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Selling, general and administrative expenses increased modestly in 2002 compared with the prior year. During the first half of the year we responded to weak market conditions through increased emphasis of controllable costs, while continuing to support the ROCKY brand through targeted advertising and related efforts. Additionally, we proceeded with development of our western work boot line. 

In April of this past year David Sharp was appointed Executive Vice President and Chief Operating Officer. He joined the company in June 2000 and during this period David has made solid contributions to our improved results, sales and marketing strategy and long-term growth performance. More recently, John Maser joined the company as Vice President-Apparel Business Development in March 2003. He is an experienced industry professional who is leading our extension of the ROCKY brand beyond footwear into additional categories that complement our growth strategy. As a result, our management team is stronger today and focused on achieving increased growth and profitability. 

We completed a two-year extension of our credit facility in the fourth quarter of 2002. This new $45 million agreement replaces the previous credit facility and includes terms more favorable to the company as well as lower interest rates. 

In September 2002, the Board of Directors authorized the repurchase of up to 500,000 shares of the company’s common shares, which represented approximately 11% of the shares outstanding. This authorization was based on the Board’s determination that the company’s stock is a good investment and that repurchasing the shares could benefit shareholder value. These purchases were made through open market and privately negotiated transactions. Earlier this month we completed this share repurchase program. The average purchase price was $6.38 per share. Book value at December 31, 2002 was $11.67 per share. 

Strong sell-through of ROCKY products at retail and more favorable weather conditions occurred in the fourth quarter of 2002. This contributed to a solid increase in branded product sales for the quarter. As a result, we entered 2003 with increased optimism regarding sales growth this year. Initial bookings for the upcoming fall and winter seasons are substantially ahead of the same period last year. While the sluggish economy, war, and homeland security issues may impact consumer behavior, our customers are motivated buyers following their improved performance this past year. The 2002 results reflect the progress we have made to improve our manufacturing operations, control costs, and increase profitability. We are well- positioned for growth compared with 2002 and optimistic about the prospects for improved results this year. 

Your continued interest in our company is appreciated. 

Sincerely, 

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