ROCKY BRANDS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Rocky Brands, Inc. and Subsidiaries Index to Consolidated Financial Statements Description Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) 27 Report of Independent Registered Public Accounting Firm (PCAOB ID: 358) 29 Consolidated Balance Sheets as of December 31, 2024 and 2023 30 Consolidated Statements of Operations for the Years Ended December 31, 2024, 2023, and 2022 31 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2024, 2023, and 2022 32 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023, and 2022 33 Note 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 34 Note 2. ACCOUNTING STANDARDS UPDATES 37 Note 3. SALE OF SERVUS BRAND AND RELATED ASSETS 37 Note 4. SALE OF NEOS BRAND AND RELATED ASSETS 37 Note 5. INVENTORIES 37 Note 6. PROPERTY, PLANT, AND EQUIPMENT 38 Note 7. GOODWILL AND OTHER INTANGIBLE ASSETS 38 Note 8. OTHER ASSETS 40 Note 9. ACCRUED EXPENSES AND OTHER LIABILITIES 40 Note 10. LONG-TERM DEBT 40 Note 11. LEASES 43 Note 12. BENEFIT PLAN 44 Note 13. TAXES 44 Note 14. SHAREHOLDERS' EQUITY 46 Note 15. SHARE-BASED COMPENSATION 46 Note 16. EARNINGS PER SHARE 47 Note 17. REVENUE 48 Note 18. SUPPLEMENTAL CASH FLOW INFORMATION 50 Note 19. SEGMENT INFORMATION 50 Note 20. COMMITMENTS AND CONTINGENCIES 51 26 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Rocky Brands, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Rocky Brands, Inc. and subsidiaries (the “Company”) as of December 31, 2024 , the related consolidated statement of operations, shareholders’ equity, and cash flows, for the period ended December 31, 2024 , and the related notes (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, 2024 , and the results of its operations and its cash flows for the year ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America. We have also 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, 2024 , based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 17, 2025 , expressed an unqualified opinion on the Company's internal control over financial reporting. 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 financial statements based on our audit. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 27 Table of Contents Goodwill and Other Intangible Assets - Wholesale and Retail Reporting Units and Muck Trademark – Refer to Notes 1 and 7 to the financial statements Critical Audit Matter Description The Company's evaluation of goodwill and indefinite-lived intangible assets for impairment involves the comparison of the fair value of each reporting unit or asset to its respective carrying values. The Company uses a combination of the income and market approaches to estimate the fair value of its reporting units in its goodwill impairment analysis. The income approach requires management to estimate a number of factors for each reporting unit, including forecasts of future revenues, EBITDA margins, and discount rates. The market approach requires management to estimate fair value using comparable marketplace fair value data from within a comparable industry grouping or a comparable marketplace transactional multiple. The Company uses the relief from royalty method to estimate the fair value of the indefinite-lived intangible assets trademark. This method estimates the fair value of an intangible asset by determining the present value of the cost savings realized by the owner of the intangible asset as a result of not having to pay a stream of royalty payments to another party. The selection of companies in the comparable industry group for the reporting units and changes in business and valuation assumptions for both the reporting units and the Muck trademark could have a significant impact on the valuation of the reporting units or the Muck trademark and the amount of a goodwill or indefinite-lived trademark impairment charge, if any. The Company performed its annual impairment assessment of the Muck trademark as of December 31, 2024 and determined that the fair value of the Muck indefinite-lived intangible asset was less than its carrying amount. As a result, the Company recorded an impairment charge of $4.0 million to reduce the carrying amount to be equivalent to the estimated fair value of $37.9 million as of December 31, 2024. We identified the valuation of the Wholesale and Retail reporting units and the Muck trademark indefinite-lived intangible asset as a critical audit matter due to the materiality of the assets' carrying values, the difference between the fair values and the carrying values of the reporting units, the sensitivity of the fair value calculation to changes in significant assumptions, and because of the underperformance compared to historical forecasts at each of the businesses. Auditing management's judgments used in the quantitative assessment regarding significant assumptions such as future revenue growth, EBITDA margins, the selection of discount rates, and the selection of royalty rates requires a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the fair value of goodwill for the Wholesale and Retail reporting units and the Muck trademark indefinite-lived intangible asset included the following, among others: ● We tested the effectiveness of controls over the goodwill and indefinite-lived intangible asset impairment analyses, including those over the development of significant assumptions such as future revenue growth, EBITDA margins, discount rates, and royalty rates. ● We evaluated the reasonableness of management's forecasted future revenue growth and EBITDA margins by comparing historical forecasts to actual results and comparing future forecasts to business strategies, growth plans, and third-party economic and industry data. ● With the assistance of our fair value specialists, we evaluated the discount rate and royalty rate used by the Company in developing the fair value estimates by testing the source information underlying the determination of the discount rate and royalty rate and by developing a range of independent estimates for the discount rate and royalty rate. /s/ DELOITTE & TOUCHE LLP Columbus, Ohio March 17, 2025 We have served as the Company's auditor since 2024. 28 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Rocky Brands, Inc. and Subsidiaries Nelsonville, Ohio Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Rocky Brands, Inc. and Subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (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 the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. 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. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We served as the Company’s auditor from 2007 to 2023. /s/ Schneider Downs & Co., Inc. Columbus, Ohio March 15, 2024 29 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share amounts) December 31, December 31, 2024 2023 ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 3,719 $ 4,470 Trade receivables – net 71,983 77,028 Contract receivables - 927 Other receivables 1,028 1,933 Inventories – net 166,701 169,201 Income tax receivable - 1,253 Prepaid expenses 3,008 3,361 Total current assets 246,439 258,173 LEASED ASSETS 6,030 7,809 PROPERTY, PLANT & EQUIPMENT – net 49,666 51,976 GOODWILL 47,844 47,844 IDENTIFIED INTANGIBLES – net 105,823 112,618 OTHER ASSETS 1,498 965 TOTAL ASSETS $ 457,300 $ 479,385 LIABILITIES AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 58,069 $ 49,840 Contract liabilities - 927 Current portion of long-term debt 8,361 2,650 Accrued expenses and other liabilities 23,977 18,112 Total current liabilities 90,407 71,529 LONG-TERM DEBT 120,376 170,480 LONG-TERM TAXES PAYABLE - 169 LONG-TERM LEASES 3,537 5,461 DEFERRED INCOME TAXES 10,044 7,475 DEFERRED LIABILITIES 712 716 TOTAL LIABILITIES 225,076 255,830 SHAREHOLDERS' EQUITY: Common stock, no par value; 25,000,000 shares authorized; issued and outstanding December 31, 2024 - 7,454,465 ; December 31, 2023 - 7,412,480 73,866 71,973 Retained earnings 158,358 151,582 Total shareholders' equity 232,224 223,555 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 457,300 $ 479,385 See notes to Consolidated Financial Statements 30 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended December 31, 2024 2023 2022 NET SALES $ 453,772 $ 461,833 $ 615,475 COST OF GOODS SOLD 274,762 283,235 390,256 GROSS MARGIN 179,010 178,598 225,219 OPERATING EXPENSES 147,944 143,226 181,181 INCOME FROM OPERATIONS 31,066 35,372 44,038 INTEREST EXPENSE AND OTHER – net ( 17,008 ) ( 21,218 ) ( 18,270 ) INCOME BEFORE INCOME TAX EXPENSE 14,058 14,154 25,768 INCOME TAX EXPENSE 2,671 3,728 5,303 NET INCOME $ 11,387 $ 10,426 $ 20,465 INCOME PER SHARE Basic $ 1.53 $ 1.42 $ 2.80 Diluted $ 1.52 $ 1.41 $ 2.78 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 7,437 7,363 7,317 Diluted 7,480 7,381 7,369 See notes to Consolidated Financial Statements 31 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Statement of Shareholders’ Equity (In thousands, except per share amounts) Common Stock and Additional Paid-in Capital Total Shares Retained Shareholders' Outstanding Amount Earnings Equity BALANCE - December 31, 2021 7,302 $ 68,061 $ 129,794 $ 197,855 Net income $ 20,465 $ 20,465 Dividends paid on common stock ($ 0.62 per share) ( 4,538 ) ( 4,538 ) Stock issued for options exercised, including tax benefits 26 $ 461 - 461 Stock compensation expense 11 1,230 - 1,230 BALANCE - December 31, 2022 7,339 $ 69,752 $ 145,721 $ 215,473 Net income $ 10,426 $ 10,426 Dividends paid on common stock ($ 0.62 per share) ( 4,565 ) ( 4,565 ) Stock issued for options exercised, including tax benefits 39 $ 977 - 977 Stock compensation expense 34 1,244 - 1,244 BALANCE - December 31, 2023 7,412 $ 71,973 $ 151,582 $ 223,555 Net income $ 11,387 $ 11,387 Dividends paid on common stock ($ 0.62 per share) ( 4,611 ) ( 4,611 ) Stock issued for options exercised, including tax benefits 22 $ 599 - 599 Stock compensation expense 20 1,294 - 1,294 BALANCE - December 31, 2024 7,454 $ 73,866 $ 158,358 $ 232,224 See notes to Consolidated Financial Statements 32 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,387 $ 10,426 $ 20,465 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 10,251 10,939 12,320 Intangible impairment charge 4,000 - - Noncash lease expense 2,619 - - Provision for bad debts 1,679 451 3,254 Stock compensation expense 1,294 1,244 1,230 Loss on term loan extinguishment 1,111 - - Amortization of debt issuance costs 611 853 853 Gain on sale of business - ( 1,341 ) - Deferred income taxes 2,569 ( 531 ) ( 2,209 ) Loss (gain) on disposal of assets - 231 ( 789 ) Change in assets and liabilities: Receivables 2,572 18,150 28,222 Contract receivables 927 ( 927 ) 1,062 Inventories 2,500 60,034 ( 4,986 ) Other current assets 353 706 440 Other assets ( 107 ) 3,182 389 Accounts payable 7,745 ( 21,228 ) ( 45,921 ) Operating lease liability ( 2,619 ) - - Accrued and other liabilities 5,154 ( 7,115 ) 468 Income taxes 1,645 ( 2,425 ) 5,387 Contract liabilities ( 927 ) 927 ( 1,062 ) Net cash provided by operating activities 52,764 73,576 19,123 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ( 4,663 ) ( 3,918 ) ( 6,702 ) Proceeds from the sale of assets - - 5,468 Proceeds from sale of business 1,700 17,300 - Net cash (used in) provided by investing activities ( 2,963 ) 13,382 ( 1,234 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facility 139,801 55,681 37,492 Repayments on revolving credit facility ( 139,713 ) ( 101,900 ) ( 40,263 ) Proceeds from term loan 50,000 - - Repayments on term loan ( 94,295 ) ( 38,400 ) ( 11,231 ) Debt issuance costs ( 2,333 ) - - Proceeds from stock options 599 977 461 Dividends paid on common stock ( 4,611 ) ( 4,565 ) ( 4,538 ) Net cash used in financing activities ( 50,552 ) ( 88,207 ) ( 18,079 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 751 ) ( 1,249 ) ( 190 ) CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD 4,470 5,719 5,909 END OF PERIOD $ 3,719 $ 4,470 $ 5,719 See notes to Consolidated Financial Statements 33 Table of Contents ROCKY BRANDS, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The accompanying Consolidated Financial Statements include the accounts of Rocky Brands, Inc. ("Rocky Brands") and its wholly-owned subsidiaries, Lifestyle Footwear, Inc. ("Lifestyle"), Five Star Enterprises Ltd. ("Five Sta r"), 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 R.L. de C.V., Rocky Footwear (Chuzhou) Co. 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 Muck, Rocky, Georgia Boot, Durango, Lehigh, XTRATUF, 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: work, outdoor, western, commercial military, duty and military. 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. Our products are distributed through three distinct business segments: Wholesale, Retail and Contract Manufacturing. Wholesale includes sales of footwear and accessories to several classifications of retailers, including sporting goods stores, outdoor specialty stores, online retailers, marine stores, independent retailers, mass merchants, retail uniform stores and specialty safety shoe stores. Our Retail business includes direct sales of our products to consumers through our e-Commerce websites, third -party marketplaces, our Rocky Outdoor Gear Store and Lehigh businesses. Contract Manufacturing 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. See Note 19 - Segment Information 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. Actual results could differ from those estimates. Foreign Currency - We have determined that the functional currency for our international subsidiaries is the USD as this is the currency in which the entities primarily generate and expend cash. Monetary assets and liabilities that are in a currency other than the USD are remeasured at the rate prevailing at year end. Revenue and expenses in a foreign currency are remeasured at rates that approximate those in effect at the time of remeasurement. Resulting gains and losses from remeasuring the foreign currency to the USD are included in net income. Foreign currency transaction gains and losses are not material for any period presented. Cash and Cash Equivalents - We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Balances may exceed federally insured limits. We also hold cash outside of the U.S. that is not federally insured. Allowance for Credit Losses - We maintain an allowance for credit losses resulting from the inability of our customers to make required payments. 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. 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. Trade receivables are presented net of the related allowance for credit losses of approximately $ 1.0 million and $ 1.8 million at December 31, 2024 and 2023 , 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, 2024 and 2023 . Our exposure to credit risk is impacted by the economic climate affecting the retail shoe industry. We manage this risk by performing ongoing credit evaluations of our customers, maintaining reserves for potential uncollectible accounts and utilizing credit insurance for some of our key customers. 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 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, primarily in China and Vietnam. We are not aware of any governmental or economic restrictions that would alter our current sourcing operations. Inventories - Inventories are valued at the lower of cost or net realizable value, on a first -in, first -out (FIFO) basis. We reduce the carrying value of inventories to the lower of cost or net realizable value for excess and obsolete inventories based upon assumptions about future demand and market conditions. If we estimate the net realizable value of our inventory is less than the cost of the inventory, we record an adjustment equal to the difference between the cost of the inventory and the estimated net realizable value. The adjustment is recorded as a charge to cost of goods sold. If changes in demand or market conditions result in reductions to the estimated net realizable value of our inventory below our previous estimate, we would further adjust the value of our inventory in the period in which we made such a determination. 34 Table of Contents Property, Plant and Equipment - We record fixed assets at historical cost and generally utilizes the straight-line method of computing depreciation for financial reporting purposes over the estimated useful lives of the assets as follows: Years Buildings and improvements 5 - 39 Machinery and equipment 3 - 8 Furniture and fixtures 3 - 8 Lasts, dies, and patterns 3 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. 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 7 - Goodwill and Other Intangible Assets . 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. The Company's incremental borrowing rate is used to determine the present value of future lease payments unless the implicit rate is readily determinable. Most of our leases have contractually specified renewal periods. Our operating leases expire at various dates through 2029 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. 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 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 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. 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. There were no material other comprehensive income items, and, therefore, no Statements of Comprehensive Income were presented. 35 Table of Contents Revenue Recognition - Revenue is recognized when the 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 or at the time of sale for our retail stores. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products at a point in time and consists of either fixed or variable consideration or a combination of both. Payment terms vary by sales channel and customer. For our wholesale channel and our Lehigh business-to-business channel, terms generally require the customer pay within 30 to 60 days of product shipment. For our retail store, e-Commerce channel, and third -party marketplace channel, payment is due at the time of sale. 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. Advertising - We expense advertising costs as incurred. Advertising expense was approximately $ 19.9 million, $ 16.6 million and $ 15.4 million for 2024 , 2023 and 2022 , 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 $ 27.0 million, $ 25.1 million and $ 38.5 million in 2024 , 2023 and 2022 , 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. This standard clarifies how to measure fair value as permitted under other accounting pronouncements. 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 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, 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 third -party marketplace during the year. The fair value of our revolving line of credit is categorized as Level 2. Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets primarily include goodwill and other indefinite lived intangible assets that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs. We incurred $ 4.0 of impairment relating to our trademarks during the year ended December 31, 2024, to write-down the carrying value of the Muck trademark to the fair value of the asset. 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. The Executive Deferred Compensation Plan is a nonqualified deferred compensation plan in which certain executives are eligible to participate. 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 fair value is based on unadjusted quoted market prices for the funds in active markets with sufficient volume and frequency (Level 1 ). 36 Table of Contents 2. ACCOUNTING STANDARDS UPDATES Recently Issued Accounting Pronouncements Rocky Brands, Inc. is currently evaluating the impact of certain ASUs on its Consolidated Financial Statements or Notes to the Consolidated Financial Statements: Standard Description Anticipated Adoption Periods Effect on Consolidated 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. Q4 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 consolidated financial statements. ASU 2024 - 03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses This pronouncement requires expanded disclosures on comprehensive income to improve expenses and address requests from investors for more detailed information about the types of expenses. Q4 2027 (fiscal year) Q1 2028 (interim period) The Company is still assessing the impact of the new accounting standard on its consolidated financial statements. Accounting Standards Adopted in Current Year Standard Description Effect on the financial statements or other significant matters 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. The Company has included all required disclosures within its Form 10 -K for the year ended December 31, 2024. See Note 19 for further information on segment disclosures. 3. 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"). The sale of the Servus brand included the sale of inventory, fixed assets, customer relationships, and tradenames, all of which related to our Wholesale segment. Total consideration for this transaction was approximately $ 19.0 million and resulted in a gain on sale 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. 4. 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. 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. Total consideration for this transaction was approximately $ 5.8 million and 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, 2022. The sale of fixed assets, customer relationships and tradenames resulted in a reduction of operating expenses of approximately $ 0.7 million recorded in the accompanying consolidated statement of operations for the twelve months ended December 31, 2022. 5. INVENTORIES Inventories are comprised of the following: December 31, December 31, ($ in thousands) 2024 2023 Finished goods $ 149,328 $ 151,515 Raw materials 16,671 16,774 Work-in-process 702 912 Total $ 166,701 $ 169,201 The asset associated with our returns reserve included within inve ntories was approximatel y $ 0.9 million and $ 0.8 million at December 31, 2024 and December 31, 2023 , respectively. 37 Table of Contents 6. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is comprised of the following: December 31, December 31, ($ in thousands) 2024 2023 Machinery and equipment $ 61,956 $ 61,148 Buildings 37,657 37,581 Lasts, dies and patterns 11,806 11,271 Furniture and fixtures 1,548 2,006 Less - accumulated depreciation ( 75,242 ) ( 69,455 ) Total 37,725 42,551 Construction work-in-progress 10,969 8,453 Land 972 972 Net Fixed Assets $ 49,666 $ 51,976 We incurred approximately $ 7.5 million, $ 8.1 million and $ 9.2 million in depreciation expense for 2024 , 2023 and 2022 , respectively. 7. 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, EBITDA, 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. After completing our annual goodwill impairment test for our Wholesale and Retail reporting units during the fourth quarter of 2024 and 2023, we concluded there was no impairment in either of these years. The fair value of our indefinite-lived intangibles, which consist of trademarks, 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. In the fourth quarter of 2024, after completing our annual impairment test for our indefinite-lived intangible assets, we recognized a $ 4.0 million impairment charge related to the Muck trademark. The impairment charge for the Muck trademark was due to a reduction in the assigned royalty rate as a result of changes in projected revenue growth. There was no impairment charge for indefinite-lived intangible assets recorded during the year end December 31, 2023. 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 third -party 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 and/or intangible assets impairment. 38 Table of Contents The changes in the carrying amount of goodwill are as follows: ($ in thousands) 2024 2023 Goodwill balance at beginning of the year (1) $ 47,844 $ 50,246 Sale of Business (2) - ( 2,402 ) Goodwill balance at end of the year (1) $ 47,844 $ 47,844 ( 1 ) As of December 31, 2024 and December 31, 2023 , goodwill allocated to our Wholesale and Retail report ing segments was $ 23.0 million and $ 24.8 million, respectively. No goodwill was allocated to our Contract Manufacturing segment for either period presented. ( 2 ) Relates to the divesture of the Servus brand during the year ended December 31, 2023, Note 3 - Sale of Servus Brand and Related Assets for additional information. A schedule of identified intangible assets is as follows: December 31, 2024 Gross Accumulated Accumulated Carrying ($ in thousands) Amount Amortization Impairment Amount Indefinite-lived intangible assets Trademarks (1) $ 78,654 $ ( 4,000 ) 74,654 Intangible assets subject to amortization Patents 895 $ ( 863 ) - 32 Customer relationships 41,659 ( 10,522 ) - 31,137 Total Intangible assets other than goodwill $ 121,208 $ ( 11,385 ) $ ( 4,000 ) $ 105,823 ( 1 ) As of December 31, 2024 , the Trademark impairment related to our Wholesale and Retail report ing segments was $ 3.6 million and $ 0.4 million, respectively. 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 The weighted average life of patents and customer relationships is 3.1 years and 11.3 years, respectively. Amortization expense for intangible assets subject to amortization for the twelve months ended December 31, 2024, 2023 and 2022 was $ 2.8 million, $ 2.9 million and $ 3.1 million, respectively. 39 Table of Contents A schedule of approximate expected remaining amortization expense related to finite-lived intangible assets for the years ending December 31 is as follows: Amortization ($ in thousands) Year Expense 2025 $ 2,790 2026 2,788 2027 2,785 2028 2,781 2029 2,779 2030+ 17,246 Total $ 31,169 8. OTHER ASSETS Other assets consist of the following: December 31, December 31, ($ in thousands) 2024 2023 Long-term deposits $ 567 $ 556 Deferred loan fees 476 - NQDC plan assets 455 409 Total $ 1,498 $ 965 9. ACCRUED EXPENSES AND OTHER LIABILITIES Amounts reported in "Accrued expenses and other liabilities" within the accompanying Consolidated Balance Sheets were: December 31, December 31, ($ in thousands) 2024 2023 Accrued Expenses and other liabilities: Accrued duties $ 6,807 $ 5,440 Accrued freight 3,244 2,284 Salaries and wages 3,220 1,204 Operating lease liability 2,772 2,679 Returns liability 1,754 - Accrued advertising 1,406 1,877 Taxes - other 965 925 Commissions 828 904 Income taxes payable 562 - Accrued interest - 2,104 Other 2,419 695 Total accrued expenses and other liabilities $ 23,977 $ 18,112 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 December 31, 2024, we had borrowing capacity of $ 55.9 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. This transaction resulted in a $ 2.6 million expense within Interest Expense and Other - net in the accompanying Consolidated 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 twelve months ended December 31, 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 Consolidated Statements of Cash Flows for the twelve months ended December 31, 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 % In connection with the ABL Agreement, we paid certain fees that were capitalized and will be amortized over the life of such agreement. 40 Table of Contents Current and long-term debt under the ABL Agreement consisted of the following as of December 31, 2024: December 31, ($ in thousands) 2024 Term Facility that matures in 2029 with an effective interest rate of 10.47 % $ 35,123 ABL Facility that matures in 2029: SOFR borrowings with an effective interest rate of 6.24 % 91,300 Prime borrowings with an effective interest rate of 7.77 % 4,577 Total debt 131,000 Less: Unamortized debt issuance costs ( 2,263 ) Total debt, net of debt issuance costs 128,737 Less: Debt maturing within one year ( 8,361 ) Long-term debt $ 120,376 A schedule of debt payments for t he next five years is as follows: Debt Payment ($ in thousands) Year Schedule 2025 8,361 2026 8,361 2027 8,361 2028 8,361 2029 97,556 Total 131,000 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 December 31, 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 December 31, 2024, the Company was in compliance with the amounts paid on dividends in accordance with our debt facilities. Interest expense was approximately $ 17.0 million, $ 22.7 million and $ 18.3 million, respectively, for the years ended December 31, 2024, 2023 and 2022 . 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. 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. 41 Table of Contents 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 Ter m Facility consisted of the following as of December 31, 2023: December 31, ($ in thousands) 2023 TCW Term Facility refinanced in April 2024 with an effective interest rate of 13.20 % $ 77,932 Original ABL Facility amended and restated in April 2024: SOFR borrowings with an effective interest rate of 7.31 % 83,144 Prime borrowings with an effective interest rate of 8.75 % 13,938 Total debt 175,014 Less: Unamortized debt issuance costs ( 1,884 ) Total debt, net of debt issuance costs 173,130 Less: Debt maturing within one year ( 2,650 ) Long-term debt $ 170,480 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 twelve months ended December 31, 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. 42 Table of Contents 11. LEASES The following is a summary of the Company's lease cost: December 31, December 31, December 31, ($ in thousands) 2024 2023 2022 Operating lease cost $ 2,896 $ 4,019 $ 3,175 Short-term lease cost 1,205 504 2,166 Total lease cost $ 4,101 $ 4,523 $ 5,341 Variable lease costs for the year ending December 31, 2024 was approximately $ 0.4 million. The following is a summary of the Company's su pplemental cash flow information related to leases: December 31, December 31, December 31, ($ in thousands) 2024 2023 2022 Cash paid for operating lease liabilities $ 2,921 $ 2,853 $ 1,492 Operating lease assets obtained in exchange for lease liabilities $ 869 $ 628 $ 2,786 The weighted-average discount rate for operating leases as of December 31, 2024 is 3.2 %. The weighted-average remaining lease term for operating leases as of December 31, 2024 is 2.4 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 31, 2024 are as follows: Operating ($ in thousands) Year Leases 2025 $ 2,943 2026 2,574 2027 758 2028 300 2029 68 Total lease payments 6,643 Less: Interest ( 334 ) Present value of lease liabilities $ 6,309 43 Table of Contents 12. BENEFIT PLAN We sponsor a 401 (k) savings plan for eligible employees. We provide a contribution of 3.0 % of applicable salary to the plan for all eligible full-time employees with greater than six months of service. Additionally, we match eligible employee contributions at a rate of 25.0 % up to the first 4.0 % of eligible compensation that is deferred. This matching contribution will be made by us up to a maximum of 1.0 % of the employee’s applicable salary for all qualified employees. Our approximate contributions to the 401 (k) Plan were as follows: ($ in thousands) 2024 2023 2022 401k plan sponsor contributions $ 1,392 $ 1,531 $ 1,798 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. 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 $ 0.5 million and $ 0.4 million as of December 31, 2024 and December 31, 2023 , 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 as of December 31, 2024 and December 31, 2023 , 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. Under the Dominican Plan, key employees will receive a set dollar amount, as defined in the agreement, at the later of five years following the effective date of the agreement or upon the employee attaining the age of 65. Payments are due within 30 days of the employee's retirement. If the employee terminates their employment, for any reason, prior to their retirement and five years after the effective date of the agreement, the employee is not eligible to receive a payout. 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 $ 0.4 million and $ 0.3 million as of December 31, 2024 and December 31, 2023 , respectively, and are classified within deferred liabilities in the accompanying consolidated balance sheets. 13. TAXES We use the asset and liability method of accounting for income taxes based on ASC 740, Accounting for Income Taxes . Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the period in which the differences are expected to reverse Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. A breakdown of our income tax expense (benefit) for the years ended December 31 is as follows: ($ in thousands) 2024 2023 2022 Federal: Current $ ( 926 ) $ 3,877 $ 5,993 Deferred 2,337 ( 977 ) ( 1,417 ) Total federal 1,411 2,900 4,576 State & local: Current 140 262 1,415 Deferred 148 123 ( 247 ) Total state & local 288 385 1,168 Foreign Current 878 106 182 Deferred 94 337 ( 623 ) Total foreign 972 443 ( 441 ) Total $ 2,671 $ 3,728 $ 5,303 44 Table of Contents 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, ($ in thousands) 2024 2023 2022 Expected expense at statutory rate $ 2,947 $ 2,975 $ 5,414 Increase (decrease) in income taxes resulting from: Tax on repatriated earnings from foreign operations 399 190 316 State and local income taxes 227 407 734 Tax rate differential effect of foreign operations 230 106 160 Permanent differences 165 69 11 Change in valuation allowance ( 200 ) 355 - Provision to return filing adjustments and other ( 117 ) 329 ( 352 ) Foreign tax credit ( 468 ) ( 227 ) ( 348 ) Exempt income from Dominican Republic operations due to tax holiday ( 512 ) ( 476 ) ( 632 ) Total $ 2,671 $ 3,728 $ 5,303 Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2024 and 2023 consisted of the following: ($ in thousands) 2024 2023 Deferred tax assets: Inventories $ 3,640 $ 2,428 Lease assets 1,252 1,853 Asset valuation allowances and accrued expenses 957 967 Transaction costs 608 684 Net operating losses 318 866 163(J) Interest limitation 262 4,644 State and local income taxes 195 305 Pension and deferred compensation 56 54 Total deferred tax assets 7,288 11,801 Valuation allowances ( 155 ) ( 355 ) Total deferred tax assets 7,133 11,446 Deferred tax liabilities: Intangible assets 11,908 11,713 Fixed assets 3,231 4,166 Lease liabilities 1,195 1,786 Other assets 587 748 Tollgate tax on Lifestyle earnings 228 228 State and local income taxes 28 280 Total deferred tax liabilities 17,177 18,921 Net deferred tax liability $ 10,044 $ 7,475 The valuation allowance as of December 31, 2024 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, 2024 . We are subject to tax examinations in various taxing jurisdictions. The earliest exam years open for examination are as follows: Earliest Exam Year Taxing authority jurisdiction: U.S. federal 2021 Various U.S. states 2020 Puerto Rico (U.S. territory) 2019 Canada 2019 China 2021 Mexico 2021 United Kingdom 2022 Australia 2022 Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2024 , no such expenses were recognized during the year. 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. We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations. 45 Table of Contents 14. SHAREHOLDERS' EQUITY Preferred Shares 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, 2024 and 2023 . 15. 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, 2023, we were authorized to issue 502,325 shares under the 2014 Plan. On June 5, 2024, our shareholders approved the 2024 Omnibus Incentive Plan. The purpose of the 2024 Plan was to authorize shares to be available for grant upon expiration of the 2014 Plan and to make other design changes based on recent corporate governance and other trends. We carried over 472,862 shares that remained available under the 2014 Plan and our shareholders authorized an additional 27,138 shares for the 2024 Plan for a total of 500,000 shares eligible for grant under the 2024 Plan. As of December 31, 2024, we were authorized to issue 504,267 shares under the 2024 Plan. During the years ended December 31, 2024 and 2023 , and 2022 we issued 19,364 shares, 34,418 shares and 10,762 shares of common stock to members of our Board of Directors, respectively. Stock Options There were no options granted for the year ended December 31, 2024 and 2023. The following table presents the weighted average assumptions used in the option-pricing model at the grant date for options granted during the year ended December 31: 2022 Assumptions: Risk-free interest rate 0.82 % Expected dividend yield 2.15 % Expected volatility of Rocky's common stock 54.70 % Expected option term (years) 5.1 Weighted-average grant date fair value per share $ 12.85 For the years ended December 31, 2024 and 2023 , we recognized share-based compensation expense and the corresponding tax benefit as follows: ($ in thousands) 2024 2023 2022 Share-based compensation expense $ 1,294 $ 1,244 $ 1,230 Tax benefit 220 302 221 46 Table of Contents The following summarizes stock option activity for the year ended December 31, 2024 : Weighted Weighted Average Average Remaining Aggregate ($ amounts are per share) Shares Exercise Price Actual Term Intrinsic Value Options outstanding at January 1, 2024 265,086 $ 38.92 Issued - - Exercised ( 21,700 ) 27.62 Forfeited or expired ( 43,686 ) 32.59 Options outstanding at December 31, 2024 199,700 $ 28.82 10.7 $ 256,226 Expected to vest 34,700 $ 33.95 14.2 $ - Exercisable at December 31, 2024 165,000 $ 27.74 9.9 $ 256,226 For the years ended December 31, 2024, 2023 and 2022 , cash received for the exercise of stock options was approximately $ 0.6 million, $ 1.0 million, and $ 0.5 million, respectively. Restricted Stock Units The following table summarizes the status of the Company's restricted stock units and activity as of December 31, 2024 : Restricted Stock Units Weighted-Average Grant Date ($ amounts are per share) Quantity Fair Value Per Share Nonvested at January 1, 2024 32,412 $ 23.49 Granted 24,680 30.18 Vested ( 651 ) 12.79 Forfeited ( 3,018 ) 26.50 Nonvested at December 31, 2024 53,423 $ 26.54 As of December 31, 2024 , the total unrecognized compensation cost related to non-vested stock options and restricted stock units was approxi mately $ 1.0 million with a weighted-average expense recogniti on period of 1.6 years. 16. 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: Twelve Months Ended December 31, (shares in thousands) 2024 2023 2022 Basic - weighted average shares outstanding 7,437 7,363 7,317 Dilutive restricted share units 23 5 - Dilutive stock options 20 13 52 Diluted - weighted average shares outstanding 7,480 7,381 7,369 Anti-dilutive securities 120 229 162 47 Table of Contents 17. 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., the 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 Judgements Revenue is recognized when the performance obligations under the terms of a contract with our customer are satisfied. The performance obligation is satisfied, and revenue is recorded when control passes to the customer which is generally upon shipment to the customer or at the time of sale for our retail store customers. 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, 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. Our estimated sales returns are based on historical customer return data and known or anticipated returns not yet received from customers. Actual returns in any future period are inherently uncertain and thus may differ from estimates recorded. If actual or expected future returns are significantly higher or lower than the established reserves, a reduction or increase to net revenues is recorded in the period in which the determination is made. 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 December 31, 2024, there are no contract receivable or contract liability balances outstanding. 48 Table of Contents 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. All shipping costs billed to customers have been included in net sales. Contract Liabilities The following table provides information about contract liabilities from contracts with our customers. December 31, December 31, ($ in thousands) 2024 2023 Contract liabilities $ - $ 927 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, December 31, 2024 $ - Disaggregation of Revenue All revenues are recogniz ed at a point in time when control of our products pass to the customer at point of shipment or point of sale for retail store 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 19 - Segment Information for segment disclosures. 49 Table of Contents 18. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow for the years ended December 31, as follows: Twelve Months Ended December 31, ($ in thousands) 2024 2023 2022 Interest paid $ 16,170 $ 13,302 $ 17,501 Federal, state, and local income taxes paid, net $ ( 1,912 ) $ 6,656 $ 1,930 Property, plant, and equipment purchases in accounts payable $ 484 $ 881 $ 976 19. 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., 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. Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer (CEO), who evaluates operating results and performance based on net sales and gross margin. Our CODM also uses results of net sales and gross margin to evaluate segment performance and allocate resources as the primary metrics for overall segment evaluation. 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. The following is a summary of segment results for the Wholesale, Retail, and Contract Manufacturing segments for the years ended December 31: Year Ended December 31, ($ in thousands) 2024 2023 2022 NET SALES: Wholesale $ 313,340 $ 337,019 $ 484,779 Retail 126,868 116,960 115,354 Contract Manufacturing 13,564 7,854 15,342 Total Net Sales $ 453,772 $ 461,833 $ 615,475 COST OF GOODS SOLD: Wholesale $ 196,095 $ 217,534 $ 319,720 Retail 66,715 58,569 57,537 Contract Manufacturing 11,952 7,132 12,999 Total Cost of Goods Sold $ 274,762 $ 283,235 $ 390,256 GROSS MARGIN: Wholesale $ 117,245 $ 119,485 $ 165,059 Retail 60,153 58,391 57,817 Contract Manufacturing 1,612 722 2,343 Total Gross Margin $ 179,010 $ 178,598 $ 225,219 Segment asset information is not prepared or used to assess segment performance. 50 Table of Contents Product Line Information - The following is supplemental information on net sales by product line for the years ended December 31: ($ in thousands) 2024 % of Sales 2023 % of Sales 2022 % of Sales Work footwear $ 190,349 41.9 % $ 198,096 42.9 % $ 256,162 41.6 % Outdoor footwear 130,222 28.7 130,424 28.2 183,121 29.8 Western 82,639 18.2 70,374 15.2 108,697 17.7 Duty and commercial military footwear 34,547 7.6 50,482 10.9 46,177 7.5 Military footwear 11,275 2.5 7,999 1.7 15,342 2.5 Other 4,740 1.0 4,458 1.0 5,976 1.0 $ 453,772 100.0 % $ 461,833 100.0 % $ 615,475 100.0 % Net sales to foreign countries represented approximately 3.2 % of net sales in 2024 , 5.1 % of net sales in 2023 and 6.2 % of net sales in 2022 . The net book value of fixed assets located outside of the U.S. totaled $ 11.2 million at December 31, 2024 , of which approx imately $ 3.7 mill ion resides in the Dominican Republic and approximatel y $ 7.5 mil lion resides in China. 20. COMMITMENTS AND CONTINGENCIES Litigation The Company is involved in legal proceedings in the ordinary course of business. Unless otherwise stated, 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. 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. As a result of the misclassification of HTS codes we have paid duties in excess of the required amount. We are in the process of filing multiple post summary corrections with U.S. 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 $ 5.1 million to date. No refunds were received for the twelve months ended December 31, 2024, $ 1.9 million was received during the year ended December 31, 2023 and $ 3.2 million was received 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 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. 51 Table of Contents 21. SUBSEQUENT EVENTS Repurchase of Common Stock On February 24, 2025, Rocky Brands announced that its Board of Directors has approved a new share repurchase program of up to $ 7,500,000 of the Company’s outstanding common stock, no par value per share. This repurchase program replaces the previous repurchase program authorized by the Board of Directors that expired on March 4, 2022. Dividends Declared On February 18, 2025, Rocky Brands announced that its board of directors declared a quarterly cash dividend of $ 0.155 per share of outstanding common stock, to be paid on March 17, 2025 to all shareholders of record as of the close of business on March 3, 2025. The declaration and payment of future dividends and the establishment of future record dates and payment dates are subject to the quarterly determination of the board of directors. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.