LaCrosse Footwear Inc.

Analyst: Victor Sula, Ph.D. Initial Report May 21th, 2009

BOOT daily

5/20/09

10.5 10.0 9.5 9.0 8.5 8.0 7.5

volume

© BigCharts.com

200 150 100 50

Thousands

7.0

0 Mar

Apr

May

MARKET DATA

Share Statistics (04/29/09) Symbol Current price Low/ High 52 weeks Average Volume Market Cap Dil. Shares Outstanding

FY2007 BOOT

FY2008

% Chg

118.2

128.0

8.3%

39.7%

39.6%

-10 bp

Operating margin

9.3%

7.9%

-140 bp

Net margin

6.2%

4.8%

-140 bp

EPS, $

1.15

0.96

-16.5%

Revenues, $ Mn.

$9.75

Gross margin

$7.00 – 17.63 40,738 $62.7 Mn 6.4 Mn

Recommendation Despite the challenging retail environment, LaCrosse Footwear Inc. (BOOT) shows strength in its operations and sales channels, grows its sales, leverages its operating expenses, and generates steady cash from operations. The Company ended the year with $12.1 million in cash and with no debt. Given the profile, strength and stability of the brands - Danner and LaCrosse, as well as the recently announced acquisition, we believe BOOT should be able to produce high single-digit organic growth through the economic cycle and as a result we rate it as a Speculative Buy.

Highlights The Company’s powerful brands - Danner and LaCrosse - are known nationwide as the “expert’s choice” in premium outdoor and job footwear. LaCrosse brand traces its roots back to 1897, with the founding of La Crosse Rubber Mills Inc. Danner brand was developed by Danner Shoe Manufacturing, a premium maker of leather boots since 1932. By the late 1990s, the two brands were associated nationwide with time-honored quality and performance.

LaCrosse Footwear, Inc., (Nasdaq: BOOT)

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Analyst: Victor Sula, Ph.D. Initial Report May 21th, 2009

LaCrosse Footwear Inc., through its subsidiaries, engages in the design, development, manufacture and marketing of premium and innovative footwear and apparel for the work and outdoor markets. The Company offers work and outdoor boots under the DANNER brand name, as well as rubber and leather footwear, and rainwear and protective clothing under the LACROSSE brand name.

Work customers include people in law enforcement, transportation, mining, oil and gas, military services and other occupations that need high-performance and protective footwear as a critical tool for the job. Outdoor customers include people active in hunting, hiking and other outdoor recreational activities.

During 2008, BOOT offered 487 styles of footwear and protective clothing. The Company operates a retail outlet store at the factory in Portland, Ore., which sells merchandise, factory seconds, and products for both DANNER and LACROSSE brands. BOOT markets its two brands through five channels of distribution: retail; safety and industrial; government; direct; and international through its subsidiary, LaCrosse Europe ApS, and through distributors and retailers in Asia, Europe and Canada. LaCrosse Footwear Inc. was founded in 1897 and is based in Portland, Ore.

In addition to its strong brands, the Company differentiates its products by introducing innovative shoes technologies such as AlphaTM, Quad ComfortTM, TERRA FORCETM and EXOTM platforms.

The Company has established solid distribution and dealer networks around the world. For more than 25 years, BOOT has been distributing high-end Danner products through its exclusive distributor in Japan. International sales are also derived through BOOT’s Canadian independent distribution and dealer networks.

In July 2008, LaCrosse Europe Inc. and its wholly owned subsidiary, LaCrosse Europe ApS, based in Denmark, were established to acquire certain assets of the Company’s former European distributor and to strengthen BOOT’s direct sales and marketing support to customers in Europe.

For the past year and a half, the Company has been working closely with the U.S. Army to develop and test footwear that meets the unique demands and specific requirements for multiple branches of the U.S. Armed Forces. During 2008, the Company received approximately $9.6 million in delivery orders to the United States Marine Corps and the United States Army. This includes shipments to the U.S. Marine Corps for Danner Mountain Cold Weather Boot and the Danner Marine Hot Boot as well as the Danner Explorer Boot for the U.S. Army. Recently, BOOT received a new $6.7 million delivery order from the U.S. Army for the Danner Combat Hiker boot. Danner anticipates delivering this order of the Combat Hiker boot beginning in April through August of this year.

Recently, BOOT entered into a definitive agreement to purchase substantially all the assets of Environmentally Neutral Design Outdoor Inc. (END), a performance footwear company. END began shipping product in late 2008 to provide everyday athletes with high performance footwear that follows responsible design, and is innovative and technical. END footwear has already received the honors of “Best Trail Running Shoe Debut” from Runner’s World magazine in its April 2009 issue and “Best Road Running Shoe Debut” in its June 2009 issue. The purchase price is expected to be approximately $500,000 and the transaction is expected to be completed by the end of May. For the full year 2008, the Company reported consolidated net sales of $128.0 million, up 8% from $118.2 million in 2007. The net income was $6.2 million or $0.96 per diluted share, compared to $7.3 million or $1.15 per diluted share in 2007, the decrease mainly being explained the Company’s strategic investment in its new European subsidiary. For Q1 2009, BOOT reported its first quarterly loss in about five years, despite a 5% increase in revenue.

LaCrosse Footwear, Inc., (Nasdaq: BOOT)

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Analyst: Victor Sula, Ph.D. Initial Report May 21th, 2009

STOCK PERFORMANCE (%) Price Change

GROWTH (%)

Revenues EPS

3 Mo.

1 Yr.

3 Yr. (Ann)

-0.5

-30.2

-19.0

12 Mo.

3 Yr CAGR

8.5 -16.5

8.6 n/m

Last Qtr. 4.8 n/m

RETURN ON EQUITY (%)

BOOT

Ind Avg

S&P 500

TTM 5 Yr. Avg.

21.08 21.58

21.08 21.58

20.44 19.75

P/S comparison

Source: Yahoo Finance!

The loss was slightly worse than the 8 cents per share expected by analysts polled by Thomson Reuters, while revenue was higher than the $25.12 million projected on Wall Street. For the full year 2009 and 2010, analysts predict $0.49 and $0.72 EPS on $130 and $138 million revenue, respectively.

Financial Analysis The Company’s consolidated net sales for 2008 increased 8%, to $128.0 million, from $118.2 million in 2007. In the work market, net sales increased 23%, to $74.9 million, from $60.9 million in 2007.

The strong annual growth in work market sales reflects shipments related to military orders and continued penetration into a variety of targeted, niche work markets. In the outdoor market, net sales declined 7%, to $53.1 million, from $57.3 million in 2007, reflecting the widespread decline in retail sales during 2008. Net sales for the first quarter of 2009 increased 5%, to $25.9 million, from $24.7 million in the same period of 2008.

Despite the economic challenges, BOOT did kept its year-overyear gross margins. Thus for 2008, the gross margin was 39.6% of net sales, down just 10 basis points from 2007. This stability reflects price increases in recent periods and a reduction in sales returns, discounts and allowances. Gross profit for the first quarter of 2009 was 37.9% of net sales, compared to 40.7% in the same period of 2008.

BOOT’s improved financial performance in recent years has significantly strengthened its balance sheet. As a result, net cash provided by operating activities was $13.3 million in 2008, compared to $4.1 million for 2007. The Company ended the first quarter of 2009 with cash and cash equivalents of $12.1 million up from $10.3 million at the end of the first quarter of 2008 and no debt. In 2007, BOOT paid its first cash dividend of $0.15 per share of common stock, totaling $0.9 million. Since that, the Company paid quarterly dividends of $0.125 per share of common stock. The Company intends to continue issuing $0.125 cents per share dividend payments quarterly at least for the rest of the year 2009.

Industry analysis According to global footwear industry estimates, the global footwear market is projected to reach 13.9 billion pairs corresponding to a value of $ 192.4 billion by 2010. Though Europe is one of the largest markets in terms of value, the coming years will witness the booming Asian region dominating the scene. Just-style.com believes that the global branded footwear market will continue to grow over the next five years - in fact an overall rise of 3.7% is predicted. Asia-Pacific (excluding Japan) is projected to be the fastest

LaCrosse Footwear, Inc., (Nasdaq: BOOT)

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Analyst: Victor Sula, Ph.D. Initial Report May 21th, 2009

INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil) BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil) PROFITABILITY EBITDA Margin Operating Margin Sales Turnover Return on Assets Return on Equity DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage SHARE DATA Dil. Shar. Outst.(mil) EPS Book value / share Institutional Own % Avg Daily Volume

FY07

FY08

118.2 46.9 11.0 11.0 7.3

128.0 50.7 10.1 10.1 6.2

15.4 83.6 0 66.0

13.7 84.6 0 61.4

9.3% 9.3% 1.50 8.7% 11.1%

7.9% 7.9% 1.52 7.3% 10.1%

5.3 n/m n/m n/m

4.2 n/m n/m n/m

6.4 1.15 10.3 n/a 6,123

6.4 0.96 9.6 24% 3,885

Source: SEC filings; analyst estimates.

growing region exhibiting a CAGR of 4.8% through 2010.

The U.S. continues to lead the global footwear market, with about a third of dollar demand coming from the region. According to FirstResearch, the U.S. footwear industry consists of about 100 manufacturers; 1,500 wholesalers; and 30,000 retail outlets, with combined annual retail revenue of $25 billion. The major shoe companies in the U.S., including NIKE, Reebok, Brown Shoe, and Timberland, are mainly owners of brand names that “source” their shoes from independent manufacturers. The retail segment is highly concentrated: the largest 50 chains hold about 80% of the market. Many shoe companies operate in both the wholesale and retail segments.

BOOT competes in two market segments of the footwear industry: work footwear and outdoor footwear. With total annual sales of approximately $3 billion, the work-related footwear market is much larger than the outdoor market. Unlike the outdoor market, the work market has year-around demand. The outdoor footwear market is worth approximately $1 billion. The Company operates in a very competitive environment and many of its competitors have greater financial, distribution, and marketing resources.

BOOT has at least five major competitors in the rugged outdoor footwear market and three major competitors in the work footwear market.

Analyst opinion BOOT is one of the leading developers and marketers of premium and innovative footwear and apparel for work and outdoor users sold under fairly strong Danner and LaCrosse brand names.

The Company has been successful in increasing its brand equity in niche segments of the work and outdoor footwear markets that are performance and quality driven, which offer opportunities for profitable and sustainable growth over the long term. BOOT’s retail distribution base consists of more than 3,500 accounts. In July 2008, the Company extended its presence in Europe, the second largest footwear market, by forming a new subsidiary - LaCrosse Europe ApS. Despite the challenging retail environment, the Company continues to progress by penetrating into new markets. The annual growth in sales reflects increased shipments to the government channel, including $9.6 million to the United States Marine Corps and the U.S. Army, related to previously announced delivery orders. However, while the Company continues to show sales growth, its performance was hampered by weak retail demand and the bankruptcies of some key retailers.

LaCrosse Footwear, Inc., (Nasdaq: BOOT)

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Analyst: Victor Sula, Ph.D. Initial Report May 21th, 2009

Consensus Estimates BOOT

FY 2009 31-Dec-09

FY 2010 31-Dec-10

EPS, $ Revenue, $Mil

0.49 130.6

0.72 138.5

Comparative analyses

consensus estimates are provided by Thomson Financial

Company Name May-08-2009

Rev. consensus estimates, $Mil. Ticker Symbol

Revenue, $ Mn

2009 1,117 237.8 1,293 219.1 19,180 521.6 766.1

WWW RCKY TBL KSWS NKE CROX DECK

2010

%Chg

1,117 237.8 1,293 219.1 19,180 521.6 766.1

4% 4% 3% -5% -1% 0% 8% 2%

Median 130.6

BOOT

The Company’s shares are down 44% from their 52-week high about the norm these days. Between 2000 and 2008, BOOT’s stock traded at between $2.5 and $19.5, holding its value quite well compared with the indexes. A couple of months ago it traded below $9, a price unseen since the second half of 2004. The fiscal 2009 consensus EPS estimate of $0.49 and 2010 estimate of $0.72 put a forward P/E on BOOT of 20 times for 2009 and 13.5 times for 2010, for expected growth of 8%.

130.6

Wolverine World Wide Inc. Rocky Brands Inc. The Timberland Company K-Swiss Inc. NIKE Inc. Crocs Inc. Deckers Outdoor Corp.

Ticker Symbol WWW RCKY TBL KSWS NKE CROX DECK

Price per Share, $ 20.11 3.81 14.38 8.91 55.13 2.52 59.01

P/E Mrkt. Cap. $ Mn 2009 2010 996.1 21.1 827.2 310.6 26,358 211 772.3

Median LaCrosse Footwear Inc.

BOOT

9.75

62.7

12.26 7.33 18.92 n/m 14.66 n/m 8.15

10.99 5.86 18.20 n/m 15.19 n/m 7.56

12.26

10.99

19.90

13.54

Source: Thomson Reuters; Yahoo! Finance.

6%

Source: Thomson Reuters.

EPS. consensus estimates, $ Ticker Symbol WWW RCKY TBL KSWS NKE CROX DECK

EPS, $

2009

2010

%Chg

1.64 0.52 0.76 -0.77 3.76 -0.81 7.24

1.83 0.65 0.79 -0.47 3.63 -0.034 7.81

12% 25% 4% n/m -3% n/m 8% 8%

Median BOOT

0.49

0.72

47%

Source: Thomson Reuters.

LaCrosse Footwear, Inc., (Nasdaq: BOOT)

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Analyst: Victor Sula, Ph.D. Initial Report May 21th, 2009

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Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

LaCrosse Footwear, Inc., (Nasdaq: BOOT)

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