/2HV    d 1$&%* 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES"'CONSOLIDATED BALANCE SHEETS^December 31,^December 31, ^1999 ^1998'CURRENT ASSETS: 'Cash and cash equivalents"$ 2,330,324"$ 7,232,876''Accounts receivable - trade, net"18,712,588"15,595,483 'Refundable income taxes "3,850,000 'Other receivables "1,377,394 "1,654,471 'Inventories "32,573,067 "47,110,011 'Deferred income taxes "1,017,331 "1,735,699 'Other current assets "1,222,914 "871,533"------------"-------------'Total current assets"61,083,618"74,200,073'FIXED ASSETS, AT COST:$'Property, plant and equipment"45,012,101"37,346,300&'Less - accumulated depreciation"(18,879,879)"(16,842,446)'Total fixed assets - net"26,132,222"20,503,854'DEFERRED PENSION ASSET"357,520"884,268'OTHER ASSETS"1,759,994"1,010,274"------------"-------------'TOTAL ASSETS"$ 89,333,354"$ 96,598,469"============"=============6'See notes to consolidated financial statements. !'ROCKY SHOES & BOOTS, INC."'AND SUBSIDIARIES"#'CONSOLIDATED BALANCE SHEETS%^December 31,%^December 31, &^1999 &^1998''CURRENT LIABILITIES:('Accounts payable("$ 2,128,112("$ 2,194,026*)'Current maturities - long-term debt)"8,599,897)"2,927,625*'Accrued expenses:+'Taxes - other+"412,721+"479,211,'Salaries and wages,"569,203,"511,916 -'Other-"905,783-"618,952."-----------."----------- /'Total current liabilities/"12,615,716/"6,731,730/1'LONG-TERM DEBT - Less current maturities1"25,176,9181"26,877,5093'DEFERRED LIABILITIES:4'Compensation4"170,2944"173,5355'Income taxes5"528,2735"2,298,8636'Pension6"613,0236"881,7617"-----------7"-----------!9'Total deferred liabilities9"1,311,5909"3,354,159:"-----------:"-----------<'Total liabilities<"39,104,224<"36,963,398$>'COMMITMENTS AND CONTINGENCIES@'SHAREHOLDERS' EQUITY:BA'Preferred stock, Series A, no par value, $.06 stated value;%B'none outstanding 1999 and 1998-C'Common stock, no par value; 10,000,000&D' shares authorized; outstanding7E'1999 - 4,489,215 shares; 1998 - 5,172,815 sharesE"35,284,159E"39,560,343F'Retained earningsF"14,944,971F"20,074,728G"-----------G"-----------!I'Total shareholders' equityI"50,229,130I"59,635,071J"-----------J"-----------1M'TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYM"$89,333,354M"$96,598,469N"===========N"===========6P'See notes to consolidated financial statements. R'ROCKY SHOES & BOOTS, INC.S'AND SUBSIDIARIES,T'CONSOLIDATED STATEMENTS OF OPERATIONSU^Year Ended U^Year Ended U^Year Ended V^December 31,V^December 31,V^December 31, W^1999 W^1998 W^1997Y'NET SALESY"$ 98,099,184Y"$ 88,699,413Y"$ 95,026,786['COST OF GOODS SOLD["83,256,768["68,185,041["69,300,071\"------------\"------------\"------------^'GROSS MARGIN^"14,842,416^"20,514,372^"25,726,715`'SELLING, GENERAL ANDa'ADMINISTRATIVE EXPENSESa"20,020,357a"17,208,211a"16,416,341b"------------b"------------b"------------$d'INCOME (LOSS) FROM OPERATIONSd"(5,177,941)d"3,306,161d"9,310,374e"------------e"------------e"------------#g'OTHER INCOME AND (EXPENSES):h'Interest expenseh"(2,415,682)h"(1,734,611)h"(2,552,732)i'Other - neti"236,287i"691,073i"108,688j"------------j"------------j"------------l'Total other - netl"(2,179,395)l"(1,043,538)l"(2,444,044)m"------------m"------------m"------------(o'INCOME (LOSS) BEFORE INCOME TAXESo"(7,357,336)o"2,262,623o"6,866,330#q'INCOME TAX EXPENSE (BENEFIT)q"(2,227,579) q"426q"2,105,000r"------------r"------------r"------------t'NET INCOME (LOSS)t"$ (5,129,757)t"$ 2,262,197t"$ 4,761,330u"============u"============u"============*x'NET INCOME (LOSS) PER COMMON SHARE: y'Basicy"$ (1.09)y"$ 0.42y"$ 1.16z"============z"============z"============{'Diluted{"$ (1.09){"$ 0.41{"$ 1.10|"============|"============|"============~'WEIGHTED AVERAGE COMMON'SHARES OUTSTANDING: 'Basic"4,710,039"5,425,026"4,087,682"============"============"============'Diluted"4,710,039"5,526,863"4,329,907"============"============"============6'See notes to consolidated financial statements. 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES'CONSOLIDATED STATEMENTS' OF SHAREHOLDERS' EQUITY ^TOTAL^PREFERRED ^COMMON^TREASURY^RETAINED^SHAREHOLDERS' ^STOCK ^STOCK ^STOCK^EARNINGS ^EQUITY!'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"0"39,560,343"0"20,074,728"59,635,071$'YEAR ENDED DECEMBER 31, 1999:'Net loss"(5,129,757)"(5,129,757);'Treasury stock purchased and retired (685,100shares)"(4,285,184)"(4,285,184)'Stock options exercised "9,000 "9,000"--------"-----------"------------"------------"-----------!'BALANCE, DECEMBER 31, 1999"$ 0"$ 35,284,159"$ 0"$ 14,944,971"$50,229,130"========"==========="============"============"===========6'See notes to consolidated financial statements.2' F - 5 # 'ROCKY SHOES & BOOTS, INC.'AND SUBSIDIARIES,'CONSOLIDATED STATEMENTS OF CASH FLOWS|'---------------------------------------------------------------------------------------------------------------------s' YEAR ENDED DECEMBER 31,|' ------------------------------------------------y' 1999 1998 1997,'CASH FLOWS FROM OPERATING ACTIVITIES:|' Net income (loss) $ (5,129,757) $ 2,262,197 $ 4,761,330<' Adjustments to reconcile net income (loss) to net?' cash provided by (used in) operating activities:|' Depreciation and amortization 3,836,586 4,226,313 2,925,932|' Deferred income taxes (1,052,222) (11,293) 156,247}' Deferred compensation and pension - net 254,769 138,485 (13,227)|' Loss on sale of fixed assets 9,048 837 1,213,' Change in assets and liabilities:}' Receivables (6,690,028) 1,014,968 (5,176,709)}' Inventories 14,536,944 (14,215,775) (7,504,334)}' Other current assets (378,992) (21,515) (143,921)|' Other assets (749,720) 58,811 78,951}' Accounts payable 162,705 (506,171) (711,792)}' Accrued liabilities 277,628 (854,432) (740,704)|' ------------ ------------ ------------}' Net cash provided by (used in) operating activities 5,076,961 (7,907,575) (6,367,014)|' ------------ ------------ ------------ 'CASH FLOWS FROM INVESTING}' ACTIVITIES - Purchase of fixed assets (9,675,010) (6,817,108) (4,462,236)|' ------------ ------------ ------------,'CASH FLOWS FROM FINANCING ACTIVITIES:|' Proceeds from long-term debt 57,527,000 79,835,000 77,050,000}' Payments on long-term debt (53,555,319) (64,610,668) (86,073,615)0' Proceeds from issuance of stock (net of|' offering expenses) 26,895,917k' Purchase of treasury stock (4,285,184) (2,038,118);' Proceeds from exercise of stock options, including|' related tax benefit 9,000 214,462 1,164,194|' ------------ ------------ ------------|' Net cash provided by (used in) financing activities (304,503) 13,400,676 19,036,496|' ------------ ------------ ------------&'INCREASE (DECREASE) IN CASH AND|' CASH EQUIVALENTS (4,902,552) (1,324,007) 8,207,246!'CASH AND CASH EQUIVALENTS,|' BEGINNING OF YEAR 7,232,876 8,556,883 349,637|' ------------ ------------ ------------|'CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,330,324 $ 7,232,876 $ 8,556,883|' ============ ============ ============