ROCKY BRANDS, INC. 10-Q

ITEM 1 – FINANCIAL STATEMENTS Rocky Brands, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except share amounts) (Unaudited) March 31, December 31, March 31, 2025 2024 2024 ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 2,557 $ 3,719 $ 3,059 Trade receivables – net 74,453 71,983 70,662 Other receivables 264 1,028 1,913 Inventories – net 175,508 166,701 165,129 Income tax receivable - - 538 Prepaid expenses 5,899 3,008 6,037 Total current assets 258,681 246,439 247,338 LEASED ASSETS 5,405 6,030 7,139 PROPERTY, PLANT & EQUIPMENT – net 49,585 49,666 51,305 GOODWILL 47,844 47,844 47,844 IDENTIFIED INTANGIBLES – net 105,126 105,823 111,919 OTHER ASSETS 1,582 1,498 982 TOTAL ASSETS $ 468,223 $ 457,300 $ 466,527 LIABILITIES AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 64,560 $ 58,069 $ 53,479 Current portion of long-term debt 8,361 8,361 2,650 Accrued expenses and other liabilities 25,164 23,977 18,619 Total current liabilities 98,085 90,407 74,748 LONG-TERM DEBT 120,255 120,376 153,302 LONG-TERM TAXES PAYABLE - - 169 LONG-TERM LEASE 2,857 3,537 4,801 DEFERRED INCOME TAXES 10,044 10,044 7,475 DEFERRED LIABILITIES 769 712 737 TOTAL LIABILITIES 232,010 225,076 241,232 SHAREHOLDERS' EQUITY: Common stock, no par value; - - - 25,000,000 shares authorized; issued and outstanding March 31, 2025 - 7,451,996 ; December 31, 2024 - 7,454,465 ; March 31, 2024 - 7,417,546 Additional paid-in-capital 74,070 73,866 72,312 Retained earnings 162,143 158,358 152,983 Total shareholders' equity 236,213 232,224 225,295 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 468,223 $ 457,300 $ 466,527 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 March 31, 2025 2024 NET SALES $ 114,073 $ 112,906 COST OF GOODS SOLD 67,065 68,757 GROSS MARGIN 47,008 44,149 OPERATING EXPENSES 38,302 36,166 INCOME FROM OPERATIONS 8,706 7,983 INTEREST EXPENSE AND OTHER – net ( 2,356 ) ( 4,654 ) INCOME BEFORE INCOME TAX EXPENSE 6,350 3,329 INCOME TAX EXPENSE 1,409 779 NET INCOME $ 4,941 $ 2,550 INCOME PER SHARE Basic $ 0.66 $ 0.34 Diluted $ 0.66 $ 0.34 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 7,459 7,417 Diluted 7,493 7,450 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, 2023 7,412 $ 71,973 $ 151,582 $ 223,555 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 BALANCE - December 31, 2024 7,454 $ 73,866 $ 158,358 $ 232,224 Net income $ 4,941 $ 4,941 Dividends paid on common stock ($ 0.155 per share) ( 1,156 ) ( 1,156 ) Repurchase of common stock ( 10 ) $ ( 201 ) - ( 201 ) Stock issued for options exercised, including tax benefits 1 19 - 19 Stock compensation expense 7 386 - 386 BALANCE - March 31, 2025 7,452 $ 74,070 $ 162,143 $ 236,213 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) Three Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,941 $ 2,550 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,382 2,506 Noncash lease expense 679 669 Provision for bad debts 236 410 Stock compensation expense 386 339 Amortization of debt issuance costs and loan fees 161 213 Loss on disposal of assets - 17 Change in assets and liabilities: Receivables ( 1,942 ) 5,977 Contract receivables - 927 Inventories ( 8,806 ) 4,072 Other current assets ( 2,891 ) ( 2,676 ) Other assets ( 14 ) ( 17 ) Accounts payable 5,589 2,760 Operating lease liability ( 699 ) - Accrued and other liabilities 515 ( 133 ) Income taxes 693 715 Contract liabilities - ( 927 ) Net cash provided by operating activities 1,230 17,402 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ( 701 ) ( 280 ) Proceeds from the sale of fixed assets - 8 Net cash used in investing activities ( 701 ) ( 272 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facility 8,338 1,750 Repayments on revolving credit facility ( 6,500 ) ( 15,500 ) Repayments on term loan ( 2,090 ) ( 3,642 ) Payments of loan fees ( 101 ) - Proceeds from stock options 19 - Repurchase of common stock ( 201 ) - Dividends paid on common stock ( 1,156 ) ( 1,149 ) Net cash used in financing activities ( 1,691 ) ( 18,541 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 1,162 ) ( 1,411 ) CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD 3,719 4,470 END OF PERIOD $ 2,557 $ 3,059 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 The Original Muck Boot Company ("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. 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 months ended March 31, 2025 and 2024 are not necessarily indicative of the results to be expected for the whole year. The December 31, 2024 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, 2024 , 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 prior periods in Note 8 - 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 - 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. 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. 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 ). 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 are 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. 4. 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 Judgments 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 may be 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. 7 Table of Contents From time to time, we enter into non-cancellable contracts with the U.S. Military and other customers with a duration of one year or less. The contractual minimum payments under such contracts may result in current contract receivable balances. 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. As of March 31, 2025 , December 31, 2024, and March 31, 2024, there are no contract receivable or contract liability balances outstanding. 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. 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 13 - Segment Information for segment disclosures. 5. TRADE RECEIVABLES 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 $ 0.9 million, $ 1.0 million and $ 1.3 million at March 31, 2025 , December 31, 2024 and March 31, 2024 , respectively. 8 Table of Contents 6. INVENTORY Inventories are comprised of the following: March 31, December 31, March 31, ($ in thousands) 2025 2024 2024 Finished goods $ 156,939 $ 149,328 $ 146,784 Raw materials 17,629 16,671 17,479 Work-in-process 940 702 866 Total $ 175,508 $ 166,701 $ 165,129 The asset associated with our returns reserve included within inventories wa s approximately $ 0.9 million, $ 0.9 million and $ 0.8 millio n at March 31, 2025 , December 31, 2024 and March 31, 2024 , respectively. 7. GOODWILL & IDENTIFIED INTANGIBLE ASSETS There was no change in goodwill during the three months ended March 31, 2025 . Intangible assets other than goodwill at the respective balance sheet dates consisted of the following: March 31, 2025 Gross Accumulated Accumulated Carrying ($ in thousands) Amount Amortization Impairment (1) Amount Indefinite-lived intangible assets Trademarks $ 78,654 - $ ( 4,000 ) $ 74,654 Intangible assets subject to amortization Patents 895 $ ( 865 ) - 30 Customer relationships 41,659 ( 11,217 ) - 30,442 Total Intangible assets other than goodwill $ 121,208 $ ( 12,082 ) $ ( 4,000 ) $ 105,126 ( 1 ) Relates to the impairment of the Muck brand for the year ended December 31, 2024. December 31, 2024 Gross Accumulated Accumulated Carrying ($ in thousands) Amount Amortization Impairment (1) Amount Indefinite-lived intangible assets Trademarks $ 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 ) Relates to the impairment of the Muck brand for the year ended December 31, 2024. March 31, 2024 Gross Accumulated Accumulated Carrying ($ in thousands) Amount Amortization Impairment Amount Indefinite-lived intangible assets Trademarks $ 78,654 - - $ 78,654 Intangible assets subject to amortization Patents 895 $ ( 851 ) - 44 Customer relationships 41,659 ( 8,438 ) - 33,221 Total Intangible assets other than goodwill $ 121,208 $ ( 9,289 ) - $ 111,919 9 Table of Contents The weighted average life of patents and customer relation ships is 2.9 years and 11.0 years, res pectively. Amortization expense for intangible assets subject to amortization for each of the three months ended March 31, 2025 and 2024 was $0.7 million. As of March 31, 2025 , a schedule of approximate expected remaining amortization expense related to intangible assets for the years ending December 31 is as follows: Amortization ($ in thousands) Year Expense 2025 2,093 2026 2,788 2027 2,785 2028 2,781 2029 2,779 2030+ 17,246 Total 30,472 8. ACCRUED EXPENSES AND OTHER LIABILTIES Amounts reported in "Accrued expenses and other liabilities" within the accompanying Unaudited Condensed Consolidated Balance Sheets were: March 31, December 31, March 31, ($ in thousands) 2025 2024 2024 Accrued expenses and other liabilities: Accrued duties $ 9,889 $ 6,807 $ 5,867 Operating lease liability 2,808 2,772 2,612 Salaries and wages 2,198 3,220 1,774 Accrued freight 1,807 3,244 2,193 Returns liability 1,716 1,754 - Accrued advertising 1,338 1,406 1,357 Income taxes payable 1,254 562 - Taxes - other 791 965 523 Commissions 675 828 657 Accrued interest - - 1,979 Other 2,688 2,419 1,657 Total accrued expenses and other liabilities $ 25,164 $ 23,977 $ 18,619 9. 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 March 31, 2025 , we had borrowing capacity of $ 53.0 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 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 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. Current and long-term debt under the ABL Agreement consisted of the following: March 31, December 31, ($ in thousands) 2025 2024 Term Facility that matures in 2029 with an effective interest rate of 7.97 % as of March 31, 2025 and 10.47 % as of December 31, 2024, respectively $ 33,032 $ 35,123 ABL Facility that matures in 2029: SOFR borrowings with an effective interest rate of 6.23 % as of March 31, 2025 and 6.24 % as of December 31, 2024, respectively 96,300 91,300 Prime borrowings with an effective interest rate of 7.80 % as of March 31, 2025 and 7.77 % as of December 31, 2024, respectively 1,416 4,577 Total debt 130,748 131,000 Less: Unamortized debt issuance costs ( 2,132 ) ( 2,263 ) Total debt, net of debt issuance costs 128,616 128,737 Less: Debt maturing within one year ( 8,361 ) ( 8,361 ) Long-term debt $ 120,255 $ 120,376 A schedule of debt payments for the next five years is as follows: Debt Payment ($ in thousands) Year Schedule 2025 6,271 2026 8,361 2027 8,361 2028 8,361 2029 99,394 Total 130,748 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 March 31, 2025 , we were in compliance with all credit facility covenants. The ABL Facility and Term Facility also contain restrictions on the amount of dividend payments and share repurchases. As of March 31, 2025 , the Company was in compliance with the amounts paid on dividends and share repurchases 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 and 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. 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: March 31, ($ in thousands) 2024 TCW Term Facility refinanced in April 2024 with an effective interest rate of 13.20 % $ 74,290 Original ABL Facility amended and restated in April 2024: SOFR borrowings with an effective interest rate of 7.18 % 75,123 Prime borrowings with an effective interest rate of 8.75 % 8,210 Total debt 157,623 Less: Unamortized debt issuance costs ( 1,671 ) Total debt, net of debt issuance costs 155,952 Less: Debt maturing within one year ( 2,650 ) Long-term debt $ 153,302 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 March 30, 2024, 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. 10. TAXES The effective tax rate for the three and three months ended March 31, 2025 and 2024 was 22.2 % and 23.4 %, 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, including projected income from our domestic and international businesses, 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 2024 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 months ended March 31, 2025 and 2024 . We do not believe there will be any material changes in our uncertain tax positions over the next 12 months. 11 Table of Contents 11. 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 months ended March 31, 2025 and 2024 is as follows: Three Months Ended March 31, (shares in thousands) 2025 2024 Basic - weighted average shares outstanding 7,459 7,417 Dilutive restricted share units 24 15 Dilutive stock options 10 18 Diluted - weighted average shares outstanding 7,493 7,450 Anti-dilutive securities 152 201 12. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information for the three months ended March 31, 2025 and 2024 is as follows: Three Months Ended March 31, ($ in thousands) 2025 2024 Interest paid $ 2,276 $ 2,724 Federal, state, and local income taxes paid, net $ 469 $ 16 Property, plant, and equipment purchases in accounts payable $ 902 $ 879 Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations $ 57 $ - 13. 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., the 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 approximately 2.0 % and 2.1 % of net sales for the three months ended March 31, 2025 and 2024 , respectively. 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. 12 Table of Contents The following is a summary of segment results for the Wholesale, Retail and Contract Manufacturing segments for the three months ended March 31, 2025 and 2024 . Three Months Ended March 31, ($ in thousands) 2025 2024 NET SALES: Wholesale $ 74,784 $ 79,791 Retail 36,641 30,408 Contract Manufacturing 2,648 2,707 Total Net Sales $ 114,073 $ 112,906 COST OF GOODS SOLD: Wholesale $ 44,674 $ 50,760 Retail 19,896 15,606 Contract Manufacturing 2,495 2,391 Total Cost of Goods Sold $ 67,065 $ 68,757 GROSS MARGIN: Wholesale $ 30,110 $ 29,031 Retail 16,745 14,802 Contract Manufacturing 153 316 Total Gross Margin $ 47,008 $ 44,149 Segment asset information is not prepared or used to assess segment performance. 14. 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 Unaudited Condensed Consolidated Financial Statement. 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 three months ended March 31, 2025 and March 31, 2024. 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. 13 Table of Contents