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 ) 25 Consolidated Balance Sheets as of December 31, 2025 and 2024 27 Consolidated Statements of Operations for the Years Ended December 31, 2025 and 2024 28 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2025 and 2024 29 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 30 Note 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 31 Note 2. ACCOUNTING STANDARDS UPDATES 33 Note 3. INVENTORIES 33 Note 4. PROPERTY, PLANT, AND EQUIPMENT 37 Note 5. GOODWILL AND OTHER INTANGIBLE ASSETS 37 Note 6. ACCRUED EXPENSES AND OTHER LIABILITIES 39 Note 7. LONG-TERM DEBT 39 Note 8. LEASES 41 Note 9. BENEFIT PLAN 42 Note 10. TAXES 42 Note 11. SHAREHOLDERS' EQUITY 44 Note 12. SHARE-BASED COMPENSATION 44 Note 13. EARNINGS PER SHARE 45 Note 14. REVENUE 46 Note 15. SUPPLEMENTAL CASH FLOW INFORMATION 48 Note 16. SEGMENT INFORMATION 48 Note 17. COMMITMENTS AND CONTINGENCIES 49 Note 18. SUBSEQUENT EVENTS 49 24 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 sheets of Rocky Brands, Inc. and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, shareholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, 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, 2025, 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 11, 2026, 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 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 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 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 audits 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 audits provide 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. Goodwill and Other Intangible Assets - Wholesale and Retail Reporting Units and Trademarks – Refer to Notes 1 and 5 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 value. 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 a comparable industry grouping or a comparable marketplace transactional multiple. The Company determines the fair value of trademarks ⁠based on the income approach using the relief from royalty method. This method requires management to estimate the future revenues for the related brands, the appropriate royalty rate, and the weighted average cost of capital. 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 trademarks could have a significant impact on the valuation of the reporting units or the trademarks and the amount of a goodwill or indefinite-lived intangible asset impairment charge, if any. We identified the valuation of the Wholesale and Retail reporting units and certain trademark indefinite-lived intangible assets 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 the forward-looking forecast compared to historical forecasts and results for each of the reporting units and trademarks. 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. 25 Table of Contents 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 certain trademark indefinite-lived intangible assets 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 11, 2026 We have served as the Company's auditor since 2024. 26 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share amounts) December 31, December 31, 2025 2024 ASSETS: CURRENT ASSETS: Cash and cash equivalents $ 2,902 $ 3,719 Trade receivables – net 77,055 71,983 Other receivables 4,952 1,028 Inventories – net 181,134 166,701 Income tax receivable 1,050 - Prepaid expenses 3,623 3,008 Total current assets 270,716 246,439 LEASED ASSETS 4,175 6,030 PROPERTY, PLANT & EQUIPMENT – net 49,929 49,666 GOODWILL 47,844 47,844 IDENTIFIED INTANGIBLES – net 103,033 105,823 OTHER ASSETS 1,791 1,498 TOTAL ASSETS $ 477,488 $ 457,300 LIABILITIES AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 52,958 $ 58,069 Current portion of long-term debt 8,361 8,361 Accrued expenses and other liabilities 34,813 23,977 Total current liabilities 96,132 90,407 LONG-TERM DEBT 114,281 120,376 LONG-TERM LEASES 1,727 3,537 DEFERRED INCOME TAXES 12,381 10,044 DEFERRED LIABILITIES 879 712 TOTAL LIABILITIES 225,400 225,076 SHAREHOLDERS' EQUITY: Common stock, no par value; - - 25,000,000 shares authorized; issued and outstanding December 31, 2025 - 7,505,139 ; December 31, 2024 - 7,454,465 Additional paid-in-capital 76,090 73,866 Retained earnings 175,998 158,358 Total shareholders' equity 252,088 232,224 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 477,488 $ 457,300 See notes to Consolidated Financial Statements 27 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended December 31, 2025 2024 NET SALES $ 481,976 $ 453,772 COST OF GOODS SOLD 284,686 274,762 GROSS MARGIN 197,290 179,010 OPERATING EXPENSES 160,103 147,944 INCOME FROM OPERATIONS 37,187 31,066 INTEREST EXPENSE AND OTHER – net ( 10,007 ) ( 17,008 ) INCOME BEFORE INCOME TAX EXPENSE 27,180 14,058 INCOME TAX EXPENSE 4,906 2,671 NET INCOME $ 22,274 $ 11,387 INCOME PER SHARE Basic $ 2.98 $ 1.53 Diluted $ 2.96 $ 1.52 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 7,474 7,437 Diluted 7,530 7,480 See notes to Consolidated Financial Statements 28 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, 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-based compensation 20 1,294 - 1,294 BALANCE - December 31, 2024 7,454 $ 73,866 $ 158,358 $ 232,224 Net income $ 22,274 $ 22,274 Dividends paid on common stock ($ 0.62 per share) ( 4,634 ) ( 4,634 ) Repurchase of common stock ( 10 ) $ ( 201 ) - ( 201 ) Stock issued for options exercised and other rewards, including tax benefits 32 808 - 808 Stock-based compensation 29 1,617 - 1,617 BALANCE - December 31, 2025 7,505 $ 76,090 $ 175,998 $ 252,088 See notes to Consolidated Financial Statements 29 Table of Contents Rocky Brands, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 22,274 $ 11,387 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,845 10,251 Noncash lease expense 2,798 2,619 Deferred income taxes 2,337 2,569 Stock compensation expense 1,617 1,294 Provision for bad debts 987 1,679 Amortization of debt issuance costs and loan fees 670 611 Gain on insurance proceeds received for damaged equipment ( 253 ) - Intangible impairment charge - 4,000 Loss on term loan extinguishment - 1,111 Changes in assets and liabilities: Receivables ( 9,983 ) 2,572 Contract receivables - 927 Inventories ( 14,433 ) 2,500 Other current assets ( 616 ) 353 Other assets ( 173 ) ( 107 ) Accounts payable ( 5,972 ) 7,745 Operating lease liability ( 2,875 ) ( 2,619 ) Accrued and other liabilities 11,687 5,154 Income taxes ( 1,611 ) 1,645 Contract liabilities - ( 927 ) Net cash provided by operating activities 16,299 52,764 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets ( 6,576 ) ( 4,663 ) Insurance proceeds received for damaged equipment 372 - Proceeds from sale of business - 1,700 Net cash used in investing activities ( 6,204 ) ( 2,963 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit facility 53,744 139,801 Repayments on revolving credit facility ( 52,000 ) ( 139,713 ) Proceeds on term loan - 50,000 Repayments on term loan ( 8,361 ) ( 94,295 ) Payments of debt issuance costs and loan fees ( 268 ) ( 2,333 ) Proceeds from stock options 808 599 Repurchase of common stock ( 201 ) - Dividends paid on common stock ( 4,634 ) ( 4,611 ) Net cash used in financing activities ( 10,912 ) ( 50,552 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 817 ) ( 751 ) CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD 3,719 4,470 END OF PERIOD $ 2,902 $ 3,719 See notes to Consolidated Financial Statements 30 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 intercompany transactions have been eliminated. Reclassification - Certain amounts in the prior year's consolidated financial statements and footnotes were reclassified to conform to the current year's presentation. 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, XTRATUF, Rocky, Durango, Georgia Boot, Lehigh, Ranger, and the licensed brand Michelin. Our brands have a long history of representing high quality, comfortable, functional and durable footwear and our products are organized around six target markets: 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 16 - 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 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 $ 0.7 million and $ 1.0 million at December 31, 2025 and 2024 , respectively. Concentration of Credit Risk - We have transactions with a large number of customers. 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. As of December 31, 2025, one customer represented approximately 15.0 % of net trade receivables. Management believes the credit risk associated with this customer is limited. As of December 31, 2024, there were no customers that represented 10.0% or more of net trade receivables. 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 Vietnam, China, the Dominican Republic, Cambodia, Puerto Rico, India, and Mexico. 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. 31 Table of Contents Property, Plant and Equipment - We record fixed assets at historical cost and generally utilize 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. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairments tests at least annually. We review 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. We 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. We would not be required to quantitatively determine the fair value unless we determine, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. We perform our 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 5 - 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. Our 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 2030 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, maintenance, and utilities. 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. 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 outdoor gear store. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of our products, which is net sales price. Payment terms vary by sales channel and customer. For our wholesale channel and our Lehigh business-to-business channel, terms generally require the customers to pay within 30 to 60 days of product shipment. For our outdoor gear 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 - Advertising costs associated with print and media advertisements are typically expensed in the first period in which the advertising takes place, and other advertising costs are expensed as incurred. Advertising expense was approximately $ 23.4 million and $ 19.9 million for 2025 and 2024 , respectively. 32 Table of Contents 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 $ 30.1 million and $ 27.0 million in 2025 and 2024 , 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 approximate fair value, as they are comparable to financing in the third -party marketplaces due to their variable interest rate terms. Our long-term credit facilities and short-term financing obligations are classified 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 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 and are therefore classified as 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 property, plant, and equipment, operating lease assets, definite-lived intangibles and 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. There was no impairment charge for such assets recorded during the year end December 31, 2025. We incurred $ 4.0 million of impairment relating to our trademarks during the year ended December 31, 2024, to write-down the carrying value of the Muck trademarks to the estimated 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 and are therefore classified as Level 1. 2. ACCOUNTING STANDARDS UPDATES Recently Issued Accounting Pronouncements Rocky Brands 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 2024 - 03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 - 40 ): Disaggregation of Income Statement Expenses This pronouncement requires disclosure of disaggregated information about certain income statement expense line items within the notes to the consolidated financial statements. 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. ASU 2025 - 06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350 - 40 ): Targeted Improvements to the Accounting for Internal-Use Software This pronouncement modernizes the accounting for internal-use software costs by removing all references to prescriptive and sequential software development stages. The new standard requires entities to consider whether significant development uncertainty has been resolved before starting to capitalize software costs and enhances disclosure requirements. Q4 2028 (fiscal year) Q1 2029 (interim period) The Company is still assessing the impact of the new accounting standard on its consolidated financial statements. ASU 2025 - 11, Interim Reporting (Topic 270 ) Narrow-Scope Improvements This pronouncement improves the navigability of the required interim disclosure and clarification around the principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. 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. 33 Table of Contents Accounting Standards Adopted in the Current Year Standard Description Effect on the financial statements or other significant matters 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. The Company has included all required disclosures within its Form 10 -K for the year ended December 31, 2025. See Note 10 - Taxes for further information on income taxes. Accounting Standards Adopted in the Prior 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, 2025 and 2024. See Note 16 - Segment Information for further information on segment disclosures. On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA"). The OBBBA includes modifications to the international tax framework and amends and extends several provisions of the 2017 Tax Cuts and Jobs Act, including 100% bonus depreciation, the deductibility of domestic research and development expenses, and the business interest expense limitation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. There was no significant impact to our effective tax rate as a result of OBBBA in the current year. We will continue to evaluate the impact of OBBBA on our consolidated financial statements and related disclosures for future years. 3. INVENTORIES Inventories are comprised of the following: December 31, December 31, ($ in thousands) 2025 2024 Finished goods $ 161,770 $ 149,328 Raw materials 18,776 16,671 Work-in-process 588 702 Total $ 181,134 $ 166,701 The asset associated with our returns reserve included within inve ntories was approximatel y $ 1.1 million and $ 0.9 million at December 31, 2025 and December 31, 2024 , respectively. 4. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is comprised of the following: December 31, December 31, ($ in thousands) 2025 2024 Machinery and equipment $ 64,415 $ 61,956 Buildings 37,859 37,657 Lasts, dies and patterns 13,418 11,806 Furniture and fixtures 1,546 1,548 Less - accumulated depreciation ( 81,492 ) ( 75,242 ) Total 35,746 37,725 Construction work-in-progress 12,007 10,969 Land 2,176 972 Net Fixed Assets $ 49,929 $ 49,666 We incurred approximately $ 7.1 million and $ 7.5 million in depreciation expense for the years ended December 31, 2025 and 2024 , respectively. 34 Table of Contents 5. 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 estimate 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 2025 and 2024, 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. There was no impairment charge for indefinite-lived intangible assets recorded during the year ended December 31, 2025. 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 trademarks. The impairment charge for the Muck trademarks was due to a reduction in the assigned royalty rate as a result of changes in projected revenue growth. 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. There were no changes in the carrying amount of goodwill for the years ended December 31, 2025 or 2024. Goodwill was $ 47.8 million as of December 31, 2025 and 2024. A schedule of identified intangible assets is as follows: December 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 $ ( 875 ) - 20 Customer relationships 41,659 ( 13,300 ) - 28,359 Total intangible assets other than goodwill $ 121,208 $ ( 14,175 ) $ ( 4,000 ) $ 103,033 ( 1 ) Accumulated impairment relates to impairment of the Muck trademarks recognized during the year ended December 31, 2024. The amount allocated to our Wholesale and Retail reporting segments was $ 3.6 million and $ 0.4 million, respectively. 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 ) Accumulated impairment relates to impairment of the Muck trademarks recognized during the year ended December 31, 2024. The amount allocated to our Wholesale and Retail reporting segments was $ 3.6 million and $ 0.4 million, respectively. The weighted average remaining life of patents and customer relationships is 2.4 years and 10.3 years, respectively. Amortization expense for intangible assets subject to amortization for the twelve months ended December 31, 2025 and 2024 was $ 2.8 million. 35 Table of Contents A schedule of approximate expected remaining amortization expense related to definite-lived intangible assets for the years ended December 31 is as follows: Amortization ($ in thousands) Year Expense 2026 2,788 2027 2,785 2028 2,781 2029 2,779 2030 2,778 2031+ 14,468 Total $ 28,379 6. 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) 2025 2024 Accrued expenses and other liabilities: Accrued tariffs and duties $ 15,272 $ 6,807 Salaries and wages 5,336 3,220 Operating lease liability 2,651 2,772 Returns liability 2,123 1,754 Income taxes payable - 562 Other 9,431 8,862 Total accrued expenses and other liabilities $ 34,813 $ 23,977 7. 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, 2025, we had borrowing capacity of $ 39.5 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. The refinance 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 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. 36 Table of Contents Current and long-term debt under the ABL Agreement consisted of the following as of December 31: December 31, December 31, ($ in thousands) 2025 2024 Term Facility that matures in 2029 with an effective interest rate of 7.50 % as of December 31, 2025, and 10.47 % as of December 31, 2024 $ 26,762 $ 35,123 ABL Facility that matures in 2029: SOFR borrowings with an effective interest rate of 5.62 % as of December 31, 2025, and 6.24 % as of December 31, 2024 94,300 91,300 Prime borrowings with an effective interest rate of 7.16 % as of December 31, 2025, and 7.77 % as of December 31, 2024 3,321 4,577 Total debt 124,383 131,000 Less: Unamortized debt issuance costs ( 1,741 ) ( 2,263 ) Total debt, net of debt issuance costs 122,642 128,737 Less: Debt maturing within one year ( 8,361 ) ( 8,361 ) Long-term debt $ 114,281 $ 120,376 Contractual maturities of total debt are as follows: Debt Payment ($ in thousands) Year Schedule 2026 8,361 2027 8,361 2028 8,361 2029 99,300 Total $ 124,383 Credit Facility Covenants Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the ABL Agreement. As of December 31, 2025 and 2024, we were incompliance 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 December 31, 2025 and 2024, the Company was in compliance with the amounts paid on dividends and share repurchases in accordance with our credit facilities. We were in compliance with all applicable credit facility covenants under our previous term debt and asset-based lending credit facility through April 26, 2024, the date on which we refinanced such debt. Interest expense was approximately $ 10.0 million and $ 17.0 million for the years ended December 31, 2025 and 2024, respectively. 8. LEASES The following is a summary of the Company's lease cost: December 31, December 31, ($ in thousands) 2025 2024 Operating lease cost $ 3,022 $ 2,896 Short-term lease cost 806 1,205 Variable lease cost 396 363 Total lease cost $ 4,224 $ 4,464 The following is a summary of the Company's su pplemental cash flow information related to leases: December 31, December 31, ($ in thousands) 2025 2024 Cash paid for operating lease liabilities $ 3,097 $ 2,921 Operating lease assets obtained in exchange for lease liabilities $ 944 $ 869 The weighted-average discount rate for operating leases as of December 31, 2025 is 4.1 %. The weighted-average remaining lease term for operating leases as of December 31, 2025 is 2.1 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 31, 2025 are as follows: Operating ($ in thousands) Leases 2026 $ 2,791 2027 975 2028 547 2029 247 2030 79 Total lease payments 4,639 Less: Interest ( 261 ) Present value of lease liabilities $ 4,378 37 Table of Contents 9. 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) 2025 2024 401k plan sponsor contributions $ 1,513 $ 1,392 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 $ 0.6 million and $ 0.5 million as of December 31, 2025 and December 31, 2024 , 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 $ 0.3 million and $ 0.2 million as of December 31, 2025 and December 31, 2024 , 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 as of December 31, 2025 and December 31, 2024 , and are classified within deferred liabilities in the accompanying consolidated balance sheets. 10. 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. We recognize Global Intangible Low-Taxed Income ("GILTI") as a period expense in the period the tax is incurred. We do not record deferred tax assets or liabilities for basis differences that may result in future GILTI inclusions. A breakdown of our income tax expense (benefit) for the years ended December 31 is as follows: ($ in thousands) 2025 2024 Federal: Current $ 2,107 $ ( 926 ) Deferred 2,576 2,337 Total Federal 4,683 1,411 State & local: Current 274 140 Deferred ( 238 ) 148 Total State & local 36 288 Foreign: Current 199 878 Deferred ( 12 ) 94 Total Foreign 187 972 Total $ 4,906 $ 2,671 38 Table of Contents The following table reconciles the taxes calculated at the U.S. federal statutory tax rate to the total income tax expense for the year ended December 31, 2025: ($ in thousands) Amount Percent Income Taxes at U.S. statutory rate $ 5,722 21.0 % State and local income taxes, net of federal income tax effect (a) 29 0.1 Foreign tax effects Dominican Republic Exempt income from Dominican Republic operations ( 451 ) ( 1.7 ) Puerto Rico Difference in foreign tax rate ( 268 ) ( 0.9 ) Other ( 27 ) ( 0.1 ) Other ( 188 ) ( 0.7 ) Effect of cross-border laws Foreign branch income 331 1.2 Other ( 109 ) ( 0.3 ) Tax credits 104 0.4 Nontaxable or nondeductible items 90 0.3 Other adjustments Deferred adjustment ( 349 ) ( 1.3 ) Other 22 0.1 Total income tax expense $ 4,906 18.1 % (a) State Taxes in Georgia and California made up the majority (greater than 50 percent) of the tax effect in this category. The following table presents the required disclosures prior to our adoption of ASU 2023 - 09 and reconciles the taxes calculated at the U.S. federal statutory tax rate to the total income tax expense for the year ended December 31, 2024: ($ in thousands) Amount Expected expense at statutory rate $ 2,947 Increase (decrease) in income taxes resulting from: Tax on repatriated earnings from Dominican Republic operations 399 State and local income taxes 227 Tax rate differential effect of foreign operations 230 Permanent differences 165 Change in valuation allowance ( 200 ) Provision to return filing adjustments and other ( 117 ) Foreign tax credit ( 468 ) Exempt income from Dominican Republic operations due to tax holiday ( 512 ) Total income tax expense $ 2,671 Deferred income taxes recorded in the Consolidated Balance Sheets at December 31, 2025 and 2024 consisted of the following: ($ in thousands) 2025 2024 Deferred tax assets: Inventories $ 2,133 $ 3,640 Asset valuation allowances and accrued expenses 1,022 957 Lease assets 688 1,252 Transaction costs 525 608 Net operating losses 135 318 State and local income taxes 107 195 Pension and deferred compensation 73 56 163(J) Interest limitation 26 262 Total deferred tax assets 4,709 7,288 Valuation allowances ( 2 ) ( 155 ) Total deferred tax assets 4,707 7,133 Deferred tax liabilities: Intangible assets 12,723 11,908 Fixed assets 2,729 3,231 Other assets 751 587 Lease liability 656 1,195 Tollgate tax on Lifestyle earnings 228 228 State and local income taxes 1 28 Total deferred tax liabilities 17,088 17,177 Net deferred tax liability $ 12,381 $ 10,044 The valuation allowance as of December 31, 2025 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 U.S. 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, 2025 . We are subject to income taxes in the U.S. and various foreign jurisdictions. The Company benefits from tax incentive programs in certain foreign jurisdictions, principally Puerto Rico and the Dominican Republic. Our Puerto Rican operations are subject to a Grant of Tax Exemption under Puerto Rico Act 60 - 2019. This grant, which constitutes a contractual agreement with the Government of Puerto Rico, provides for a 15 -year exemption period effective January 1, 2022. Under the terms of the grant, qualifying income is subject to a fixed income tax rate of 4.0 %. For the year ended December 31, 2025, we generated approximately $ 1.6 million of income subject to the 4.0 % preferential tax rate. Our operations in the Dominican Republic operate under the Free Trade Zone regime pursuant to Law No. 8 - 90. Under this regime, we benefit from a tax incentive program that includes a 0 % income tax rate on qualifying income. The operating permit, which allows us to legally operate under the country's Free Zone regime, was issued by the National Free Zone Council and is valid until 2032 upon which time it will be renewed. For the year ended December 31, 2025, we generated approximately $ 2.1 million of income subject to the 0 % income tax rate. Income tax payments by jurisdiction, net of refunds, were composed of the following for the year ended December 31, 2025: ($ in thousands) Amount Federal $ 3,349 State 60 Foreign: China 473 All Other 332 Total $ 4,214 For the year ended December 31, 2024, we received total tax refunds of approximately $ 1.9 million, net of payments. 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 2022 Various U.S. States 2021 Puerto Rico (U.S. Territory) 2020 Canada 2020 China 2020 Mexico 2020 United Kingdom 2021 Australia 2021 Our policy is to accrue interest and penalties on any uncertain tax position as a component of income tax expense. As of December 31, 2025 , 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. 39 Table of Contents 11. SHAREHOLDERS' EQUITY Repurchase of Common Stock On February 24, 2025, Rocky Brands announced that its Board of Directors approved a share repurchase program of up to $ 7,500,000 of the Company's outstanding common stock, no par value per share. Under the repurchase program, which expired on February 24, 2026, common shares could be purchased in open market or privately negotiated transactions in compliance with the Securities and Exchange Commission Rule 10b - 18, subject to market conditions, applicable legal requirements, and other relevant factors. This share repurchase program did not obligate the Company to acquire any particular amount of common stock and may have been suspended at any time at the Company's discretion. During the year ended December 31, 2025, 10,456 shares of outstanding common stock were repurchased under the plan on the open market with an average price paid per share of $ 19.21 . As of December 31, 2025, $ 7,299,140 remained available under the stock repurchase program for repurchase. 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 $0.06 per share, of which no shares are issued or outstanding at December 31, 2025 and 2024 . 12. SHARE-BASED COMPENSATION On May 7, 2014, our shareholders approved the 2014 Omnibus Incentive Plan and in May 2021 this plan was amended as our shareholders authorized an additional 600,000 shares (as amended, the "2014 Plan"). The 2014 Plan included 1,100,000 of our common shares that may have been granted under various types of awards as described in the 2014 Plan. As of December 31, 2024, there were no shares authorized to issue under the 2014 Plan as the plan expired upon adoption of the 2024 Omnibus Incentive Plan. On June 5, 2024, our shareholders approved the 2024 Omnibus Incentive Plan (the "2024 Plan"). The purpose of the 2024 Plan was to authorize shares to be available for grant upon expiration of the 2014 Plan and to make other design changes based on recent corporate governance and other trends. We carried over 472,862 shares that remained available under the 2014 Plan and our shareholders authorized an additional 27,138 shares for the 2024 Plan for a total of 500,000 shares eligible for grant under the 2024 Plan. As of December 31, 2025, we were authorized to issue 448,788 shares under the 2024 Plan. During the years ended December 31, 2025 and 2024 , we issued 28,678 shares and 19,634 shares of common stock to members of our Board of Directors, respectively. Stock Options There were no options granted for the year ended December 31, 2025 and 2024. For the years ended December 31, 2025 and 2024 , we recognized share-based compensation expense and the corresponding tax benefit as follows: ($ in thousands) 2025 2024 Share-based compensation expense $ 1,617 $ 1,294 Tax benefit 272 220 The following summarizes stock option activity for the year ended December 31, 2025 : Weighted Weighted Average Average Remaining Aggregate ($ amounts are per share) Shares Exercise Price Actual Term Intrinsic Value Options outstanding at January 1, 2025 199,700 $ 28.82 Issued - - Exercised ( 31,800 ) 25.43 Forfeited or expired ( 17,850 ) 28.18 Options outstanding at December 31, 2025 150,050 $ 29.62 3.5 $ 477,497 Expected to vest 16,900 $ 35.57 5.6 $ 7,686 Exercisable at December 31, 2025 133,150 $ 28.86 3.2 $ 469,811 For the years ended December 31, 2025 and 2024 , cash received for the exercise of stock options was approximately $ 0.8 million and $ 0.6 million, respectively. 40 Table of Contents Restricted Stock Units Under the 2024 Omnibus Incentive Plan, restricted stock units may be granted to certain eligible employees and officers in accordance with the applicable equity compensation agreements. Subject to participants' continued employment and other plan terms and conditions, the awards generally vest over three years. The fair value of each restricted stock unit is estimated based on the fair value of the Company's common stock on the date of the grant. The following table summarizes the status of the Company's restricted stock units and activity as of December 31, 2025 : Restricted Stock Units Weighted-Average Grant Date ($ amounts are per share) Quantity Fair Value Per Share Nonvested at January 1, 2025 53,423 $ 26.54 Granted 45,286 21.52 Vested ( 652 ) 12.79 Forfeited ( 635 ) 23.62 Nonvested at December 31, 2025 97,422 $ 24.32 As of December 31, 2025 , 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 1.5 years. 13. 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) 2025 2024 Basic - weighted average shares outstanding 7,474 7,437 Dilutive restricted share units 44 23 Dilutive stock options 12 20 Diluted - weighted average shares outstanding 7,530 7,480 Anti-dilutive securities 122 120 14. REVENUE Overview 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 thousands of 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, 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. Nature of Performance Obligations 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 outdoor gear 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. 41 Table of Contents 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. On occasion, 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 December 31, 2025 and 2024, there are no contract receivable or contract liability balances outstanding. 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 outdoor gear 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 16 - Segment Information for segment disclosures. 15. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow for the years ended December 31, as follows: Twelve Months Ended December 31, ($ in thousands) 2025 2024 Interest paid $ 9,355 $ 16,170 Property, plant, and equipment purchases in accounts payable $ 861 $ 484 16. 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 thousands of 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, 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 2.3 % of net sales in 2025 and 3.2 % of net sales in 2024 . The net book value of fixed assets located outside of the U.S. totaled $ 11.1 million at December 31, 2025 , of which approx imately $ 3.7 mill ion resides in the Dominican Republic and approximatel y $ 7.4 mil lion resides in China. 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. 42 Table of Contents 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) 2025 2024 NET SALES: Wholesale $ 316,561 $ 313,340 Retail 152,889 126,868 Contract Manufacturing 12,526 13,564 Total Net Sales $ 481,976 $ 453,772 COST OF GOODS SOLD: Wholesale $ 192,932 $ 196,095 Retail 79,835 66,715 Contract Manufacturing 11,919 11,952 Total Cost of Goods Sold $ 284,686 $ 274,762 GROSS MARGIN: Wholesale $ 123,629 $ 117,245 Retail 73,054 60,153 Contract Manufacturing 607 1,612 Total Gross Margin $ 197,290 $ 179,010 Segment asset information is not prepared or used to assess segment performance. Product Line Information - The following is supplemental information on net sales by product line for the years ended December 31: 2025 ($ in thousands) Wholesale Retail Contract Manufacturing Total % of Sales Work footwear $ 100,250 $ 90,886 $ 2,504 $ 193,640 40.2 % Outdoor footwear 120,484 45,216 - 165,700 34.4 % Western footwear 67,483 8,897 - 76,380 15.8 % Duty and commercial military footwear 27,432 3,297 - 30,729 6.4 % Military footwear - - 10,022 10,022 2.1 % Other 912 4,593 - 5,505 1.1 % Total $ 316,561 $ 152,889 $ 12,526 $ 481,976 100 % 2024 ($ in thousands) Wholesale Retail Contract Manufacturing Total % of Sales Work footwear $ 106,187 $ 81,873 $ 2,289 $ 190,349 41.9 % Outdoor footwear 100,872 29,350 - 130,222 28.7 % Western footwear 74,040 8,599 - 82,639 18.2 % Duty and commercial military footwear 31,476 3,071 - 34,547 7.6 % Military footwear - - 11,275 11,275 2.5 % Other 765 3,975 - 4,740 1.0 % Total $ 313,340 $ 126,868 $ 13,564 $ 453,772 100 % 17. 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, 2025 and 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 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. 43 Table of Contents 18. SUBSEQUENT EVENTS Repurchase of Common Stock On February 24, 2026, Rocky Brands announced that its Board of Directors 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 February 24, 2026 and has a one year term expiring on February 23, 2027. Dividends Declared On February 17, 2026 , 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 16, 2026 to all shareholders of record as of the close of business on March 2, 2026 . 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. Subsequent Event On February 20, 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unlawful. The ultimate availability, timing, and amount of any potential refunds associated with IEEPA tariffs previously paid by the Company remain highly uncertain and are subject to further legal, regulatory, and administrative developments. Following the Supreme Court's decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on the Company's business. The Company continues to monitor and evaluate these developments and assess their potential impact on the Company's business, financial condition, and results of operations. 44 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.