Exhibit 13



<TABLE>
Five-Year Summary of Selected Financial Data

<CAPTION>

Selected Income Statement Data
-------------------------------------------------------------------------------------------------------------------
In Thousands - Year Ended December 31          1998            1997            1996            1995            1994
-------------------------------------------------------------------------------------------------------------------

<S>                                         <C>             <C>             <C>              <C>            <C>     
Net sales                                   $133,405        $145,503        $121,997         $98,571        $108,319
Operating income                               5,598          13,156          10,088           6,662          11,230
Net income                                     2,260           6,779           5,386           3,328           6,152

Selected Balance Sheet Data
-------------------------------------------------------------------------------------------------------------------
In Thousands - Year Ended December 31          1998            1997            1996            1995            1994
-------------------------------------------------------------------------------------------------------------------

Working capital                              $44,801         $48,413         $46,811         $34,537         $35,382
Total assets                                  98,615         101,920          92,286          74,862          74,822
Long-term obligations                          9,827          12,499          16,002           4,893           7,340
Shareholders' equity                          63,035          61,848          55,936          51,322          49,154

Selected Share Data
-------------------------------------------------------------------------------------------------------------------
Year Ended December 31                         1998            1997            1996            1995            1994
-------------------------------------------------------------------------------------------------------------------

Basic earnings per share                        $.34           $1.02            $.80            $.48            $.98
Diluted earnings per share                      $.34           $1.01            $.80            $.48            $.98
Dividends per share                             $.13            $.13            $.11            $.09            $.09

Shares used in
   basic per share calculation (000's)         6,662           6,668           6,668           6,680           6,158
Shares used in
   diluted per share calculation (000's)       6,676           6,713           6,674           6,680           6,158
</TABLE>


4
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations

Forward-Looking Statements
Certain matters  discussed below in this 1998 Annual Report (and,  thereby,  the
1998 Form 10-K) are  "forward-looking  statements"  intended  to qualify for the
safe harbors from  liability  established by the Private  Securities  Litigation
Reform Act of 1995. These forward-looking statements can generally be identified
as such  because  the  context of the  statement  includes  phrases  such as the
Company  "believes,"  "expects"  or other  words of similar  import.  Similarly,
statements  that describe the Company's  future plans,  objectives or goals,  as
well as the estimated  costs and timetable  for Year 2000  compliance,  are also
forward-looking  statements.  Such  forward-looking  statements  are  subject to
certain risks and uncertainties  which could cause actual results or outcomes to
differ  materially from those currently  anticipated.  Factors that could affect
actual  results  or  outcomes  include,  without  limitation,   adverse  weather
conditions,  dealer inventory levels, actions of companies that compete with the
Company,  changes in consumer buying patterns,  loss of a material  customer and
the  success  of third  parties  regarding  compliance  with Year  2000  issues.
Shareholders,  potential investors and other readers are urged to consider these
factors in evaluating  the  forward-looking  statements and are cautioned not to
place undue reliance on such  forward-looking  statements.  The  forward-looking
statements  included are only made as of the date of this 1998 Annual Report and
the Company  undertakes no obligation  to publicly  update such  forward-looking
statements to reflect subsequent events or circumstances.

Overview
Net sales generated during the last five months of the year can account for over
55% of the Company's  net sales and have a  significant  impact on the Company's
results of operations.  Because consumers  generally purchase a large percentage
of the  Company's  products  from  September  through  January,  retail  dealers
generally want delivery of products from June through October for advance orders
and  from  October  through  December  for  restocking  (or  "fill-in")  orders.
Generally,  mild or dry  weather  during  the late fall and early  winter  has a
negative  impact on the Company's net sales for the current year,  while cold or
wet weather during such time has a favorable impact. Further, weather conditions
in  one  season  can  affect  future  net  sales,   particularly  where  weather
contributes  to high or low dealer  inventory  levels at the  season's  end.  To
satisfy demands for its products and to provide for uniform  production  levels,
the Company generally  manufactures its footwear products year-round.  To assist
in production scheduling, the Company's sales force calls on retail dealers from
January to June to present the product line, review inventory levels and prepare
an advance order.  The Company offers price discounts for orders placed prior to
July, although advance orders may be canceled at any time. To attempt to balance
the flow of  shipments  and the need for  warehouse  space,  the Company  offers
extended  terms on  receivables  relating  to  advance  orders to induce  retail
dealers to allow some shipments of seasonal  products prior to the peak shipment
period.  The advance order terms provide for payment by December 1 (January 1 in
the case of  Southern  dealers).  Because of  seasonal  fluctuations,  inventory
levels are highest at mid-year and accounts receivable levels are highest during
the fourth quarter.
     The Company is  gradually  shifting  its retail  product mix to become less
dependent on winter weather.  This is being  accomplished  through the growth of
the Danner  leather  product  line and the  addition of leather  and  protective
clothing product offerings under the LaCrosse brand.
     The  Company  markets  and  distributes  its  products   through  both  the
industrial  and retail  channels  of  distribution.  The less  weather-sensitive
industrial  distribution  accounts for  approximately 30% of total net sales and
serves the food processing,  mining, construction and industrial end use markets
with   protective   footwear   and   clothing.   In  order  to  build  the  less
weather-dependent  industrial  business,  the Company in 1996 acquired Rainfair,
Inc., a manufacturer and marketer of rainwear and protective clothing.
     Each year, the Company introduces a number of new products.  A new product,
if successful, can generate growing amounts of net sales during the first two to
four years. In some cases, net sales of new products will help to offset adverse
factors, such as mild or dry weather or adverse economic conditions.

5
<PAGE>
Results of Operations
The  following  table shows the  percentage  relationship  to net sales of items
derived from the  Consolidated  Statements of Income and the  percentage  change
from year to year.

<TABLE>
<CAPTION>
                                                   Percentage of Net Sales          Percentage of Increase (Decrease)
-------------------------------------------------------------------------------------------------------------------

Year Ended December 31                        1998           1997           1996         1998 vs. 1997   1997 vs. 1996
-------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>               <C>               <C>
Net sales                                   100.0%         100.0%         100.0%             (8)%             19%
Cost of goods sold                           74.1           72.0           72.3              (6)              19
Gross profit                                 25.9           28.0           27.7             (15)              21
Selling and administrative expenses         (21.7)         (19.0)         (19.4)              5               17
Operating income                              4.2            9.0            8.3             (57)              30
Interest expense                             (1.7)          (1.4)          (1.4)             11               22
Other income                                   .3             .4             .3             (36)              64
Income before income taxes                    2.8            8.0            7.2             (68)              33
Income taxes                                 (1.1)          (3.1)          (2.8)            (68)              33
Minority interest                               -            (.2)             -
Net income                                    1.7%           4.7%           4.4%            (67)%             26%

</TABLE>

Year Ended December 31, 1998
Compared to Year Ended December 31, 1997
Net Sales. Net sales in 1998 decreased $12.1 million, or 8.3%, to $133.4 million
from $145.5  million in 1997. The mild winter weather across most of the country
from  December  1997  through the first  quarter of 1998  significantly  reduced
fill-in  orders in early 1998 and  reduced  advance  orders for  shipment in the
third quarter. In addition, the extremely warm and dry weather from mid-November
through  December  1998 lowered  retail demand and nearly  eliminated  late 1998
fill-in orders. While the Company's dealers ended 1998 with excessive inventory,
it is  believed  the  favorable  weather  conditions  in  January  1999  reduced
inventory levels below last year's levels. Shipments to L.L. Bean were also down
approximately $1.3 million as compared to 1997, the result of a decision by L.L.
Bean effective July 1998 to replace their  handcrafted  rubber bottoms purchased
from the Company with molded bottoms from another vendor.  A full year impact of
the L.L.  Bean  decision  will reduce 1999 net sales an  additional  $.7 to $1.0
million.  Further,  consumer  rainwear  shipments were down  approximately  $1.0
million,  primarily  as a result of lower  shipments  to a large  discount  mass
merchant.  These decreases were partially  offset by a 10% increase in shipments
of our less weather-sensitive Danner brand leather products, largely as a result
of new products.

Gross Profit.  Gross profit as a percentage  of net sales  decreased to 25.9% in
1998 from  28.0% in 1997.  Gross  profit  margins  were  adversely  affected  by
unabsorbed  factory overhead (the result of lower production  levels in response
to lower  demand),  a higher level of closeout sales  (primarily  related to the
transition  of the Lake of the Woods(R)  brand  product line to the  LaCrosse(R)
brand) and a reduced  volume of higher margin  fill-in  orders in both the first
and fourth  quarters.  The  Company  believes  that  shipments  of  discontinued
products  will be lower in 1999 and that  reserves  are  adequate  to cover  any
potential  losses  on  discontinued   products.  In  addition,   production  was
discontinued  at the Company's  factory in Virginia,  and transferred to another
Company facility, which negatively impacted margins by approximately .2%.

Selling  and  Administrative  Expenses.   Selling  and  administrative  expenses
increased  $1.3  million,  or 5%, in 1998 as compared to 1997.  The  increase in
selling  and  administrative  expenses  was a result  of a planned  increase  in
consumer advertising, increased selling and marketing expenses in support of the
growth of the  Danner  brand,  increased  spending  on product  development  and
increased  warehousing  costs to  support  the Lake of the Woods  brand and as a
result of the  consolidation  of the  Company's  industrial  warehousing.  These
increases more than offset sales volume related  decreases in variable  expense.
As a percent of net sales,  selling and  administrative  expenses increased from
19.0% in 1997 to 21.7% in 1998,  largely as a result of higher planned  expenses
and lower sales volume.

Interest  Expense.  Interest  expense  increased  $220,000,  or 11%,  in 1998 as
compared to 1997.  The  increase  was  primarily  the result of $2.4  million in
additional  short-term borrowings for the January 1998 purchase of all Rainfair,
Inc.  common  stock held by the former  principal  owner.  In  addition,  higher
inventory  levels  throughout  the year,  primarily  the result of lower fill-in
sales during the winter of 1997-98, contributed to increased borrowings.

Income Tax Expense.  The Company's  effective income tax rate in 1998 was 39.2%,
the same as the 1997 income tax rate.

Year Ended December 31, 1997
Compared to Year Ended December 31, 1996
Net Sales. Net sales in 1997 increased $23.5 million,  or 19%, to $145.5 million
from $122.0 million in 1996. The increase in net sales was largely  attributable
to the July 1997  acquisition of the Lake of the Woods product line, which added

6
<PAGE>

approximately  $5.2 million in net sales, along with an additional $15.2 million
of net  sales  contributed  by  Rainfair  and Red  Ball,  mainly  as a result of
including  a full  year of sales in 1997 as  compared  to 1996 when  sales  were
included  from their May  acquisition  dates.  Danner net sales  increased  $2.7
million in 1997  compared to 1996 mainly due to increased  sales of hiking boots
and work boots, due in part to new product introductions.  Net sales of LaCrosse
products  were up less than 1% with  increased  sales in injection  molded vinyl
knee boots largely offset by a weather-related decrease in cold weather pac boot
sales,  the result of the mild  weather in December  1997.  This mild weather in
December  1997,  coupled  with mild  weather  during the first  quarter of 1998,
resulted in dealers having excess inventories in certain product categories.

Gross Profit.  Gross profit as a percentage  of net sales  increased to 28.0% in
1997 from 27.7% in 1996. The improvement in gross margins as a percentage of net
sales was due to more favorable pricing on key raw materials,  a lower defective
return rate on Danner and Red Ball products and improved margins on the Rainfair
business, primarily due to increased volume.

Selling  and  Administrative  Expenses.  As a percent of net sales,  selling and
administrative  expenses  decreased  from 19.4% of net sales in 1996 to 19.0% of
net sales in 1997.  The  ability to leverage  the  LaCrosse  operating  expenses
across a  greater  sales  base  was the  primary  reason  for the  reduction  in
operating  expenses as a percent of net sales.  Expenses increased $3.9 million,
or 17%, in 1997 as compared to 1996, partially due to a $1.4 million increase in
expenses  reported for Rainfair in 1997 as compared to 1996 when  expenses  were
included from the date of  acquisition  in May 1996. The balance of the increase
in spending was largely driven by the increase in net sales.

Interest  Expense.  Interest  expense  increased  $363,000,  or 22%,  in 1997 as
compared  to 1996.  The  increase  was a result  of a  higher  level of  average
borrowings  needed to provide  the working  capital in support of the  increased
sales of Lake of the Woods,  Rainfair and the Red Ball product lines, which were
acquired in July 1997, May 1996 and May 1996, respectively.

Income Tax Expense.  The Company's  effective income tax rate in 1997 was 39.2%,
the same as the 1996 income tax rate.

Liquidity and Capital Resources
The Company has  historically  financed its operations  with cash generated from
operations,  long-term lending arrangements and short-term  borrowings under its
line of credit.  The  Company  requires  working  capital  primarily  to support
fluctuating  accounts  receivable  and inventory  levels caused by the Company's
seasonal  business cycle. The Company's  working capital needs are lowest in the
first  quarter and highest  from August  through  October.  The Company  invests
excess cash balances in short-term  investment  grade securities or money market
investments.
     In May 1996, the Company  renegotiated  its unsecured credit agreement with
Firstar Bank  Milwaukee,  N.A. as the lead bank.  Under the terms of the revised
agreement,  the maximum  amount of borrowings  were  increased to $62.5 million,
including a $12.5  million term loan,  from the previous  maximum level of $30.0
million.  The  $12.5  million  term  loan,  which  was  primarily  used  to fund
acquisitions,  is due December 31, 2001 and requires  quarterly  payments of $.4
million which commenced in March 1998. The credit  agreement  expires on May 31,
1999.
     In July 1997, the Company acquired all of the outstanding shares of capital
stock of Pro-Trak  Corporation,  the company that operated under the Lake of the
Woods  tradename.  The purchase price,  including the assumption of liabilities,
was approximately $7.3 million.  Lake of the Woods was a designer,  manufacturer
and marketer of branded leather  footwear for both the outdoor and  occupational
segment of the market. During 1998, the Company began the transition of the Lake
of the Woods brand product line to the LaCrosse brand,  which has broader market
recognition.
     Cash  generated by operations in 1998 amounted to $5.5 million  compared to
$2.1 million in 1997.  Net income in 1998  decreased  $4.5 million from the 1997
level,  however  this  was more  than  offset  by a $4.2  million  reduction  in
receivables (as compared to a $4.0 million  increase in 1997).  The reduction in
receivables  as of December 31, 1998 was primarily the result of a 25% reduction
in  sales  in  December  1998  as  compared  to the  prior  year.  During  1998,
inventories  increased  $.6  million,  primarily  as  a  result  of  lower  than
anticipated  net sales  during  November  and December  1998.  Accounts  payable
decreased $2.9 million from the 1997 level,  reflecting lower production  levels
during  December 1998. In 1997,  cash  generated by operations  amounted to $2.1
million as compared to $9.7 million in 1996.  Despite a $1.4 million increase in
net income in 1997 as compared to 1996,  cash generated by operating  activities
was down $7.6 million from 1996. An increase in accounts  receivable,  primarily
as a result of changing the terms on fill-in orders, and a $3.3 million increase
in  inventories  compared  to a $2.1  million  decrease in 1996 were the primary
reasons for the reduction in cash generated by operations. Inventories increased
primarily  as a result of an  increase  in Red Ball  inventories  to support the
anticipated increase in Red Ball sales.
     Net cash used in investing activities during 1998 was $6.6 million, up from
$3.7 million in 1997.  During 1998,  spending on property and  equipment  was up
approximately  $.9  million  from the prior  year  primarily  as a result of the
construction  of  a  product  design/development  center  

7
<PAGE>

and the  purchase  of  Enterprise  Resource  Planning  (ERP)  software.  The ERP
software  will be  installed  during  1999 and  2000,  replacing  the  Company's
existing operating software. It is anticipated that capital expenditures in 1999
will be at  approximately  the same level as in 1998.  Also  contributing to the
1998 increase in cash used in investing activities was the January 1998 purchase
of all of the Rainfair, Inc. common stock held by the former principal owner for
approximately $2.4 million, which made Rainfair, Inc. a 100% owned subsidiary of
the  Company.  During  1997,  net cash  used in  investing  activities  was $3.7
million,  down significantly from $14.2 million in 1996. During 1996, over $11.0
million of cash was invested in the Rainfair acquisition and the purchase of the
Red Ball  trademarks.  The only  acquisition  during  1997 was the  purchase  of
Pro-Trak  Corporation for  approximately  book value,  which did not result in a
significant  use of cash for  investing  activities.  Purchases  of property and
equipment, which accounted for the bulk of the cash used in investing activities
during 1997, were $3.4 million in 1997 as compared to $3.1 million in 1996.
     Net cash  provided  by  financing  activities  was $1.1  million in 1998 as
compared to a usage of $4.7 million in 1997. During 1998,  additional short-term
borrowings provided $5.5 million of cash, which was primarily used to repay $3.3
million of long-term  debt.  Cash dividends of $.9 million and the repurchase of
$.2 million of common  stock used an  additional  $1.1  million of cash in 1998.
During 1997,  $8.0 million of debt was repaid and $.7 million of dividends  were
paid,  which were  partially  offset by $4.0  million of  additional  short-term
borrowings.
     In March 1995,  the Company  announced  plans to  repurchase  up to 130,000
shares of common stock in the open market.  During the third and fourth quarters
of 1998,  the Company  repurchased  25,000  shares at a cost of  $227,000.  This
brings the total shares repurchased to 75,000 shares.
     The  Company's  debt to total capital ratio was 25.9% at December 31, 1998,
24.3% at December 31, 1997 and 24.2% at December 31, 1996.
     In March 1994,  the  Company  acquired  substantially  all of the assets of
Danner Shoe Manufacturing Co., in part by issuing 277,778 shares of common stock
as a portion of the purchase price. In the acquisition,  the Company  guaranteed
the holders of this common  stock a market price of at least $16.20 per share by
March 1, 1999. If the market price of the remaining  135,178  shares  subject to
this  guarantee  is less than $16.20 per share,  the Company will be required to
make a cash payment equal to the  difference  shortly after March 1, 1999. As of
December  31, 1998,  the common  stock of the Company  closed at $9.25 per share
which  would  indicate an  obligation  of the  Company to such  shareholders  of
$939,000.
     Currently available funds, including the line of credit,  together with the
anticipated  cash flows  generated  from future  operations,  are believed to be
adequate to cover the Company's  anticipated  capital and working  capital needs
during 1999.
     From time to time,  the Company  evaluates  acquisitions  of  businesses or
product lines that could complement the Company's  business.  The Company has no
present   understandings,   commitments  or  agreements   with  respect  to  any
acquisition.  However, if the Company makes significant future acquisitions,  it
may be required to raise funds through additional bank financing or the issuance
of debt or equity securities.

Year 2000
The Year 2000 (Y2K) issue is the result of computer  programs  using a two digit
format,  as opposed to four digits,  to indicate the year. Such computer systems
may be unable to  interpret  dates  beyond the year 1999,  which  could  cause a
system failure or other computer errors, leading to a disruption in operations.
     The  Company  began work on Y2K issues in early 1997.  In early  1998,  the
Company established a team of people (Y2K team) to evaluate whether, and to what
extent,  the Year 2000 issue  would  impact the  Company's  business.  While the
Company  sells no products  which are  impacted  by the Y2K issue,  the team did
review application programs, operating systems and equipment used in operations.
A vendor contact program was established which to date has uncovered no material
issues.  The Y2K team is monitoring the Company's  progress in resolving all Y2K
issues.  To date,  the  Company is not aware of any Y2K issues  which  cannot be
resolved in a timely manner.
     The Company is using outside  consultants  to address the Y2K issue for the
application  programs  at one  subsidiary,  otherwise  all  work is  being  done
internally.  The Company believes it will be Y2K compliant by the second quarter
of 1999, except for one subsidiary which is scheduled to be compliant during the
third  quarter  of 1999.  The  Company  currently  estimates  that it will spend
approximately  $300,000  during the years 1997  through  1999 to address the Y2K
issue,  with  approximately  $125,000 of these funds to be expended during 1999.
These costs include the use of outside  consultants,  the purchase of new and/or
updated software where required,  the purchase of new equipment and the internal
costs to change application  programs.  The estimated costs of Y2K compliance do
not give effect to any future corporate  acquisitions made by the Company or its
subsidiaries.
     The Company does not believe that the  implementation of its Y2K compliance
plan will have a material effect on the Company's business operations, financial
condition, liquidity or capital resources. Management of the Company believes it
has an effective  program in place to address the Y2K issue in a timely  manner.
As a component  of the  Company's  Y2K  compliance  plan,  the  Company  will be
developing  contingency  plans to  mitigate  the effects of  potential  problems
experienced  by it or its key vendors or suppliers in the timely  implementation
of its Y2K compliance plan. Nevertheless, since it is not possible to anticipate
all future outcomes,  especially when third parties are involved, there could be
circumstances in which the Company's operations would be adversely affected.

8
<PAGE>

<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1998 and 1997

                                                                         (In Thousands)
-----------------------------------------------------------------------------------------------

Assets                                                                  1998              1997
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C> 
Current Assets
     Cash and cash equivalents                                          $364              $426
     Trade accounts receivable,
         less allowances of $1.0 and $1.6 million                     23,151            27,390
     Inventories (Note 3)                                             39,698            39,073
     Prepaid expenses and deferred tax assets (Note 4)                 4,289             4,670
                                                                     -------           -------
              Total current assets                                    67,502            71,559
                                                                     -------           -------
Property and Equipment
     Land and land improvements and buildings                          7,997             6,678
     Machinery and equipment                                          29,389            26,896
                                                                     -------           -------
                                                                      37,386            33,574
     Less accumulated depreciation                                    23,384            20,299
                                                                     -------           -------
                                                                      14,002            13,275
                                                                     -------           -------
Other Assets
     Goodwill, net of amortization of
         $2.6 and $1.9 million (Note 2)                               14,125            13,946
     Deferred tax and other assets (Note 4)                            2,986             3,140
                                                                     -------           -------
                                                                      17,111            17,086
                                                                     -------           -------
                                                                     $98,615          $101,920
                                                                     =======           =======
Liabilities and Shareholders' Equity
----------------------------------------------------------------------------------------------
Current Liabilities
     Current maturities of long-term obligations (Note 5)             $2,669            $3,349
     Notes payable, bank (Note 5)                                      9,500             4,000
     Accounts payable                                                  3,469             6,385
     Accrued expenses (Note 7)                                         7,063             9,412
                                                                     -------           -------
              Total current liabilities                               22,701            23,146
                                                                     -------           -------
Long-Term Obligations (Note 5)                                         9,827            12,499

Compensation and Benefits (Note 9)                                     3,052             2,921

Commitments and Contingencies (Notes 6, 8, 9 and 10)

Minority Interest in Subsidiary (Note 2)                                   -             1,506

Shareholders' Equity
     Common stock, par value $.01 per share;
         authorized 50,000,000 shares; issued
         and outstanding, 6,717,627 shares (Note 8)                       67                67
     Additional paid-in capital (Note 10)                             27,582            27,579
     Retained earnings (Note 5)                                       36,041            34,645
     Less - cost of 73,200 and 49,900 shares of treasury stock         (655)             (443)
                                                                     -------           -------
              Total shareholders' equity                              63,035            61,848
                                                                     -------           -------
                                                                     $98,615          $101,920
                                                                     =======           =======


See Notes to Consolidated Financial Statements.
</TABLE>


9
<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996

                                                                                       (In Thousands,
                                                                            except for share and per share data)
----------------------------------------------------------------------------------------------------------------------

                                                                              1998             1997              1996
----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>               <C>     
Net sales                                                                   $133,405         $145,503          $121,997
Cost of goods sold                                                            98,829          104,692            88,176
                                                                             -------          -------           -------
              Gross profit                                                    34,576           40,811            33,821
Selling and administrative expenses                                           28,978           27,655            23,733
                                                                             -------          -------           -------
              Operating income                                                 5,598           13,156            10,088
Non-operating income (expense):
     Interest expense                                                         (2,263)          (2,043)           (1,680)
     Miscellaneous                                                               381              593               361
                                                                             -------          -------           -------
                                                                              (1,882)          (1,450)           (1,319)
                                                                             -------          -------           -------
              Income before income taxes                                       3,716           11,706             8,769
Provision for income taxes (Note 4)                                            1,456            4,588             3,440
                                                                             -------          -------           -------
              Net income before minority interest                              2,260            7,118             5,329
Minority interest in net (income) loss of subsidiary                               -            (339)                57
                                                                             -------          -------           -------
              Net income                                                      $2,260           $6,779            $5,386
                                                                             =======          =======           =======
     Basic earnings per share                                                  $0.34            $1.02              $.80
                                                                             =======          =======           =======
     Diluted earnings per share                                                $0.34            $1.01              $.80
                                                                             =======          =======           =======
Weighted average shares outstanding:
     Basic earnings per share                                              6,661,683        6,667,702         6,667,627
     Diluted earnings per share                                            6,675,708        6,712,975         6,673,539

See Notes to Consolidated Financial Statements.

</TABLE>

10
<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997 and 1996

                                                            (In Thousands, except for share and per share data)
-----------------------------------------------------------------------------------------------------------------------


                                                                  Additional                                      Total
                                                        Common       Paid-In       Retained    Treasury   Shareholders'
                                                         Stock       Capital       Earnings       Stock          Equity
-----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>       <C>            <C>          <C>            <C>    
Balance, December 31, 1995                                 $67       $27,579        $24,119       $(443)        $51,322
     Net income                                              -             -          5,386           -           5,386
     Common stock dividends
         ($.11 per share)                                    -             -           (733)          -            (733)
     6% preferred stock dividends                            -             -            (39)          -             (39)
                                                       ----------------------------------------------------------------
Balance, December 31, 1996                                  67        27,579         28,733        (443)         55,936
     Net income                                              -             -          6,779           -           6,779
     Common stock dividends
         ($.13 per share)                                    -             -           (867)          -            (867)
                                                       ----------------------------------------------------------------
Balance, December 31, 1997                                  67        27,579         34,645        (443)         61,848
     Net income                                              -             -          2,260           -           2,260
     Common stock dividends
         ($.13 per share)                                    -             -           (864)          -            (864)
     Purchase of 25,000 shares
         of treasury stock                                   -             -              -        (227)           (227)
     Issuance of 1,700 shares
         of treasury stock                                   -             3              -          15              18
                                                       ----------------------------------------------------------------
Balance, December 31, 1998                                 $67       $27,582        $36,041       $(655)        $63,035
                                                       ================================================================


See Notes to Consolidated Financial Statements.

</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996

                                                                                  (In Thousands)
-------------------------------------------------------------------------------------------------------------------
                                                                        1998             1997              1996
-------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S>                                                                    <C>              <C>                <C>   
     Net income                                                        $2,260           $6,779             $5,386
     Adjustments to reconcile net income to
         net cash provided by operating activities:
         Depreciation                                                   3,437            3,180              2,925
         Amortization                                                     680              572                513
         Other                                                            126              386                (34)
         Deferred income taxes                                            207               86                (62)
         Change in assets and liabilities,
              net of effects from acquisitions
              in 1997 and 1996:
                  Trade accounts receivable                             4,239           (4,033)            (2,145)
                  Inventories                                            (625)          (3,316)             2,136
                  Accounts payable                                     (2,916)          (1,065)               279
                  Accrued expenses and other                           (1,900)            (462)               712
                                                                      -------           ------            -------
                      Net cash provided by operating activities         5,508            2,127              9,710
Cash Flows from Investing Activities
     Purchase of the minority interest in Rainfair, Inc.               (2,365)              -                  -
     Acquisition of Rainfair, Inc., net of cash acquired                   -                -              (9,597)
     Acquisition of Pro-Trak Corporation,
         net of cash acquired                                              -                77                 -
     Purchase of property and equipment                                (4,288)          (3,364)            (3,060)
     Purchase of trademarks                                                -                -              (1,439)
     Other                                                                 11             (416)               (67)
-------------------------------------------------------------------------------------------------------------------
                      Net cash (used in) investing activities          (6,642)          (3,703)           (14,163)
Cash Flows from Financing Activities
     Proceeds from long-term obligations                                   -                -              12,500
     Principal payments on long-term obligations                       (3,352)          (7,981)            (1,742)
     Net proceeds from short-term borrowings                            5,500            4,000                 -
     Cash dividends paid                                                 (867)            (733)              (668)
     Purchase of redeemable preferred stock                                -                -              (1,957)
     Other                                                               (209)              -                  -
-------------------------------------------------------------------------------------------------------------------
                      Net cash provided by (used in)
                           financing activities                         1,072           (4,714)             8,133
                      Increase (decrease) in cash and
                           cash equivalents                               (62)          (6,290)             3,680
Cash and cash equivalents:
     Beginning                                                            426            6,716              3,036
-------------------------------------------------------------------------------------------------------------------
     Ending                                                              $364             $426             $6,716
-------------------------------------------------------------------------------------------------------------------
Supplemental Information
     Cash payments for:
         Interest                                                      $2,178           $1,891             $1,594
         Income taxes                                                  $2,101           $4,055             $2,939


See Notes to Consolidated Financial Statements.

</TABLE>

12
<PAGE>

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The  Company  designs,  manufactures  and  markets  premium  quality  protective
footwear and clothing for sale principally throughout the United States.

Significant accounting policies:
Principles of consolidation:  The 1998 consolidated financial statements include
the accounts of LaCrosse  Footwear,  Inc. and its wholly owned subsidiaries (the
"Company").  The 1997 and 1996 consolidated  financial  statements include a 50%
owned subsidiary where the Company had board,  operating and financial  control.
The Company  acquired 100% ownership of its 50% owned subsidiary in January 1998
(Note  2).  All  material  intercompany  accounts  and  transactions  have  been
eliminated in consolidation.

Use of estimates in the preparation of financial statements:
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Fair value of financial instruments:
The following  methods and  assumptions  were used to estimate the fair value of
each  class of  financial  instruments:
     The carrying amount of cash and  cash equivalents  approximates fair  value
because of the short maturity of those investments.
     The carrying amount of long-term debt  approximates fair value based on the
interest rates,  maturities and collateral  requirements currently available for
similar financial instruments.

Concentrations of credit risk:
The Company grants credit to its customers,  who are primarily  domestic  retail
stores, direct mail catalog merchants and wholesalers, based on an evaluation of
the  customer's  financial  condition.  Exposure  to  losses on  receivables  is
principally  dependent  on each  customer's  financial  condition.  The  Company
monitors  its  exposure  for  credit  losses  and  maintains  an  allowance  for
anticipated losses.

Cash and cash equivalents:
The Company considers all highly liquid debt instruments  (including  short-term
investment  grade  securities  and  money  market  instruments)  purchased  with
maturities of three months or less to be cash equivalents. The Company maintains
its cash in bank deposit  accounts which,  at times,  exceed  federally  insured
limits. The Company has not experienced any losses in such accounts.

Inventories:
Inventories are stated at the lower of cost or market.  All inventories,  except
for vinyl  products,  boot liners,  leather boots,  leather boot  components and
rainwear, are valued using the last-in, first-out (LIFO) method. Vinyl products,
boot liners,  leather  boots,  leather boot  components  and rainwear are valued
using the first-in, first-out (FIFO) method.

Property and equipment:
Property  and  equipment  are  carried at cost and are being  depreciated  using
straight-line  and  accelerated  methods  over their  estimated  useful lives as
follows:  land  improvements,  15 years;  buildings and  improvements,  20 to 39
years; and machinery and equipment, 3 to 7 years.

Intangible assets:
Goodwill,  representing  the excess of cost over net assets  acquired,  is being
amortized on a straight-line basis over periods of 8 to 30 years. Trademarks are
being amortized on a straight-line basis over 15 years.

13
<PAGE>

Impairment of long-lived assets:
The Company  reviews  its  long-lived  assets and  intangibles  periodically  to
determine  potential  impairment by comparing the carrying value of these assets
with  expected  future net cash flows  provided by operating  activities  of the
business.  Should the sum of the expected future net cash flows be less than the
carrying value, the Company would determine whether an impairment loss should be
recognized.  An  impairment  loss would be measured by  comparing  the amount by
which the carrying  value  exceeds the fair value of the  long-lived  assets and
intangibles based on appraised market value.

Revenue recognition and product warranty:
Revenue is recognized at the time products are shipped to customers.  Revenue is
recorded net of freight,  estimated discounts and returns.  The Company warrants
its products against defects in design,  materials and workmanship generally for
one year. A provision  for  estimated  future  warranty  costs is recorded  when
products are shipped.

Income taxes:
Deferred taxes are provided on a liability  method  whereby  deferred tax assets
and liabilities are recognized for temporary differences.  Temporary differences
are the differences  between the reported  amounts of assets and liabilities and
their tax bases.  Deferred tax assets are reduced by a valuation allowance when,
in the opinion of  management,  it is more likely than not that some  portion or
all of the  deferred  tax assets will not be  realized.  Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Advertising and promotion:
The Company  advertises and promotes its products  through national and regional
media,  displays,  catalogs and through  cooperative  advertising  programs with
retailers.  Costs for these  advertising and promotional  programs are generally
charged to expense as incurred.  Advertising and promotional expense included in
the  consolidated  statements  of income for the years ended  December 31, 1998,
1997 and 1996 is approximately $2.9, $2.2, and $2.1 million, respectively.

Stock-based compensation:
The Company  accounts for  stock-based  compensation  using the intrinsic  value
method  prescribed  in APB  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees," and related interpretations.  Accordingly,  since the Company grants
options where the exercise price is equal to the market price at the date of the
grant, no compensation  costs have been recognized.  Disclosures  about the fair
value of outstanding stock options are contained in Note 8.

Earnings per share:
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share,"  requires the  presentation  of earnings per share by all entities  that
have common  stock or potential  common  stock (such as options and  convertible
securities)  outstanding that trade in a public market.  Because the Company has
potential  common  stock  outstanding,  as  discussed  in Note 8, the Company is
required to present  basic and  diluted  earnings  per share.  Diluted per share
amounts  assume the  conversion,  exercise or issuance of all  potential  common
stock instruments unless the effect is to reduce the loss or increase the income
per common share from continuing operations.
     The  numerators  are the same for the basic and diluted  earnings per share
computations  for all years  presented.  The impact of the stock  options on the
denominators of the diluted  earnings per share  computation was to increase the
shares  outstanding  by 14,025 shares,  45,273 shares,  and 5,912 shares for the
years ended December 31, 1998, 1997 and 1996, respectively.

Recent accounting pronouncements:
The Company  adopted SFAS No. 132,  "Employers  Disclosures  about  Pensions and
Other  Postretirement  Benefits,"  as of January 1, 1998.  SFAS No. 132  revises
employers'  disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans,  however, it does
require  additional  information on changes in the benefit  obligations and fair
values of plan assets in order to facilitate financial analysis.

14
<PAGE>
Note 2. Acquisitions
In July 1997,  the Company  acquired  all of the  outstanding  shares of capital
stock of Pro-Trak Corporation,  which operated under the Lake of the Woods trade
name. The total purchase price was approximately $7.3 million which included the
immediate  paydown of  liabilities  of $6.6 million.  The  acquisition  has been
accounted for as a purchase.  Accordingly, the purchase price has been allocated
to assets and liabilities based on their estimated fair values as of the date of
acquisition.
     In May 1996, the Company and the former  principal owner of Rainfair,  Inc.
established  a  new  corporation   and  each  purchased   one-half  of  the  new
corporation's common stock for $1,250,000. The Company also purchased all of the
new  corporation's  outstanding  preferred stock for $500,000.  On May 31, 1996,
this 50% owned  subsidiary  of the Company  purchased  substantially  all of the
assets  of  Rainfair,   Inc.  for  approximately   $10.9  million  in  cash  and
approximately  $1.4 million in assumed  liabilities  for an  aggregate  purchase
price of approximately $12.3 million.  The name of the subsidiary was changed to
Rainfair,   Inc.   ("Rainfair")  in  June  1996  after  the  completion  of  the
acquisition.  The Company loaned Rainfair approximately $8.0 million (secured by
all assets of Rainfair) to fund the portion of the purchase  price which was not
funded by the initial capital contributions.  The acquisition has been accounted
for as a purchase.  Accordingly,  the purchase price was allocated to assets and
liabilities  based  on  50%  of  their  estimated  fair  values  and  50% of the
predecessor's historical cost as of the date of acquisition.
     In January 1998,  the Company  purchased  all Rainfair  common stock of the
former  principal  owner for  approximately  $2.4  million.  The purchase  price
resulted in a decrease in minority interest of approximately $1.5 million and an
increase in goodwill of approximately $.9 million.

Note 3. Inventories
A summary of inventories is as follows:

                                         (In Thousands)
                                           December 31,
                                         1998        1997

Finished goods                         $29,622     $28,889
Work in process                          1,536       1,967
Raw materials                            8,540       8,217
                                      --------    --------
Total inventories                      $39,698     $39,073
                                      ========    ========

     If all inventories  were valued on the FIFO method,  total  inventories for
1998 and 1997 would have been $42.5 and $42.2 million, respectively.

Note 4. Income Tax Matters
Net deferred tax assets and liabilities consist of the following components:

                                           (In Thousands)
                                            December 31,
                                          1998        1997
Deferred tax assets:
   Receivable allowances                  $455        $531
   Inventory differences                   324         365
   Compensation and benefits             1,997       1,969
   Insurance reserves and other            453         416
                                       -------     -------
                                         3,229       3,281
Deferred tax liabilities,
         principally intangibles           819         664
                                       -------     -------
                                        $2,410      $2,617
                                       =======     =======

     The components  giving rise to the net deferred tax assets  described above
have been included in the accompanying consolidated balance sheets as follows:

                                          (In Thousands)
                                           December 31,

                                          1998        1997
Current assets                          $1,993      $2,132
Noncurrent assets                          417         485
                                       -------     -------
                                        $2,410      $2,617
                                       =======     =======

     The provision for income taxes consists of the following:

                                    (In Thousands)
                                Years Ended December 31,
                              1998        1997        1996
Current:
   Federal                    $892      $3,684      $2,947
   State                       357         818         555
Deferred                       207          86         (62)
                            ------      ------      ------
                            $1,456      $4,588      $3,440
                            ======      ======      ======
15
<PAGE>

     The differences  between  statutory federal tax rates and the effective tax
rates are as follows:

                               Years Ending December 31,
                              1998        1997        1996
Statutory federal
   tax rate                  35.0%       35.0%       35.0%
State taxes, net
   of federal tax
   benefit and other          4.2         4.2         4.2
                             ----        ----        ----
Effective tax rate           39.2%       39.2%       39.2%
                             ====        ====        ====

Note 5. Financing Arrangements
Credit agreement:
The Company has a $62.5 million unsecured credit agreement. Under the agreement,
the Company has (1) a $50 million  revolving line of credit which expires on May
31, 1999 ($10 million of which can be used to support letters of credit) and (2)
a $12.5 million term loan due December 31, 2001. At the  Company's  option,  the
interest  rate is either the bank's  prime rate or LIBOR plus .75% or 1% for the
revolving line of credit and LIBOR plus 1% or 1.25% for the term loan, depending
upon the  Company's  leverage  ratio  (LIBOR plus .75% and LIBOR plus 1% for the
revolving line of credit and term loan, respectively,  as of December 31, 1998).
The credit agreement contains various covenants,  including minimum consolidated
tangible  net  worth,  sale of assets,  indebtedness,  current  ratio,  interest
coverage  ratio and  leverage  ratio.  The  revolving  line of credit is used to
finance  peak  inventory  and accounts  receivable  levels and  commitments  for
letters of credit.  At December  31, 1998 and 1997,  there was $9.5  million and
$4.0  million  outstanding  under the  revolving  line of credit  and there were
letter of credit  commitments  outstanding  of $3.7  million  and $2.9  million,
respectively. In 1998, the Company entered into interest rate swap agreements to
manage its exposure to interest rate  fluctuations on its floating rate debt. As
of December 31, 1998, the Company had swap  agreements in effect  totaling $11.0
million, of which $7.0 million will mature in 2002 with $4.0 million maturing in
2003. The variable rate borrowings not offset by swap agreements at December 31,
1998, totaled $9.4 million.

     Long-term obligations:
                                            (In Thousands)
                                             December 31,
                                            1998        1997
Term loan under credit agreement,
   due in quarterly payments of
   $.4 million through December 31,
   2001, interest payable monthly          $10,900     $12,500
10.26% and 10.73% unsecured
   notes payable, due in annual
   installments of $1.7 million
   excluding interest, interest
   payable semi-annually(a)                  1,028       2,743
Other                                          568         605
                                           -------     -------
                                            12,496      15,848
Less current maturities                      2,669       3,349
                                           -------     -------
                                            $9,827     $12,499
                                           =======     =======

(a)    The loan agreement contains various covenants, including minimum tangible
       net worth, working capital,  current ratio, permitted  indebtedness,  net
       income  before  income  taxes to  interest  expense  and total  permitted
       investments  and restricted  payments.  Retained  earnings  available for
       dividends under these agreements amount to approximately $12.8 million at
       December 31, 1998.

     Maturities of long-term  obligations for the next five years are as follows
(in millions):  1999,  $2.7;  2000, $1.7; 2001, $7.8; 2002, $0; 2003, $0 and $.3
thereafter.

Note 6. Lease Commitments and Total Rental Expense
The Company  leases  office  space,  retail  stores,  manufacturing  facilities,
equipment and warehouse space under  non-cancelable  agreements  which expire on
various  dates  through  2009 and are recorded as  operating  leases.  The total
rental expense included in the  consolidated  statements of income for the years
ended December 31, 1998,  1997 and 1996 is  approximately  $1.9,  $1.8, and $1.6
million, respectively.  Approximate future minimum lease payments are as follows
(in millions):  1999, $1.7; 2000, $1.6; 2001, $.7, 2002, $.5; 2003, $.5 and $1.9
thereafter.


16
<PAGE>

Note 7. Accrued Expenses
Accrued expenses are comprised of the following:

                                          (In Thousands)
                                            December 31,
                                          1998        1997

Compensation                            $3,000      $4,311
Workers' compensation
   insurance                               665         824
Income taxes payable                       662       1,514
Other, including dividends               2,736       2,763
                                        ------      ------
Total accrued expenses                  $7,063      $9,412
                                        ======      ======

Note 8. Stock Options
The Company has granted stock  options to officers and key  employees  under its
1993 and 1997 stock  option  plans  pursuant to which  options for up to 550,000
shares of common  stock may be granted.  The option price per share shall not be
less than  100% of the fair  market  value at the date of grant and the  options
expire 10 years after grant or such shorter period as the compensation committee
of the  Board so  determines.  Substantially  all of the  options  vest in equal
increments over a five-year period.
     The following summarizes all stock options granted under the plans:

                              Common           Per Share
                              Shares         Option Price
December 31, 1995             129,000         $10.25-13.00
   Granted                     89,125           9.06-10.38
   Canceled                   (10,000)          9.06-13.00
                             -------
December 31, 1996             208,125           9.06-13.00
   Granted                     63,500          10.88-14.50
   Canceled                    (3,300)                9.06
   Exercised                     (100)                9.06
                             --------
December 31, 1997             268,225           9.06-14.50
   Granted                     58,563           8.75-14.25
   Canceled                   (23,275)          9.06-14.25
   Exercised                   (1,700)          9.06-10.88
                             --------
December 31, 1998             301,813           9.06-14.50

     Options for  approximately  128,000 shares were exercisable at December 31,
1998.
     Compensation  expense  under  the  plans is  accounted  for  following  the
provisions of APB Opinion No. 25 and its related  interpretations.  Accordingly,
no compensation cost has been recognized for grants made to date. If the Company
had  elected  to  recognize  compensation  cost  based on the fair  value of the
options  granted at the grant date as provided  by SFAS No.  123,  pro forma net
income  would have been reduced by $.1 million and $.1 million and the pro forma
diluted  earnings  per share  would have been $.32 and $.99 for the years  ended
December 31, 1998 and 1997, respectively.
     The fair value of each option is  estimated  on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:

                                          1998        1997

Expected dividend yield                     1%          1%
Expected stock price volatility            25%         25%
Risk-free interest rate                   6.5%        6.5%
Expected life of options               7 years     8 years

     The weighted  average  exercise price of the options granted during 1998 is
$13.84 per share.

Note 9. Compensation and Benefit Agreements
The  Company  has  defined  benefit  pension  plans  covering a majority  of its
employees. Eligible employees are entitled to monthly pension benefits beginning
at normal  retirement  age (65).  The  monthly  benefit  payable  at the  normal
retirement date under the Company's pension plans is equal to a specified dollar
amount or percentage of average monthly  compensation,  as defined in the plans,
multiplied  by years of benefit  service  (maximum of 38 years).  The  Company's
funding  policy  is to make  not  less  than the  minimum  contribution  that is
required  by  applicable  regulations,  plus such  amounts  as the  Company  may
determine to be  appropriate  from time to time. In 1998,  the  Company's  union
pension plan was amended to increase the benefit rate for participants  retiring
or terminating after September 30, 1998. The amendment  resulted in increases of
approximately $1.0 million in both unrecognized prior service cost and projected
benefit obligation as of December 31, 1998.
     The Company sponsors an unfunded defined benefit postretirement medical and
life insurance  plan that covers a majority of its employees  until they qualify
for  Medicare.   The  plan  is  contributory  for  retirees  with  contributions
established  annually  as a  specified  dollar  amount.  The  Company  funds the
postretirement benefit obligation as the costs are incurred.

17
<PAGE>

     Information   relative  to  the   Company's   defined   pension  and  other
postretirement benefit plans is presented below.

<TABLE>
<CAPTION>
                                                      Pension Benefits            Other Benefits
                                                        (In Thousands)             (In Thousands)
                                                          December 31,              December 31,
                                                       1998          1997          1998       1997
<S>                                                   <C>          <C>          <C>          <C>   
Changes in benefit obligations:
   Obligations at beginning of year                   $ 12,568     $ 12,574     $    797     $  1,328
   Service cost                                            443          471           74           22
   Interest cost                                           856          844           89           60
   Plan amendment                                          996         --           --           --
   Benefits paid                                          (603)        (685)         (34)        (112)
   Actuarial losses (gains)                               (308)        (636)         469         (501)
                                                      --------     --------     --------     --------
   Obligations at end of year                         $ 13,952     $ 12,568     $  1,395     $    797
                                                      ========     ========     ========     ========

Changes in plan assets:
   Fair value of assets at beginning of year          $ 14,719     $ 12,948     $   --       $   --  
   Actual return on assets                               1,977        2,410         --           --
   Company contributions                                    34           46           34          112
   Participant contributions                              --           --             27           41
   Benefits paid                                          (603)        (685)         (61)        (153)
                                                      --------     --------     --------     --------
   Fair value of assets at end of year                $ 16,127     $ 14,719     $      -     $      -
                                                      ========     ========     ========     ========
Funded status at end of year:
   Plan assets in excess of (less than) obligations   $  2,175     $  2,151     $ (1,395)    $   (797)
   Unrecognized gains                                   (4,267)      (3,244)        (914)      (1,484)
   Unrecognized prior service cost                       1,291          342         --           --
   Unrecognized transition obligation                      112          163          847          917
                                                      --------     --------     --------     --------
   Accrued benefit cost                               $   (689)    $   (588)    $ (1,462)    $ (1,364)
                                                      ========     ========     ========     ========
Cost recognized during the year:
   Service cost                                       $    443     $    471     $     74     $     22
   Interest cost                                           856          844           89           60
   Expected return on plan assets                       (1,156)      (1,017)        --           --
   Amortization of prior losses (gains)                   (106)          30         (101)         (66)
   Amortization of prior service cost                       47           31         --           --
   Amortization of transition obligation                    51           51           70           70
                                                      --------     --------     --------     --------
   Net periodic benefit cost                          $    135     $    410     $    132     $     86
                                                      ========     ========     ========     ========
Assumptions used in computations:
   Discount rate                                           7.0%         7.0%         7.0%         7.0%
   Rate of compensation increase                           4.5%         4.5%         N/A          N/A
   Expected return on plan assets                          8.0%         8.0%           *            *

* This plan does not have  separate  assets,  so there is no actual or  expected
return on plan assets.
</TABLE>

     For measurement  purposes,  a 6 percent annual rate of increase in the cost
of  covered   health  care   benefits   was   assumed  for  1998  and  1997.   A
one-percentage-point  change in the assumed  rates of health care cost  increase
would have the following effects relative to 1998 amounts included above for the
other benefit plans (in thousands):

                                                  Increase          Decrease
--------------------------------------------------------------------------------

Effect on total of service and interest
 cost components                                     $18                $(16)
Effect on postretirement benefit obligation          108                 (96)

18
<PAGE>
Note 10. Commitments
In March 1994, the Company  acquired  substantially  all of the assets of Danner
Shoe  Manufacturing  Co. in part by  issuing  common  stock as a portion  of the
purchase price. In the acquisition,  the Company  guaranteed the holders of this
common stock a market  price of at least  $16.20 per share by March 1, 1999.  If
the market price of the  remaining  135,178  shares  subject to the guarantee is
less than $16.20 per share,  the Company will be required to make a cash payment
equal to the difference  shortly after March 1, 1999.  Based on the December 31,
1998 closing  market price,  the  Company's  obligation  would be  approximately
$939,000.

Note 11. Enterprise-wide Disclosures
Segment  information  is not  presented  since all of the  Company's  revenue is
attributed  to a single  reportable  segment.  Information  about the  Company's
groups of products within its one segment is presented below.

                                 (In Thousands)
                            Years Ending December 31,
                            1998        1997        1996

Footwear                  $115,643    $126,750    $112,164
Protective clothing         17,762      18,753       9,833
                          --------    --------    --------
                          $133,405    $145,503    $121,997
                          ========    ========    ========

     The  following  table  presents  information  about the  Company's  revenue
attributed to countries based on the location of the customer.

                                  (In Thousands)
                             Years Ending December 31,
                            1998        1997        1996

United States             $128,570    $142,459    $119,705
Foreign Countries            4,835       3,044       2,292
                          --------    --------    --------
                          $133,405    $145,503    $121,997
                          ========    ========    ========

     All long-lived assets are located in the United States.

     No single customer provided revenue of 10% or more of consolidated revenues
in any of the years presented.


Independent Auditors' Report

To the Board of Directors and Shareholders of LaCrosse Footwear, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  LaCrosse
Footwear,  Inc.  and  Subsidiaries  as of December  31,  1998 and 1997,  and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the  three  years in the  period  ended  December  31,  1998.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.
     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
     In our opinion,  the consolidated  financial  statements  referred to above
present fairly,  in all material  respects,  the financial  position of LaCrosse
Footwear,  Inc.  and  Subsidiaries  as of December  31,  1998 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1998 in  conformity  with  generally  accepted
accounting principles.


                                                    McGLADREY & PULLEN, LLP
La Crosse, Wisconsin
February 5, 1999

19
<PAGE>

Quarterly Results of Operations (Unaudited)

The Company reports its quarterly  results of operations on the basis of 13-week
periods  for each of the first three  quarters  with the year ending on December
31st.
     The following tabulation presents the Company's unaudited quarterly results
of operations for 1998 and 1997.
<TABLE>
<CAPTION>
Thousands of dollars except per share data - 1998      First Quarter    Second Quarter    Third Quarter    Fourth Quarter

<S>                                                        <C>               <C>              <C>               <C>    
Net sales                                                  $29,936           $29,461          $37,506           $36,502
Gross profit                                                 7,767             7,689           10,160             8,960
Operating income                                               633               483            2,836             1,646
Net income                                                     189                12            1,321               738
Basic earnings per share                                       .03               .00              .20               .11
Diluted earnings per share                                    $.03              $.00             $.20              $.11

<CAPTION>
Thousands of dollars except per share data - 1997      First Quarter    Second Quarter    Third Quarter    Fourth Quarter

<S>                                                        <C>               <C>              <C>               <C>    
Net sales                                                  $32,698           $28,421          $41,884           $42,500
Gross profit                                                 8,286             7,652           12,422            12,451
Operating income                                             1,565             1,101            5,152             5,338
Net income                                                     545               539            2,933             2,762
Basic earnings per share                                       .08               .08              .44               .41
Diluted earnings per share                                    $.08              $.08             $.44              $.41

</TABLE>
Market Information
The  Company's  common  stock trades on the Nasdaq  National  Market tier of The
Nasdaq Stock Market under the symbol BOOT.  The  following  table shows the high
and low  transaction  prices by calendar  quarter for the past three  years.  On
March 26,  1999,  there  were  approximately  325  shareholders  of  record  and
approximately 2,400 beneficial owners of the Company's common stock.

<TABLE>
<CAPTION>
                     1st               2nd                 3rd                4th              Year-end
<S>           <C>               <C>                 <C>                  <C>                    <C>
1996           $8 3/4 - 12       $9 1/4 - 11 3/4     $9 1/2 - 10 3/4     $10     - 12 1/4       $10 3/4
1997          $10 3/4 - 14 3/8  $11     - 13 1/2    $12 1/2 - 17 1/4     $14     - 16           $14 1/2
1998          $11 1/2 - 14 1/8  $11 3/8 - 12 1/2     $7 3/4 - 11 1/2      $7 3/4 - 10            $9 1/4
</TABLE>

Cash Dividends Declared Per Share
It is the Company's  policy to pay annual cash dividends.  The chart below shows
annual cash dividends declared per share for the past three years:

                                   1998                1997              1996

Dividends declared per share       $.13                $.13              $.11

Market Risk Management
The Company enters into interest rate swap  agreements  ("Swap  Agreements")  to
reduce its exposure to interest rate fluctuations on its floating rate debt. The
Swap  Agreements  exchange  floating  rate  for  fixed  rate  interest  payments
periodically over the life of the agreements  without exchange of the underlying
notional  amounts.  The notional amounts of interest rate agreements are used to
measure  interest  to be paid or  received  and do not  represent  an  amount of
exposure to credit loss. For interest rate instruments  that  effectively  hedge
interest rate exposures, the net cash amounts paid or received on the agreements
are accrued and recognized as an adjustment to interest expense.  As of December
31, 1998,  the Company had Swap  Agreements  in effect  totaling  $11.0  million
notional  amount,  of which $7.0  million  will mature in 2002 with another $4.0
million  maturing  in 2003.  The  variable  rate  borrowings  not offset by Swap
Agreements at December 31, 1998 totaled $9.4 million.  Swap Agreement  rates are
based on the three-month  LIBOR rate.  Based on average floating rate borrowings
outstanding throughout fiscal year 1998, a 100-basis point change in LIBOR would
have caused the Company's  monthly  interest  expense to change by approximately
$16,000.  The  Company  believes  that these  amounts  are not  material  to the
earnings of the Company.

20