Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") describes the matters that we consider to be important to understanding the results of our operations for each of the two years in the period ended December 31, 2025 and 2024, and our capital resources and liquidity as of December 31, 2025 and 2024. For the discussion of the changes in our results of operations and statement of cash flows between the years ended December 31, 2024 and December 31, 2023, refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 17, 2025, which is available on the SEC's website at https://www.sec.gov/edgar/search/ and our corporate website at www.rockybrands.com. We analyze the results of our operations for the last two years (including trends in the overall business), followed by a discussion of our cash flows and liquidity, our credit facilities, and our contractual commitments. We then provide a review of the critical accounting policies and estimates we have made that we believe are most important to the understanding of our MD&A and our Consolidated Financial Statements. We conclude our MD&A with information on recent accounting pronouncements we adopted during the year, as well as those not yet adopted that are expected to have an impact on our financial accounting practices.

The following discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto, included elsewhere herein. The forward-looking statements in this section and other parts of this Annual Report on Form 10-K involve risks and uncertainties including statements regarding our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995" below. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements made by or on behalf of the Company.

BUSINESS OVERVIEW

We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Muck, XTRATUF, Rocky, Durango, Georgia Boot, Lehigh, Ranger, and the licensed brand Michelin. Our portfolio of brands is organized into three reportable segments in which our product is distributed: Wholesale, Retail, and Contract Manufacturing. The reportable segments are targeted around six distinct product lines: work, outdoor, western, duty, commercial military, and military. We frequently experience significant seasonal fluctuations in our business as many of our footwear products and product lines are used by consumers in adverse weather conditions. Accordingly, average inventory levels have been highest during the second and third quarters of each year and sales have been highest in the last two quarters of the year. Our footwear products incorporate varying features and are positioned across a range of suggested retail price points from $45.00for our value priced products to $680.00 for our premium products. As a 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.

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.

Over the last two years, we have seen a shift in our total mix of sales, as the growth of our Retail segment continues to outpace the growth in our Wholesale and Contract Manufacturing segments. Growth in our Retail segment was primarily driven by increased sales on our owned e-commerce websites and third-party marketplaces, as we placed an emphasis on our direct-to-consumer business, partially through increased digital marketing in response to an ongoing shift among consumers to online retailers.

During the second quarter of 2024, we amended and restated our Original ABL Facility (as such term is defined in Note 7 - Long-Term Debt of our Consolidated Financial Statements) which resulted in a restated $175.0 million revolving credit facility and a new $50.0 million term facility. The proceeds from this transaction were used to retire our existing senior secured term loan facility with TCW Asset Management Company, LLC as of April 26, 2024. This transaction resulted in an expense of $2.6 million, consisting of a loss on extinguishment of term debt in the amount of $1.1 million and a $1.5 million prepayment penalty, which are included in Interest Expense and Other -net within the Consolidated Statements of Operations for the twelve months ended December 31, 2024. See Note 7 - Long-Term Debt of our Consolidated Financial Statements for further information regarding our long-term debt.

In the first quarter of 2025, we announced a share repurchase program, which was approved by the Board of Directors to allow the Company to repurchase up to $7.5 million of the Company's outstanding common stock. During the first quarter of 2025, the Company repurchased 10,456 shares of common stock under the plan using cash flows generated from operations.

The year ended December 31, 2025 was a year of growth, led by top-line expansion in our Retail segment, particularly in our direct-to-consumer selling channel. We delivered higher margins in 2025 compared to 2024 in both our Wholesale and Retail segments. While the additional tariffs imposed in the second quarter of 2025 created margin pressures in the latter half of the year, we were able to ease the burden by diversifying our sourcing and leveraging our manufacturing facilities in the Dominican Republic and Puerto Rico as well as benefit from implementing price increases prior to realizing the impact of the tariffs. While operating expenses were up slightly to the year ago period, we were able to significantly increase our bottom line as a result of interest expense and tax savings.

ECONOMIC CONDITIONS AND UNCERTAINTIES

Our growth strategy is founded substantially on the expansion of our brands into new footwear and apparel markets. New products that we introduce may not be successful with consumers or one or more of our brands may fall out of favor with consumers. If we are unable to anticipate, identify or react appropriately to changes in consumer preferences, we may not grow as fast as we plan to grow, or our sales may decline, and our brand image and operating performance may suffer.

Furthermore, achieving market acceptance for new products will likely require us to exert substantial product development and marketing efforts, which could result in a material increase in expenses to which there can be no assurance that we will have the resources necessary to undertake such efforts. Material increases in expenses could adversely impact our results of operations and cash flows.

We may also encounter difficulties in producing new products that we did not anticipate during the development stage. Our development schedules for new products are difficult to predict and are subject to change as a result of shifting priorities in response to consumer preferences and competing products. If we are not able to efficiently manufacture newly developed products in quantities sufficient to support retail distribution, we may not be able to recoup our investment in the development of new products. Failure to gain market acceptance for new products that we introduce could impede our growth, reduce our profits, adversely affect the image of our brands, erode our competitive position, and result in long term harm to our business.

Our business is subject to a highly evolving and everchanging macroeconomic environment, including changes in tariffs, taxes, and industry changes. We continue to monitor changes in policy impacting global trade, including tariffs, which have been dynamic, unpredictable, and subject to ongoing modification. Beginning in early 2025, pursuant to the International Emergency Economic Powers Act ("IEEPA"), the U.S. presidential administration modified and imposed significant additional tariffs on products imported from various countries, including those countries where we primarily source our products. During the year ended December 31, 2025, we paid approximately $18.7 million in IEEPA tariffs. More recently, in February 2026, the U.S. Supreme Court ruled that certain tariffs imposed under the IEEPA were unlawful. 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. During 2025, we have implemented, and plan to continue to implement, as needed, various mitigation strategies including adjusting the prices of our products, adjusting the countries from which we source our products and further leveraging our own manufacturing facilities in the Dominican Republic and Puerto Rico. Proposed or enacted tariffs and changes to U.S. trading policies may be restituted, paused, removed, or changed at any time and to the extent we are unable to successfully mitigate any negative impacts it could adversely affect our business, financial condition and results of operation.

2025 FINANCIAL OVERVIEW

●	Net sales increased 6.2% to $482.0 million compared to 2024;
●	Gross margin increased 150-basis points to 40.9% of net sales in 2025 compared to 39.4% of net sales in 2024;
●	Income from operations increased 19.7% to $37.2 million in 2025 compared to $31.1 million in 2024;
●	Net income increased 95.6% to $22.3 million, or $2.96 per diluted share, in 2025, compared to $11.4 million, or $1.52 per diluted share, in 2024; and

●	Total debt on December 31, 2025 was $122.6 million, down 4.7%, compared to $128.7 million at December 31, 2024.

The 150-basis point increase in gross margin to 40.9% of net sales in 2025 compared to 39.4% of net sales in 2024 was primarily driven by an 170-basis point increase in our Wholesale gross margin as well as a higher mix of Retail segment sales which carry higher gross margins than our Wholesale and Contract Manufacturing segments, partially offset by higher tariffs and a decrease in Contract Manufacturing gross margins.

Interest expense for 2025 was $10.0 million, compared to interest expense of $17.0 million for 2024, inclusive of a $2.6 million one-time term loan extinguishment charge in 2024. Excluding the one-time term loan extinguishment charge, interest expense for 2024 was $14.4 million. The decrease in interest expense compared to the year-ago period was driven by lower interest rates as a result of the debt refinancing completed in April 2024 as well as lower debt levels.

Net income increased 95.6% to $22.3 million for the twelve months ended December 31, 2025 compared to $11.4 million for the twelve months ended December 31, 2024, primarily due to higher gross margins, lower interest expense and a lower effective tax rate in 2025 compared to 2024.

As of December 31, 2025, cash and cash equivalents were approximately $2.9 million and our total indebtedness, net of debt issuance costs was approximately $122.6 million, a reduction of approximately 4.7%, or $6.1 million, from December 31, 2024. Total inventory increased 8.7% or $14.4 million from December 31, 2024 and was approximately $181.1 million at December 31, 2025. The increase in inventory was primarily due to an increase in cost of inventory as a result of the tariffs imposed in 2025.

In 2025 and 2024, our business generated positive cash flow from operating activities of approximately $16.3 million and $52.8 million, respectively. Generally, the cash provided by operations consists of changes in our working capital and coupled with our ABL is sufficient to fund operations in any given year. Our positive cash flow in 2025 was offset by cash used in investing and financing activities of $6.3 million and $10.9 million, respectively, resulting in an overall decrease in cash of approximately $0.8 million in 2025. For the year ended December 31, 2024, our positive cash flow in 2024 was offset by cash used in investing and financing activities of $3.0 million and $50.6 million, respectively, resulting in an overall decrease in cash of approximately $0.8 million.

Analysis of Results of Operations

The following table sets forth a summary of the Consolidated Statements of Operations:

		Twelve Months Ended
		December 31,
($ in thousands)		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

Net sales increased approximately $28.2 million, or 6.2%, for the twelve months ended December 31, 2025, due to an increase in Wholesale and Retail net sales, partially offset by a decrease in Contract Manufacturing net sales.

Gross margin in 2025 was 40.9% of net sales compared to 39.4% of net sales in 2024. The 150-basis point improvement in gross margin was primarily driven by a 170-basis point increase in Wholesale gross margin as well as a higher mix of Retail segment sales which carry higher gross margins than Wholesale and Contract Manufacturing segments, partially offset by higher tariffs and a decrease in Contract Manufacturing gross margin.

Operating expenses increased $12.2 million to 33.2% of net sales in 2025 compared to 32.6% of net sales in 2024. The increase in operating expenses as a percentage of net sales was due to higher outbound logistics and other selling costs associated with the increase in Retail net sales, as well as an increase in discretionary spending.

The following information is presented on net sales for the years ended December 31, 2025 and 2024:

		Twelve Months Ended
		December 31,
($ in thousands)		2025				2024				Inc./ (Dec.)				Inc./ (Dec.)
NET SALES:
Wholesale		$	316,561			$	313,340			$	3,221				1.0	%
Retail			152,889				126,868				26,021				20.5
Contract Manufacturing			12,526				13,564				(1,038	)			(7.7	)
Total Net Sales		$	481,976			$	453,772			$	28,204				6.2	%

Wholesale net sales increased approximately $3.2 million or 1.0% for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024. The increase was due to increased demand across several key styles and brands coupled with tariff related price increases. Additionally, as part of a strategic initiative, we continued to build upon the lifestyle component of our outdoor category to broaden our distribution and consumer reach.

Retail net sales for the twelve months ended December 31, 2025 increased $26.0 million or 20.5% compared to the twelve months ended December 31, 2024. The increase in Retail net sales was primarily due to growth in our direct-to-consumer business as well as our Lehigh CustomFit Platform. The increase in our direct-to-consumer business was driven by both our owned e-commerce websites and our third-party marketplace platforms. We upgraded our e-commerce platform during the third quarter of 2025 and increased our digital advertising spend throughout the year, driving more website traffic and increasing net sales. The increase in third-party marketplace net sales can be partially attributed to an increased presence among various marketplace platforms as well as increased digital marketing. The increase in our Lehigh CustomFit business was attributed to a realignment of our sales organization in the first quarter of 2024, which allowed us to expand our customer base, positioning Lehigh for long-term growth starting in the latter half of 2024. Consumer spending among Lehigh CustomFit customers has also increased with improved subsidy utilization and an increase in average subsidy dollars in 2025 compared to the prior year.

Contract Manufacturing net sales decreased approximately $1.0 million, or 7.7%, for the twelve months ended December 31, 2025, compared to the twelve months ended December 31, 2024. The decrease in Contract Manufacturing net sales for the twelve months ended December 31, 2025 was mainly attributed to a decrease in sales to the U.S. Military as there were no new contracts awarded in 2025, partially offset by an increase in private label net sales.

The following information is presented on gross margin for the years ended December 31, 2025 and 2024:

		Twelve Months Ended
		December 31,
($ in thousands)		2025				2024				Inc./ (Dec.)
GROSS MARGIN:
Wholesale Margin $'s		$	123,629			$	117,245			$	6,384
Margin %			39.1	%			37.4	%			1.7	%
Retail Margin $'s		$	73,054			$	60,153			$	12,901
Margin %			47.8	%			47.4	%			0.4	%
Contract Manufacturing Margin $'s		$	607			$	1,612			$	(1,005	)
Margin %			4.8	%			11.9	%			(7.1	)%
Total Margin $'s		$	197,290			$	179,010			$	18,280
Margin %			40.9	%			39.4	%			1.5	%

Wholesale gross margin for the twelve months ended December 31, 2025 was approximately $123.6 million, or 39.1%, of net sales compared to $117.2 million, or 37.4%, of net sales. The 170-basis point increase in Wholesale gross margin was attributable to a more favorable product mix and tariff related price increases taken during 2025 compared to the prior year period. The favorable shift in product mix was largely attributed to an on-going shift in our branded net sales mix, with our rubber-boot brands delivering stronger growth relative to the rest of the brands in our portfolio.

		Twelve Months Ended
		December 31,
($ in thousands)		2025				2024				Inc./ (Dec.)				Inc./ (Dec.)
OPERATING EXPENSES		$	160,103			$	147,944			$	12,159				8.2	%
% of Net Sales			33.2	%			32.6	%			0.6	%

Operating expenses were $160.1 million, or 33.2%, of net sales for the year ended December 31, 2025 compared to $147.9 million, or 32.6%, of net sales for the year ended December 31, 2024. The increase in operating expenses as a percentage of net sales was primarily due to an increase in outbound logistics and other selling costs associated with a higher volume of Retail sales in the current year period as well as an incremental increase in discretionary spending, including digital advertising.

		Twelve Months Ended
		December 31,
($ in thousands)		2025				2024				Inc./ (Dec.)				Inc./ (Dec.)
INTEREST EXPENSE AND OTHER - net		$	10,007			$	17,008			$	(7,001	)			(41.2	)%

Interest expense and other was approximately $10.0 million for the year ended December 31, 2025 compared to $17.0 million for the year ended December 31, 2024. The decrease in interest expense was mainly attributed to lower interest rates achieved through our debt refinance completed in April 2024, as well as lower debt levels for the year ended December 31, 2025 compared to the prior year period. The debt refinance that occurred in April 2024 resulted in a $1.1 million loss on term loan extinguishment charge and a $1.5 million prepayment penalty which are included within Interest Expense and Other - net within the Consolidated Statements of Operations for the twelve months ended December 31, 2024. See Note 7 - Long-Term Debt of our Consolidated Financial Statement for more information.

		Twelve Months Ended
		December 31,
($ in thousands)		2025				2024				Inc./ (Dec.)				Inc./ (Dec.)
INCOME TAXES:
Income Tax Expense		$	4,906			$	2,671			$	2,235				83.7	%
Effective Tax Rate			18.1	%			19.0	%			(0.9	)%

The effective tax rate for the twelve months ended December 31, 2025was 18.1% compared to 19.0% for the twelve months ended December 31, 2024. The decrease from the year ago period was primarily driven by the changes in state and local income taxes and other discrete tax benefits recognized in 2025.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our principal source of liquidity is our income from operations, as well as access to the borrowing capacity under our ABL Facility. We believe that we have sufficient liquidity to support our ongoing operations and to re-invest in our business to drive future growth. As of December 31, 2025, we maintained cash and cash equivalents of $2.9 million and had $39.5 million of availability under our ABL Facility. Our primary ongoing operating cash flow requirements are for inventory purchases and other working capital needs, capital expenditures, and payments on our credit facilities.

Our working capital consists primarily of trade receivables and inventory, offset by accounts payable and accrued liabilities. Our working capital fluctuates throughout the year as a result of our seasonal business cycle and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year. Our cash generated from operations throughout the year is typically sufficient to fund our seasonal working capital requirements; however, we have the ability to borrow on our ABL Facility as needed and as such its balance may fluctuate significantly throughout any given year.

In addition to our ABL Facility with outstanding borrowings of $97.6 million as of December 31, 2025, we also have a Term Facility with outstanding borrowings of $26.8 million as of December 31, 2025. Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the agreement. Additionally, the ABL Facility and Term Facility contain restrictions on the amount of dividend payments and share repurchases. As of December 31, 2025, we were in compliance with the covenant and restrictions. We may utilize portions of our excess cash to prepay certain amounts of long-term debt prior to maturity as well as repurchase shares of common stock under our share repurchase program.

Our capital expenditures relate primarily to investments in information technology, molds and equipment associated with our manufacturing and distribution operations, merchandising fixtures and projects related to our corporate offices. In 2025, we purchased land for the future expansion of our distribution center in Logan, Ohio and as such it is possible that a significant portion of future capital expenditures may relate to this expansion.

We lease certain machinery, equipment, and manufacturing facilities under operating leases that generally provide for renewal options. Future minimum lease payments under non-cancelable operating leases are outlined in further detail in Note 8 - Leases of our Consolidated Financial Statements.

As of December 31, 2025, our material cash requirements from known contractual obligations and commitments relate primarily to our long-term debt and operating leases commitments. See Note 7 - Long-Term Debt and Note 8 - Leases tothe Consolidated Financial Statement for more information. Based on our current expectations and forecasts of future earnings, we believe our cash generated from operations will provide sufficient liquidity to fund our operations and debt and lease obligations for the next twelve months and beyond.

The following table presents the key categories of our Consolidated Statement of Cash Flows:

		Twelve Months Ended
		December 31,
($ in millions)		2025				2024
Operating activities		$	16.3			$	52.8
Investing activities			(6.2	)			(3.0	)
Financing activities			(10.9	)			(50.6	)
Net change in cash and cash equivalents		$	(0.8	)		$	(0.8	)

Operating Activities.Net cash provided by operating activities for the year ended December 31, 2025 was $16.3 million compared to $52.8 million for the year ended December 31, 2024. Adjusting for non-cash items, net income provided a cash in-flow of $40.3 million and $35.5 million for the years ended December 31, 2025 and 2024, respectively. The net change in working capital and other assets and liabilities resulted in a decrease to cash providedby operating activities of $24.0 million for the year ended December 31, 2025, compared to an increase of $17.2 million for the year ended December 31, 2024.

During the year ended December 31, 2025, the net change in working capital was primarily impacted by increases in inventory and accounts receivable offset by an increase in accrued expenses and other liabilities. The increase in inventory of approximately $14.4 million was a result of higher inventory costs caused by increased tariffs imposed during 2025. The increase in accounts receivable was due to an increase in sales during fourth quarter of 2025 over the fourth quarter of 2024. The increase in accrued expenses and other liabilities of $11.7 million was primarily due to increased duty costs also resulting from the additional tariffs imposed during 2025. During the year ended December 31, 2024, the net change in working capital was primarily impacted by an increase in accounts payable and accrued expenses of $7.7 million and $5.2 million, respectively. The increase in accounts payable and accrued expenses during the year ended December 31, 2024 compared to the prior year was due to increased inventory purchases in the fourth quarter of 2024, compared to the fourth quarter of 2023. The increase in inventory purchases also led to increased inventory in-transit at December 31, 2024 versus the year ago period and associated accrued duties and in-bound freight, which are included in accrued expenses and other liabilities on the Consolidated Balances Sheets at December 31, 2024.

Investing Activities. Net cash used in investing activities for the twelve months ended December 31, 2025 and 2024 was primarily a result of purchases of fixed assets, specifically machinery and equipment and investments in information technology. Additionally, in 2025, we purchased land for the planned future expansion of our distribution center located in Logan, Ohio.

Financing Activities. Cash used in financing activities for the twelve months ended December 31, 2025 and 2024 was primarily related to dividend payments and payments on our revolving credit facility and term loan.

On February 24, 2026, we announced our new $7,500,000 share repurchase program. For additional information regarding this share repurchase program, see Note 18 - Subsequent Events of our Consolidated Financial Statements.

We are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal course of business. See Note 17 - Commitments and Contingencies of our Consolidated Financial Statements for further discussion of legal matters. We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities, also known as "Variable Interest Entities." Additionally, we do not have any related party transactions that materially affect the results of operations, cash flow or financial condition.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company's estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company's Consolidated Financial Statements. Significant accounting policies are summarized in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies of our Consolidated Financial Statements.

Revenue recognition

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 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. See Note 14 - Revenue of our Consolidated Financial Statements for additional information.

Inventories

Inventories are stated at the lower of cost or net realizable value, on a first-in, first-out 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.

Goodwill and Indefinite-Lived Intangibles

Goodwill and intangible assets deemed to have indefinite lives are not amortized but are evaluated for impairment annually or whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of the assets below their carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and reporting unit specific economic factors, supply costs, and unanticipated competitive activities.

We test goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter each fiscal year by quantitatively comparing the fair values of the Wholesale and Retail reporting units and indefinite-lived intangibles to their carrying amounts. There was no goodwill allocated to our Contract Manufacturing reporting unit.

For goodwill, we estimated the fair value of each reporting unit by weighing the results of the income and market approaches. These valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, discount rates, and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and future profitability of our business. When performing the income approach, we utilize the present value of cash flows to estimate fair value. The future cash flows for our reporting units were projected based on our estimates, at that time, of future revenues, operating income, and other factors (such as working capital and capital expenditures). The discount rates used were based on a weighted-average cost of capital determined from relevant market comparisons and take into consideration the risk and nature of the respective reporting unit's cash flows. For the market approach, we use the guideline public company method which relies upon valuation multiples derived from stock prices and enterprise values of publicly traded companies that are comparable to the reporting unit being evaluated.

The fair value of our 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.

We did not recognize any impairment charges for goodwill during fiscal year 2025 or 2024. No impairment charges were recognized for the Company's indefinite-lived intangible assets during fiscal year 2025. During the fourth quarter of 2024, we recognized a $4.0 million impairment charge for our Muck trademarks. The charge is included within Operating Expenses within the Consolidated Statements of Operations for the twelve months ended December 31, 2024. Refer to Note 5 - Goodwill and Other Intangible Assets of our Consolidated Financial Statements for additional information on the Muck trademark impairment.

Income taxes

We are subject to taxation in the U.S., as well as various state and foreign jurisdictions. The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our interpretation of tax laws, regulations and policies could differ from how standard setting-bodies interpret them. State, local or foreign jurisdictions may enact tax laws that could result in further changes to taxation and materially affect our financial position and results of operations.

On an interim basis, we estimate the annual effective tax rate and record a quarterly income tax provision in accordance with the projected annual rate. As the year progresses, the estimate is refined based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs.

RECENT FINANCIAL ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 - Accounting Standards Updates of our Consolidated Financial Statements for new accounting pronouncements adopted during the current year and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section of this MD&A and the Notes to Consolidated Financial Statements.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report, including Management's Discussion and Analysis of Financial Conditions and Results of Operations, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our and management's intent, belief, expectations, such as statements concerning our future profitability and our operating and growth strategy. Words such as "believe," "anticipate," "expect," "will," "may," "should," "intend," "plan," "estimate," "predict," "potential," "continue," "likely," "would," "could" and similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption "Item 1A. Risk Factors" in this Annual Report on Form 10-K and other factors detailed from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We assume no obligation to update any forward-looking statements.