relationships and tradenames, all of which related to our Wholesale segment. 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 Unaudited Condensed Consolidated Statement of Operations for the nine months ended September 30, 2023 . 5. REVENUE Nature of Performance Obligations Our products are distributed through three distinct channels, which represent our business segments: 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, U.K. and other international markets such as Europe. Our Wholesale channels vary by product line and include sporting goods stores, outdoor retailers, independent shoe retailers, hardware stores, catalogs, mass merchants, uniform stores, farm store chains, specialty safety stores, specialty retailers and online retailers. Our Retail business includes direct sales of our products to consumers through our business-to-business web platform, e-commerce websites, third -party marketplaces and our Rocky Outdoor Gear Store. Our Contract Manufacturing segment includes 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. Significant Accounting Policies and Judgments Revenue is recognized when performance obligations under the terms of a contract with our customer are satisfied; this generally occurs at a point in time when our product ships to the customer, which is when the transfer of control passes to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products, which is the net sales price. The net sales price includes estimates of variable consideration for which reserves are established. Components of variable consideration include discounts and allowances, customer rebates, markdowns, chargebacks, and product returns. These reserves are based on the amounts earned, or to be claimed, on the related sales of our products. Elements of variable consideration including discounts and allowances and rebates are determined at contract inception and are reassessed at each reporting date, at a minimum, to reflect any change in the types of variable consideration offered to the customer. We determine estimates of variable consideration based on evaluations of each type of variable consideration and customer contract, historical and anticipated trends, and current economic conditions. Overall, these reserves reflect our best estimates of the amount of consideration to be earned on the related sales. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net revenue and earnings in the period such variances become known. 7 Table of Contents Trade receivables represent our right to unconditional payment. Current 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. Current contract liabilities are performance obligations that we expect to satisfy or relieve within the next twelve months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancellable contracts before the transfer of goods or services to the customer has occurred. Our contract liability represents unconditional obligations to provide goods under non-cancellable contracts with the U.S. Military and other customers. As of September 30, 2024 , there are no contract receivable or contract liability balances outstanding. Items considered immaterial within the context of the contract are recognized as an expense. 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 are recognized as expense when the products are sold. 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 included in operating expenses. Contract Balances The following table provides information about contract liabilities from contracts with our customers: September 30, December 31, September 30, ($ in thousands) 2024 2023 2023 Contract liabilities $ - $ 927 $ 2,990 Significant changes in the contract liabilities balance during the period are as follows: ($ in thousands) Contract liabilities Balance, December 31, 2023 $ 927 Non-cancelable contracts with customers entered into during the period - Revenue recognized related to non-cancelable contracts with customers during the period ( 927 ) Balance, September 30, 2024 $ - Disaggregation of Revenue All revenues are recognized at a point in time when control of our products pass to the customer at point of shipment or point of sale for retail customers. Because all revenues are recognized at a point in time and are disaggregated by channel, our segment disclosures are consistent with disaggregation requirements. See Note 14 - Segment Information for segment disclosures. 6. TRADE RECEIVABLES Trade receivables are presented net of the related allowance for credit losses of approximately $ 1.1 million, $ 1.8 million and $ 2.1 million at September 30, 2024 , December 31, 2023 and September 30, 2023 , respectively. We calculate the allowance based on historical experience, the age of the receivables, receivable insurance status, 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. If actual or expected future allowances were significantly greater or less than established reserves, a reduction or increase to bad debt expense would be recorded in the period this determination was made. 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. 8 Table of Contents 7. INVENTORY Inventories are comprised of the following: September 30, December 31, September 30, ($ in thousands) 2024 2023 2023 Raw materials $ 17,196 $ 16,774 $ 16,700 Work-in-process 929 912 1,292 Finished goods 153,722 151,515 176,742 Total $ 171,847 $ 169,201 $ 194,734 The asset associated with our returns reserve included within inventories was approximately $ 0.9 million, $ 0.8 million and $ 1.0 million at September 30, 2024 , December 31, 2023 and September 30, 2023 , respectively. 8. GOODWILL & IDENTIFIED INTANGIBLE ASSETS There was no change in goodwill during the nine months ended September 30, 2024 . Intangible assets other than goodwill at the respective balance sheet dates consisted of the following: September 30, 2024 Gross Accumulated Carrying ($ in thousands) Amount Amortization Amount Indefinite-lived intangible assets Trademarks $ 78,654 $ 78,654 Intangible assets subject to amortization Patents 895 $ ( 859 ) 36 Customer relationships 41,659 ( 9,828 ) 31,831 Total Intangible assets other than goodwill $ 121,208 $ ( 10,687 ) $ 110,521 December 31, 2023 Gross Accumulated Carrying ($ in thousands) Amount Amortization Amount Indefinite-lived intangible assets Trademarks $ 78,654 $ 78,654 Intangible assets subject to amortization Patents 895 $ ( 845 ) 50 Customer relationships 41,659 ( 7,745 ) 33,914 Total Intangible assets other than goodwill $ 121,208 $ ( 8,590 ) $ 112,618 September 30, 2023 Gross Accumulated Carrying ($ in thousands) Amount Amortization Amount Indefinite-lived intangible assets Trademarks $ 78,659 $ 78,659 Intangible assets subject to amortization Patents 895 $ ( 841 ) 54 Customer relationships 41,659 ( 7,051 ) 34,608 Total Intangible assets other than goodwill $ 121,213 $ ( 7,892 ) $ 113,321 9 Table of Contents The weighted average life of patents and customer relationships is 2.7 years and 11.5 years, respectively. Amortization expense for intangible assets subject to amortization for each of the three months ended September 30, 2024 and 2023 was $ 0.7 million. Amortization expense for intangible assets subject to amortization for the nine months ended September 30, 2024 and 2023 was $ 2.1 million and $ 2.2 million, respectively. As of September 30, 2024 , a schedule of approximate expected remaining amortization expense related to intangible assets for the years ending December 31 is as follows: Amortization ($ in thousands) Expense 2024 $ 698 2025 2,790 2026 2,788 2027 2,785 2028 2,781 2029 2,779 2030+ 17,246 Total $ 31,867 9. ACCRUED EXPENSES AND OTHER LIABILTIES Amounts reported in "Accrued expenses and other liabilities" within the accompanying Unaudited Condensed Consolidated Balance Sheets were: September 30, December 31, September 30, ($ in thousands) 2024 2023 2023 Accrued Expenses and other liabilities: Accrued duties $ 7,183 $ 5,440 $ 6,395 Salaries and wages 2,925 1,204 2,685 Operating lease liability 2,765 2,679 2,556 Returns liability 1,631 - - Accrued freight 1,474 2,284 2,707 Accrued advertising 1,082 1,877 1,386 Commissions 638 904 823 Income taxes payable 507 - - Taxes - other 440 925 832 Accrued interest - 2,104 2,280 Other 2,200 695 1,611 Total accrued expenses and other liabilities $ 20,845 $ 18,112 $ 21,275 10. LONG-TERM DEBT On April 26, 2024, we refinanced our existing debt by amending and restating our credit agreement with Bank of America, N.A., as agent, sole lead arranger and sole bookrunner and other lenders party thereto (the "ABL Agreement"). The ABL Agreement consists of a $ 175.0 million asset-based lending credit facility (the "ABL Facility") and a $ 50.0 million term loan facility (the "Term Facility"). The ABL Agreement is collateralized by a first -lien on substantially all of the Company's domestic assets. 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 September 30, 2024 , we had borrowing capacity of $ 50.1 million under the ABL Facility. The Term Facility provides for monthly principal payments until the date of maturity, at which date the remaining principal balance is due. 10 Table of Contents This transaction resulted in a $ 2.6 million expense within Interest Expense and Other - net in the accompanying Unaudited Combined Condensed Statements of Operations, consisting of a $ 1.1 million loss on term loan extinguishment and a $ 1.5 million term loan prepayment penalty for the nine months ended September 30, 2024 . The $ 1.1 million loss on term loan extinguishment is included as a noncash adjustment to net income and the $ 1.5 million prepayment penalty is included within Repayments of long-term debt in the accompanying Unaudited Combined Condensed Statements of Cash Flows for the nine months ended September 30, 2024 . Loans under the ABL agreement bear interest at a variable rate equal to either (i) the Base Rate (as calculated in the ABL Agreement) or (ii) Term SOFR (as calculated in the ABL Agreement), plus in each case an interest margin determined by the Company's average daily availability as a percentage of the aggregate amount of revolving commitments for revolving loans and term loans, with a range of Base Rate margins and term SOFR margins, as set forth of the following chart: Revolver Pricing Level (1) Average Availability as a Percentage of Commitments Term SOFR Term Loan Base Rate Term Loan Term SOFR Revolver Loan Base Rate Revolver Loan Term SOFR FILO Loan Base Rate FILO Loan I > 66.7% 2.75 % 1.50 % 1.25 % 0.00 % 1.75 % 0.50 % II >33.3% and < or equal to 66.7% 3.00 % 1.50 % 1.50 % 0.00 % 2.00 % 0.50 % III < or equal to 33.3% 3.25 % 1.75 % 1.75 % 0.25 % 2.25 % 0.75 % ( 1 ) Until September 30, 2024 , Level III applied. In connection with the ABL Agreement, we paid certain fees that were capitalized and will be amortized over the life of such agreement. Current and long-term debt under the ABL Agreement consisted of the following: September 30, ($ in thousands) 2024 Term Facility that matures in 2029 with an effective interest rate of 8.82 % $ 47,213 ABL Facility that matures in 2029: SOFR borrowings with an effective interest rate of 6.76 % 105,000 Prime borrowings with an effective interest rate of 8.47 % 470 Total debt 152,683 Less: Unamortized debt issuance costs ( 2,393 ) Total debt, net of debt issuance costs 150,290 Less: Debt maturing within one year ( 8,361 ) Long-term debt $ 141,929 A schedule of debt payments for the next five years is as follows: Debt Payment ($ in thousands) Schedule 2024 $ 2,090 2025 8,361 2026 8,361 2027 8,361 2028 8,361 2029 117,149 Total 152,683 Credit Facility Covenants Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the agreement. As of September 30, 2024 , we were in compliance with all credit facility covenants. The ABL Facility and Term Facility also contain restrictions on the amount of dividend payments. As of September 30, 2024 , the Company was in compliance with the amounts paid on dividends in accordance with our debt facilities. Retired Term Debt On March 15, 2021, we entered into a senior secured term loan facility with TCW Asset Management Company, LLC ("TCW"), as agent, for the lenders party thereto in the amount of $ 130.0 million (the "TCW Term Facility"). The TCW Term Facility provided for quarterly payments of principal and bore interest of LIBOR plus 7.00 % through June 30, 2021. After that date, interest was assessed quarterly based on our total leverage ratio. The total leverage ratio was calculated as (a) Total Debt to (b) EBITDA. If our total leverage ratio was greater than or equal to 4.00, the effective interest rate would have been SOFR plus 7.75 % (or at our option, Prime Rate plus 6.75 %). If our total leverage ratio was less than 4.00 but greater than or equal to 3.50, the effective interest rate would have been SOFR plus 7.50 % (or at our option, Prime Rate plus 6.50 %). If our total leverage ratio was less than 3.50 but greater than 3.00, the effective interest rate would have been SOFR plus 7.00 % (or at our option, Prime Rate plus 6.00 %). If our total leverage ratio was less than 3.00, the effective interest rate would have been SOFR plus 6.50 % (or at our option, Prime Rate plus 5.50 %). The TCW Term Facility also had a SOFR floor rate of 1.00 %. In June 2022, we entered into a second amendment with TCW to further amend the TCW Term Facility to consent to the modifications in our borrowing capacity under the Original ABL Facility as described below, and to adjust certain pricing and prepayment terms, among other things. The second amendment also modified the interest index to provide the use of SOFR to calculate interest rather than LIBOR. The effective interest rate was increased to SOFR plus 7.50 % through November 2022. In November 2022, the TCW Term Facility was amended to increase the effective interest rate to SOFR plus 7.00 % until June 2023 and to provide certain EBITDA adjustments with respect to financial covenants, among other things. In May 2023, we entered into a fourth amendment to the TCW 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 to the TCW Term Facility to provide certain EBITDA adjustments in respect of the financial covenants, adjust the performance pricing grid, adjust the total leverage ratio periodically through June 30, 2025, among other things. 11 Table of Contents The TCW Term Facility was collateralized by a second -lien on accounts receivable, inventory, cash and related assets and a first -lien on substantially all other assets. The TCW Term Facility was replaced by the Term Facility that was part of the ABL Agreement in April 2024. On March 15, 2021, we also entered into a senior secured asset-based credit facility (the "Original ABL Facility") with Bank of America, N.A. as agent, for the lenders party thereto. The Original ABL Facility provided a senior secured asset-based revolving credit facility up to a principal amount of $ 150.0 million, which included a sub-limit for the issuance of letters of credit up to $ 5.0 million. The Original ABL Facility would be increased up to an additional $ 50.0 million at the borrowers’ request and the lenders’ option, subject to customary conditions. In June 2022, we further amended the Original ABL Facility to temporarily increase our borrowing capacity to $ 200.0 million through December 31, 2022, which thereafter was reduced to $ 175.0 million. In November 2022, we entered into a third amendment to the Original ABL Facility to provide certain EBITDA adjustments with respect to our financial covenant. The Original ABL Facility included a separate first in, last out (FILO) tranche, which allowed us to borrow at higher advance rates on eligible accounts receivables and inventory balances. In October 2023, we entered into a fifth amendment to the Original ABL Facility to provide certain EBITDA adjustments with respect to our financial covenant. The Original ABL Facility was collateralized by a first -lien on accounts receivable, inventory, cash and related assets and a second -lien on substantially all other assets. The Original ABL Facility was replaced with the ABL Facility that was part of the ABL Agreement in April 2024. Interest on the Original ABL Facility was based on the amount available to be borrowed as set forth on the following chart: Revolver Pricing Level Average Availability as a Percentage of Commitments Base Rate Term SOFR Loan Base Rate for FILO Term SOFR FILO Loans I > 66.7% 0.00 % 1.25 % 0.50 % 1.75 % II >33.3% and < or equal to 66.7% 0.00 % 1.50 % 0.50 % 2.00 % III < or equal to 33.3% 0.25 % 1.75 % 0.75 % 2.25 % In connection with the TCW Term Facility and the Original ABL Facility, we had to pay certain fees that were capitalized and amortized over the life of each respective loan. In addition, the Original ABL Facility required us to pay an annual collateral management fee in the amount of $ 75,000 due on each anniversary of the issuance date, until it matured. Current and long-term debt under the Original ABL Facility and TCW Term Facility consisted of the following: December 31, September 30, ($ in thousands) 2023 2023 TCW Term Facility refinanced in April 2024 with an effective interest rate of 13.20% as of December 31, 2023 and 12.77% as of September 30, 2023 $ 77,932 $ 88,594 Original ABL Facility amended and restated in April 2024: SOFR borrowings with an effective interest rate of 7.31% and 7.25% as of December 31, 2023 and September 30, 2023, respectively 83,144 124,660 Prime borrowings with an effective interest rate of 8.75% as of and December 31, 2023 and September 30, 2023 13,938 2,737 Total debt 175,014 215,991 Less: Unamortized debt issuance costs ( 1,884 ) ( 2,097 ) Total debt, net of debt issuance costs 173,130 213,894 Less: Debt maturing within one year ( 2,650 ) ( 2,704 ) Long-term debt $ 170,480 $ 211,190 Retired Credit Facility Covenants The TCW Term Facility contained restrictive covenants which required us to maintain a maximum total leverage ratio and a minimum fixed charge coverage ratio, as defined in the TCW Term Facility agreement. The Original ABL Facility contained a restrictive covenant which required us to maintain a fixed charge coverage ratio upon a triggering event taking place (as defined in the Original ABL Facility). During the three months ended September 30, 2023, we were in compliance with all credit facility covenants. The TCW Term Facility and the Original ABL Facility also contained restrictions on the amount of dividend payments. We were in compliance with all TCW Term Facility and Original ABL Facility Agreement covenants through April 26, 2024, the date on which we refinanced such debt. 11. TAXES The effective tax rate for the three and nine months ended September 30, 2024 and 2023 wa s 23.4 % and 20.9 %, r espectively. The effective tax rate used for interim reporting purposes is based on management’s best estimate of factors impacting the effective tax rate for the full fiscal year and includes the impact of discrete items recognized in the quarter. There can be no assurance that the effective tax rate estimated for interim financial reporting purposes will approximate the effective tax rate determined at fiscal year-end. The Company files income tax returns in the U.S. for federal, state, and local purposes, and in certain foreign jurisdictions. The Company's tax years 2019 through 2023 remain open to examination by most taxing authorities. Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. No such expenses were recognized during the three and nine months ended September 30, 2024 and 2023 . We do not believe there will be any material changes in our uncertain tax positions over the next 12 months. 12 Table of Contents 12. 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 EPS 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 three and nine months ended September 30, 2024 and 2023 is as follows: Three Months Ended Nine Months Ended September 30, September 30, (shares in thousands) 2024 2023 2024 2023 Basic - weighted average shares outstanding 7,449 7,366 7,432 7,355 Dilutive restricted share units 26 3 22 5 Dilutive stock options 28 6 25 14 Diluted - weighted average shares outstanding 7,503 7,375 7,479 7,374 Anti-dilutive securities 65 262 103 262 13. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information for the nine months ended September 30, 2024 and 2023 is as follows: Nine Months Ended September 30, ($ in thousands) 2024 2023 Interest paid $ 13,376 $ 10,133 Federal, state, and local income taxes paid, net $ 226 $ 4,661 Property, plant, and equipment noncash purchases in accounts payable $ 944 $ 942 Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations $ 862 $ - 14. SEGMENT INFORMATION Reportable Segments - We have identified three reportable segments: Wholesale, Retail and Contract Manufacturing. Wholesale. 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. Retail. 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. 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. Net sales to foreign countries represented approxima tely 4.8 % and 7.5 % of net sa les for the three months ended September 30, 2024 and 2023 , respectively. Net sales to foreign countries represented approxim ately 3.2 % and 5.5 % of net sales for the nine months ended September 30, 2024 and 2023 , respectively. For segment reporting purposes, management uses gross margin to evaluate segment performance and allocate resources. Operating expenses such as warehousing, distribution, marketing and other key activities supporting our operations are integrated to maximize efficiency and productivity; therefore, we do not include these expenses within our segment results, but instead review them at the consolidated level. 13 Table of Contents The following is a summary of segment results for the Wholesale, Retail and Contract Manufacturing segments for the three and nine months ended September 30, 2024 and 2023 . Three Months Ended Nine Months Ended September 30, September 30, ($ in thousands) 2024 2023 2024 2023 NET SALES: Wholesale $ 84,033 $ 99,716 $ 232,082 $ 251,228 Retail 26,771 24,523 83,288 79,114 Contract Manufacturing 3,750 1,375 10,348 5,539 Total Net Sales $ 114,554 $ 125,614 $ 325,718 $ 335,881 GROSS MARGIN: Wholesale $ 31,514 $ 34,599 $ 85,977 $ 89,084 Retail 11,683 11,781 38,719 38,379 Contract Manufacturing 449 158 1,136 406 Total Gross Margin $ 43,646 $ 46,538 $ 125,832 $ 127,869 Segment asset information is not prepared or used to assess segment performance. 15. COMMITMENTS AND CONTINGENCIES Gain Contingency In June 2022, we became aware of a misclassification of Harmonized Tariff Schedule (HTS) codes filed with the U.S. Customs and Border Protection (U.S. Customs) on certain products imported into the U.S. during 2021 and 2022 associated with brands acquired through an acquisition in the first quarter of 2021. As a result of the misclassification of HTS codes on these products, we believe that we have paid duties in excess of the expected amount due. We have the potential to recover the total amount of overpaid duties resulting in an estimated potential refund of approximately $ 7.7 million, of which we have received $ 5.1 million to date. No refunds were received for the nine months ended September 30, 2024 and $ 1.9 million in refunds were received during the nine months ended September 30, 2023 . 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. 14 Table of Contents