/2H<d 1$&%* 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES"'CONSOLIDATED BALANCE SHEETS"DECEMBER 31,"DECEMBER 31,"----------------"---------------- "1998 "1997"-----------"----------- 'CURRENT ASSETS: 'Cash and cash equivalents "$ 7,232,876 "$ 8,556,883' 'Accounts receivable - trade, net "15,595,483 "17,789,329 'Other receivables "1,654,471 '475593'Inventories"47,110,011"32,894,236'Deferred income taxes"1,735,699'1474799'Other current assets"871,533"850,018"-----------"-----------'Total current assets"74,200,073"62,040,858'FIXED ASSETS, AT COST:$'Property, plant and equipment"37,346,300"30,557,770&'Less - accumulated depreciation"(16,842,446)"(12,949,316)"-----------"-----------'Total fixed assets - net"20,503,854"17,608,454'DEFERRED PENSION ASSET "884,268 "216,260"'OTHER ASSETS""1,010,274""1,089,266#"-----------#"-----------%'TOTAL ASSETS%"$ 96,598,469%"$ 80,954,838&"============&"============6('See notes to consolidated financial statements. ,'ROCKY SHOES & BOOTS, INC.-'AND SUBSIDIARIES"/'CONSOLIDATED BALANCE SHEETS1"DECEMBER 31,1"DECEMBER 31,2"----------------------2"-------------- 3"1998 3"19974'CURRENT LIABILITIES:5'Accounts payable5"$ 2,194,0265"$ 2,414,936*6'Current maturities - long-term debt6"2,927,6256"1,173,8407'Accrued taxes - other7"479,2117"593,2488'Accrued income taxes 8"66,694!9'Accrued salaries and wages9"511,9169"1,118,331:'Accrued other:"618,952:"686,238;"-----------;"----------- <'Total current liabilities<"6,731,730<"6,053,287/>'LONG-TERM DEBT - Less current maturities>"26,877,509>"13,406,962@'DEFERRED LIABILITIES:A'Deferred compensationA"173,535A"241,673B'Deferred income taxesB"2,298,863B"2,049,256!C'Deferred pension liabilityC"881,761 C"7,130D"-----------D"-----------!E'Total deferred liabilitiesE"3,354,159E"2,298,059F"-----------F"-----------G'Total liabilitiesG"36,963,398G"21,758,308$I'COMMITMENTS AND CONTINGENCIESK'SHAREHOLDERS' EQUITY:NL'Preferred stock, Series A, no par value, $.06 stated value; outstanding,M'1998 - 0 shares; 1997 - 90,000 shares M"5,400LN'Common stock, no par value; 10,000,000 shares authorized; outstanding7O'1998 - 5,172,815 shares; 1997 - 5,359,668 sharesO"39,560,343O"42,604,658&P'Stock held in treasury, at costP"(1,226,059)Q'Retained earningsQ"20,074,728Q"17,812,531R"-----------R"-----------!S'Total shareholders' equityS"59,635,071S"59,196,530T"-----------T"-----------1U'TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYU"$96,598,469U"$80,954,838V"===========V"===========6X'See notes to consolidated financial statements. \'ROCKY SHOES & BOOTS, INC.]'AND SUBSIDIARIES(_'CONSOLIDATED STATEMENTS OF INCOMEa'YEAR ENDED DECEMBER 31, c"1998 c"1997 c"1996d'NET SALESd"$ 88,699,413d"$ 95,026,786d"$ 73,147,821f'COST OF GOODS SOLDf"68,185,041f"69,300,071f"55,103,578g"------------g"-------------g"------------h'GROSS MARGINh"20,514,372h"25,726,715h"18,044,243j'SELLING, GENERAL ANDk'ADMINISTRATIVE EXPENSESk"17,208,211k"16,416,341k"12,332,519l"------------l"-------------l"------------n'INCOME FROM OPERATIONSn"3,306,161n"9,310,374n"5,711,724o"------------o"-------------o"------------#q'OTHER INCOME AND (EXPENSES):r'Interest expenser"(1,734,611)r"(2,552,732)r"(2,103,556)s'Other - nets"691,073s"108,688s"115,945t"------------t"-------------t"------------v'Total other - netv"(1,043,538)v"(2,444,044)v"(1,987,611)w"------------w"-------------w"------------!y'INCOME BEFORE INCOME TAXESy"2,262,623y"6,866,330y"3,724,113{'INCOME TAX EXPENSE {"426{"2,105,000{"918,154|"------------|"-------------|"------------~'NET INCOME~"$ 2,262,197~"$ 4,761,330~"$ 2,805,959"============"============="============#'NET INCOME PER COMMON SHARE: 'Basic "$ 0.42"$ 1.16"$ 0.77"============"============="============'Diluted "$ 0.41"$ 1.10"$ 0.74"============"============="============'WEIGHTED AVERAGE COMMON'SHARES OUTSTANDING: 'Basic"5,425,026"4,087,682"3,665,548"============"============="============'Diluted"5,526,863"4,329,907"3,776,045"============"============="============6'See notes to consolidated financial statements. 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES6'CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY "TOTAL"PREFERRED "COMMON"TREASURY"RETAINED"SHAREHOLDERS' "STOCK "STOCK "STOCK"EARNINGS "EQUITY!'BALANCE, DECEMBER 31, 1995"$ 6,000"$ 14,543,947"$ (1,226,059)"$ 10,245,242"$ 23,569,130'Net income - 1996"2,805,959"2,805,959"--------"------------"-------------"------------"------------!'BALANCE, DECEMBER 31, 1996 "6,000"14,543,947"(1,226,059)"13,051,201"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 $453,483"26,895,917"26,895,917'Stock options exercised"1,020,794"1,020,794+'Tax benefit related to stock options"143,400"143,4000'Preferred stock converted to common stock "(600) "600"--------"------------"-------------"------------"------------!'BALANCE, DECEMBER 31, 1997 "5,400"42,604,658"(1,226,059)"17,812,531"59,196,530$'YEAR ENDED DECEMBER 31, 1998:'Net income"2,262,197"2,262,197.'Treasury stock retired (124,095 shares)"(1,226,059)"1,226,059<'Treasury stock purchased and retired (292,600 shares)"(2,038,118)"(2,038,118)'Stock options exercised"214,462"214,4620'Preferred stock converted to common stock"(5,400) "5,400"--------"------------"-------------"------------"------------!'BALANCE, DECEMBER 31, 1998"$"$ 39,560,343"$"$ 20,074,728"$ 59,635,071"========"============"============="============"============6'See notes to consolidated financial statements. 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES,'CONSOLIDATED STATEMENTS OF CASH FLOWS'YEAR ENDED DECEMBER 31, "1998 "1997 "1996,'CASH FLOWS FROM OPERATING ACTIVITIES:'Net income"$ 2,262,197"$ 4,761,330"$ 2,805,9591'Adjustments to reconcile net income to net)'cash used in operating activities:$'Depreciation and amortization"4,226,313"2,925,932"2,392,716'Deferred income taxes"(11,293)"156,247 "62,375.'Deferred compensation and pension - net"138,485"(13,227)"(587,852)#'Loss on sale of fixed assets "837 "1,213 "94,614('Change in assets and liabilities:'Receivables"1,014,968"(5,176,709)"(1,780,457)'Inventories"(14,215,775)"(7,504,334)"(7,053,010)'Other current assets"(21,515)"(143,921)"(72,212)'Other assets "58,811 "78,951"198,674'Accounts payable"(506,171)"(711,792)"1,665,330'Accrued liabilities"(854,432)"(740,704)"2,105,676"--------------"--------------"-----------------,'Net cash used in operating activities"(7,907,575)"(6,367,014)"(168,187)"--------------"--------------"----------------- 'CASH FLOWS FROM INVESTING,'ACTIVITIES - Purchase of fixed assets"(6,817,108)"(4,462,236)"(3,302,761)"--------------"--------------"-----------------,'CASH FLOWS FROM FINANCING ACTIVITIES:#'Proceeds from long-term debt"79,835,000"77,050,000"34,913,394!'Payments on long-term debt"(64,610,668)"(86,073,615)"(32,946,783).'Proceeds from issuance of stock (net of'offering expenses)"26,895,917!'Purchase of treasury stock"(2,038,118)9'Proceeds from exercise of stock options, including'related tax benefit"214,462"1,164,194"--------------"--------------"-----------------0'Net cash provided by financing activities"13,400,676"19,036,496"1,966,611"--------------"--------------"-----------------&'INCREASE (DECREASE) IN CASH AND'CASH EQUIVALENTS"(1,324,007)"8,207,246"(1,504,337)!'CASH AND CASH EQUIVALENTS,'BEGINNING OF PERIOD"8,556,883"349,637"1,853,974"--------------"--------------"-----------------/'CASH AND CASH EQUIVALENTS, END OF PERIOD"$ 7,232,876"$ 8,556,883"$ 349,637"=============="=============="=================6'See notes to consolidated financial statements.