&/2Hed 1$&|&A%|Page #* 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES"'CONSOLIDATED BALANCE SHEETS"DECEMBER 31,"DECEMBER 31,"---------------"--------------- "1997 "1996'CURRENT ASSETS: 'Cash and cash equivalents "$ 8,556,883 "$ 349,637' 'Accounts receivable - trade, net "17,789,329 "12,409,920 'Other receivables "475,593 "678,293 'Inventories "32,894,236 "25,389,902 'Deferred income taxes "1,474,799 "926,297'Other current assets"850,018"706,097"------------"------------'Total current assets"62,040,858"40,460,146'FIXED ASSETS, AT COST:$'Property, plant and equipment"30,557,770"25,544,360&'Less - accumulated depreciation"(12,949,316)"(10,035,763)"------------"------------'Total fixed assets - net"17,608,454"15,508,597'DEFERRED PENSION ASSET"216,260"953,211'OTHER ASSETS"1,089,266"1,168,217"------------"------------'TOTAL ASSETS"$ 80,954,838"$ 58,090,171 "============ "============6"'See notes to consolidated financial statements.0$' -2- &'ROCKY SHOES & BOOTS, INC.''AND SUBSIDIARIES")'CONSOLIDATED BALANCE SHEETS+"DECEMBER 31,+"DECEMBER 31,,"-----------,"----------------- -"1997 -"1996.'CURRENT LIABILITIES:/'Accounts payable/"$ 2,414,936/"$ 3,036,705*0'Current maturities - long-term debt0"1,173,8400"3,609,6451'Accrued taxes - other1"355,1341"447,2032'Accrued income taxes2"304,8082"802,658!3'Accrued salaries and wages3"1,118,3313"921,0344'Accrued other4"686,2384"1,034,3205"-----------5"----------- 7'Total current liabilities7"6,053,2877"9,851,565/9'LONG-TERM DEBT - Less current maturities9"13,406,9629"19,520,029;'DEFERRED LIABILITIES:<'Deferred compensation<"241,673<"246,500='Deferred income taxes="2,049,256="1,344,507!>'Deferred pension liability >"7,130>"752,481?"-----------?"-----------!A'Total deferred liabilitiesA"2,298,059A"2,343,488B"-----------B"-----------D'Total liabilitiesD"21,758,308D"31,715,082$F'COMMITMENTS AND CONTINGENCIESH'SHAREHOLDERS' EQUITY:;I'Preferred stock, Series A, no par value, $.06 stated@J'value; issued 1997 - 90,000 shares; 1996 - 100,000 shares J"5,400 J"6,0004K'Common stock, no par value; 10,000,000 sharesKL'authorized; issued 1997 - 5,476,620 shares; 1996 - 3,782,500 sharesL"42,604,658L"14,543,9477M'Stock held in treasury, at cost - 116,952 common(N'shares and 7,143 preferred sharesN"(1,226,059)N"(1,226,059)O'Retained earningsO"17,812,531O"13,051,201P"-----------P"-----------!R'Total shareholders' equityR"59,196,530R"26,375,089S"-----------S"-----------1U'TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYU"$80,954,838U"$58,090,171V"===========V"===========6Y'See notes to consolidated financial statements.0[' -3- ]'ROCKY SHOES & BOOTS, INC.^'AND SUBSIDIARIES,`'CONSOLIDATED STATEMENTS OF OPERATIONSb"TWELVE MONTHS c"ENDEDc"SIX MONTHSd"DECEMBER 31, d"ENDEDd"YEAR ENDEDe"YEAR ENDED DECEMBER 31,e"YEAR ENDED DECEMBER 31, e"1995e"DECEMBER 31,e"JUNE 30, f"1997 f"1996f"(UNAUDITED) f"1995 f"1995h'NET SALESh"$95,026,786h"$73,147,821h"$60,383,661h"$36,123,862h"$60,226,827j'COST OF GOODS SOLDj"69,300,071j"55,103,578j"49,334,823j"28,886,555j"48,366,376k"-----------k"-----------k"-----------k"-----------k"-----------m'GROSS MARGINm"25,726,715m"18,044,243m"11,048,838m"7,237,307m"11,860,451o'SELLING, GENERAL ANDp'ADMINISTRATIVE EXPENSESp"16,416,341p"12,332,519p"10,569,824p"6,863,623p"8,629,172q"-----------q"-----------q"-----------q"-----------q"-----------s'INCOME FROM OPERATIONSs"9,310,374s"5,711,724s"479,014s"373,684s"3,231,279t"-----------t"-----------t"-----------t"-----------t"-----------#v'OTHER INCOME AND (EXPENSES):w'Interest expensew"(2,552,732)w"(2,103,556)w"(2,100,369)w"(1,211,646)w"(2,104,787)x'Other - netx"108,688x"115,945 x"95,999 x"14,523x"109,649y"-----------y"-----------y"-----------y"-----------y"-----------{'Total other - net{"(2,444,044){"(1,987,611){"(2,004,370){"(1,197,123){"(1,995,138)|"-----------|"-----------|"-----------|"-----------|"-----------(~'INCOME (LOSS) BEFORE INCOME TAXES~"6,866,330~"3,724,113~"(1,525,356)~"(823,439)~"1,236,141#'INCOME TAX EXPENSE (BENEFIT)"2,105,000"918,154"(988,395)"(333,185)"(196,440)"-----------"-----------"-----------"-----------"-----------'NET INCOME (LOSS)"$ 4,761,330"$ 2,805,959"$ (536,961)"$ (490,254)"$ 1,432,581"==========="==========="==========="==========="===========#'NET INCOME (LOSS) PER SHARE: 'Basic"$ 1.16"$ 0.77"$ (0.15)"$ (0.13)"$ 0.39"==========="==========="==========="==========="==========='Diluted"$ 1.10"$ 0.74"$ (0.15)"$ (0.13)"$ 0.38"==========="==========="==========="==========="==========='WEIGHTED AVERAGE NUMBER'OF SHARES OUTSTANDING: 'Basic"4,087,682"3,665,548"3,665,548"3,665,548"3,665,548"==========="==========="==========="==========="==========='Diluted"4,329,907"3,776,045"3,665,548"3,665,548"3,762,226"==========="==========="==========="==========="===========6'See notes to consolidated financial statements. '-4- 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES6'CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY' TOTAL "COMMON"PREFERRED"RETAINED"TREASURY"SHAREHOLDERS' "STOCK "STOCK"EARNINGS "STOCK "EQUITY 'YEAR ENDED JUNE 30, 1995:'Balance, June 30, 1994"$14,543,947 "$6,000"$ 9,302,915"$(1,226,059)"$22,626,803'Net income"1,432,581"1,432,581"----------- "------"-----------"-----------"-----------'BALANCE, JUNE 30, 1995"14,543,947 "6,000"10,735,496"(1,226,059)"24,059,3844'SIX MONTHS ENDED DECEMBER 31, 1995 - Net loss"(490,254)"(490,254)"----------- "------"-----------"-----------"-----------!'BALANCE, DECEMBER 31, 1995"14,543,947 "6,000"10,245,242"(1,226,059)"23,569,1300'YEAR ENDED DECEMBER 31, 1996 - Net income"2,805,959"2,805,959"----------- "------"-----------"-----------"-----------!'BALANCE, DECEMBER 31, 1996"14,543,947 "6,000"13,051,201"(1,226,059)"26,375,089$'YEAR ENDED DECEMBER 31, 1997:'Net income"4,761,330"4,761,3303'Shares issued (1,570,000) pursuant to public)'offering, net of costs of $453,483"26,895,917"26,895,917'Stock options exercised"1,020,794"1,020,794+'Tax benefit related to stock options"143,400"143,4000'Preferred stock converted to common stock "600 "(600)"----------- "------"-----------"-----------"-----------!'BALANCE, DECEMBER 31, 1997"$42,604,658 "$5,400"$17,812,531"$(1,226,059)"$59,196,530"=========== "======"==========="==========="===========6'See notes to consolidated financial statements. '-5- 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES,'CONSOLIDATED STATEMENTS OF CASH FLOWS"TWELVE MONTHS "ENDED"SIX MONTHS "YEAR"DECEMBER 31, "ENDED "ENDED"YEAR ENDED DECEMBER 31,"DECEMBER 31, "1995"DECEMBER 31,"JUNE 30, "1997 "1996"(UNAUDITED) "1995 "1995 'CASH FLOWS FROM OPERATING'ACTIVITIES:'Net income (loss)"$ 4,761,330"$ 2,805,959"$ (536,961)"$ (490,254)"$ 1,432,5811'Adjustments to reconcile net income (loss)('to net cash provided by (used in)'operating activities:$'Depreciation and amortization"2,925,932"2,392,716"2,053,338"1,039,829"1,815,624'Deferred income taxes"156,247 "62,375"(701,200)"(572,335) "34,587.'Deferred compensation and pension - net"(13,227)"(587,852)"132,525"189,288"(56,763)#'Loss on sale of fixed assets "1,213 "94,614('Change in assets and liabilities:'Receivables"(5,176,709)"(1,780,457)"(2,330,912)"2,871,466"144,463'Inventories"(7,504,334)"(7,053,010)"4,777,807"8,854,652"(1,809,282)'Other current assets"(143,921)"(72,212)"915,979"1,287,108"(1,403,781)'Other assets "78,951"198,674"(789,528)"(751,521)"(18,538)'Accounts payable"(711,792)"1,665,330"(1,467,104)"(5,336,585)"3,159,331'Accrued liabilities"(740,704)"2,105,676"(173,688)"(443,705)"(232,169)"------------"------------"------------"------------"------------%'Net cash provided by (used in)'operating activities"(6,367,014)"(168,187)"1,880,256"6,647,943"3,066,053"------------"------------"------------"------------"------------ 'CASH FLOWS FROM INVESTING,'ACTIVITIES - Purchase of fixed assets"(4,462,236)"(3,302,761)"(2,695,732)"(683,542)"(6,546,127)"------------"------------"------------"------------"------------ 'CASH FLOWS FROM FINANCING'ACTIVITIES:#'Proceeds from long-term debt"77,050,000"34,913,394"22,734,117"13,370,000"20,799,547!'Payments on long-term debt"(86,073,615)"(32,946,783)"(21,693,655)"(17,658,248)"(17,393,407).'Proceeds form issuance of stock (net of'offering expenses)"26,895,917/'Proceeds from exercise of stock options,$'including related tax benefit"1,164,194"------------"------------"------------"------------"------------%'Net cash provided by (used in)'financing activities"19,036,496"1,966,611"1,040,462"(4,288,248)"3,406,140"------------"------------"------------"------------"------------&'INCREASE (DECREASE) IN CASH AND'CASH EQUIVALENTS"8,207,246"(1,504,337)"224,986"1,676,153"(73,934)!'CASH AND CASH EQUIVALENTS,'BEGINNING OF PERIOD"349,637"1,853,974"1,628,988"177,821"251,755"------------"------------"------------"------------"------------%'CASH AND CASH EQUIVALENTS, END'OF PERIOD"$ 8,556,883"$ 349,637"$ 1,853,974"$ 1,853,974"$ 177,821"============"============"============"============"============6'See notes to consolidated financial statements.