K2 2Q Net Sales Up 27%, Buys V2 Optics

CARLSBAD, Calif.–July 22, 2003–K2 Inc.(NYSE: KTO)–

— Second quarter sales increased 27.0% to $199.7 million, and operating income increased 23.2% to $10.1 million

— Six month sales increased 17.1% to $356.8 million, and operating income increased 13.2% to $18.9 million

K2 Inc. (NYSE: KTO) today reported that net sales for the second quarter ended June 30, 2003 increased 27.0% to $199.7 million from $157.2 million in the 2002 second quarter, and operating income rose 23.2% to $10.1 million from $8.2 million in the comparable prior-year period.

Sales for the six months ended June 30, 2003 increased 17.1% to $356.8 million from $304.7 million, and operating income rose 13.2% to $18.9 million from $16.7 million in the comparable prior-year period.

In the second quarter of 2003, net income was $5.8 million and earnings per diluted share was $0.19, including $0.03 per diluted share relating to a gain on the sale of utility and light pole assets, as compared to $3.8 million, or $0.21 per diluted share, in the 2002 second quarter. Diluted shares for the second quarter 2003 of 30.7 million shares versus 18.0 million shares in the same quarter 2002 is due to 8.8 million shares issued in the acquisition of Rawlings Sporting Goods, Inc. on March 26, 2003 and 3.4 million weighted average shares relating to K2’s issuance of $100 million of convertible debt in the first and second quarters of 2003 that management believes will not be dilutive in future quarters in 2003. Net income for the six months ended June 30, 2003 was $5.9 million, or $0.26 per diluted share, including a first quarter charge of $0.19 per diluted share for the early extinguishment of debt, as compared to $7.7 million, or $0.43 per diluted share, in the 2002 comparable six-month period. The impact on earnings per share caused by the acquisition of Rawlings, the charge associated with the early extinguishment of debt, the gain on the sale of utility and light pole assets, and the issuance of convertible debt is more fully explained in the “Pro Forma Results” section below.

“Our second quarter results reflect a continuation of K2’s first quarter trends of steady growth in sales and increases in operating income,” said Richard J. Heckmann, chairman and chief executive officer. “Consistent with trends in the first quarter, our gross margin in the second quarter improved to 30.2% from 28.8% in the 2002 second quarter, as we continue to transition production to our own China facilities from third party suppliers. Further, we continued to strengthen our balance sheet and position K2 for additional growth through the sale of utility and light pole assets, which is our last non- strategic industrial asset sale, and through the issuance of $75 million of 7 year, 5% senior convertible notes. Total debt is basically flat at $122 million as compared to last year’s amount despite the inclusion of Rawlings’ debt. As of June 30, 2003, we had $41 million in cash, a $205 million bank facility that currently has no borrowings, and a 28% debt to capital ratio.”

Pro Forma Results

Net income and earnings per diluted share for the second quarter and six months ended June 30, 2003 were impacted by the previously announced acquisition of Rawlings Sporting Goods on March 26, 2003 and the first quarter 2003 after- tax charge of $4.4 million, or $0.19 per diluted share, relating to the early extinguishment of debt. In the second quarter of 2003, net income was $5.8 million and earnings per diluted share was $0.19, including $0.03 per diluted share, for the gain on the sale of utility and light pole assets, versus pro forma net income of $3.5 million and pro forma earnings per diluted share of $ 0.11 for the second quarter of 2002. Pro forma net income for the first six months of 2003 was $14.9 million and pro forma earnings per diluted share was $ 0.48, including the results of Rawlings on a pro forma basis for the first quarter ($0.15 per diluted share), excluding t early extinguishment of debt charges ($0.14 per diluted share), and including the gain on the sale of utility and light pole assets ($0.03 per diluted share). Pro forma net income and pro forma earnings per diluted share for the comparable six-month period in 2002 was $13.4 million and $0.44, respectively. The pro forma net income, pro forma earnings per diluted share and pro forma number of fully diluted shares were based on a number of shares outstanding as if the Rawlings acquisition had occurred on January 1, 2003 and 2002 for the applicable periods, and after giving effect to the issuance of $100 million of convertible notes in two separate transactions in the first six months of 2003.

Division Review

The K2 recreational group, which includes skis, snowboards, in-line skates and bikes, generated sales of $49.3 million in the second quarter which was up 12.8% from the 2002 second quarter, and was fueled by sales of in-line skates of $28.3 million, up 15.3% from the previous year’s comparable period. Sales for the six- month period were $98.2 million, up 8.9% from the previous year. Margins for the 2003 second quarter and six months continued to improve as compared to the prior year periods due to fewer close-out sales.

Shakespeare had worldwide fishing tackle sales of $43.3 million for the second quarter, down 3.3% from the 2002 period, due principally to poor weather. Sales for the six months ended June 30, 2003 were $85.1 million, down 2.2% from the 2002 period, again due to weather conditions partially offset by strong sell- through in Pflueger reels, and kits and combos. Margins were steady in this division.

Rawlings generated sales of $36.2 million in the second quarter, and $97.2 million for the six months ended June 30, 2003. Comparisons to the 2002 period are not provided since Rawlings previously reported earnings on a February and May quarter-end basis. Margins improved at Rawlings in the second quarter as compared to the prior years’ quarter due to the positive impact of higher levels of manufacturing in our facilities in Costa Rica of products previously manufactured in the U.S.

Stearns’ sales for the second quarter were $29.5 million, up 4.7% from 2002, with strong sell-through in rain gear, and the Mad Dog hunting accessories line. Sales for the six month period ended June 30, 2003 were $55.6 million, up 10.3% from the comparable year period, and margins benefited from lower product costs as the result of higher levels of manufacturing in K2’s plant in China.

Shakespeare monofilament sales for the second quarter were $21.8 million, up 13.7% over the 2002 second quarter, and for the six month period were $40.8 million, up 12.8% for the comparable period in 2002. Sales of monofilament products benefited from the unusually wet weather in many parts of the country which generated higher levels of sales for weed trimmer applications. Margins in this division remained steady.

Sale of Utility and Light Pole Assets

On May 27, 2003, K2 sold its utility and light pole assets for $19 million in cash. The estimated gain on the sale of these assets was $1.5 million and is reflected in other income for the quarter and six months ended June 30, 2003.

Issuance of Convertible Senior Notes

On June 10, 2003, K2 privately placed $75 million principal amount of 5% convertible senior unsecured notes due June 2010. The senior, unsecured notes are convertible into approximately 5.7 million shares of K2 common stock at a conversion price of $13.14 per share. K2 has used the net proceeds of the debt placement to repay debt under its $205 million revolving credit facility, which increased the company’s borrowing availability under this credit facility, and used the excess for general corporate purposes.

Balance Sheet Review

K2’s balance sheet continued to strengthen, supporting the company’s growth objectives. At June 30, 2003, cash and receivables totaled $202.5 million ( including $32.2 million of Rawlings’ receivables) as compared to $158.5 million at June 30, 2002. Inventories increased to $177.2 million (including $38.6 million of Rawlings’ inventories) from $144.6 million in the prior-year period. Compared with the 2002 first quarter, the company’s debt, including the $75 million of senior notes discussed above, increased only slightly to $122.3 million (which included the repayment of $64 million of Rawlings’ seasonal working capital and other term debt in the 2003 first quarter) from $121.1 million. As a result of the acquisition of Rawlings in the first quarter, the company increased its number of shares of common stock outstanding by 8.8 million shares to 26.8 million shares outstanding at June 30, 2003 as compared to 18.0 million shares outstanding at June 30, 2002.

Agreement to Acquire V2 Optics

K2 has reached agreement to acquire V2 Optics, a designer, manufacturer and distributor of high-performance sunglasses and technologically advanced snow goggles. V2 is also the first company to develop a snow goggle specifically for women. V2’s principal strength is its ability to develop eyewear that combines unique styling with patented technology providing superior optical performance and comfort. Terms of the transaction have not been disclosed, and the acquisition is not expected to have any material effect on sales or earnings in 2003.

About K2 Inc.

K2 Inc. is a premier, branded consumer products company with a primary focus on sporting goods and other recreational products as well as certain niche industrial products. K2’s portfolio of leading brands includes Rawlings, Shakespeare, Pflueger, Stearns, K2, Ride, Olin and Morrow. K2’s diversified mix of products is used primarily in team and individual sports activities such as baseball, fishing, watersports activities, alpine skiing, snowboarding, in-line skating and mountain biking. Among K2’s other recreational products are Dana Design backpacks, Planet Earth apparel, Adio and Hawk skateboard shoes, Rawlings team sports apparel and Hilton corporate casuals. K2 also manufacturers and markets Shakespeare extruded monofilaments and marine antennas.s’ receivables) as compared to $158.5 million at June 30, 2002. Inventories increased to $177.2 million (including $38.6 million of Rawlings’ inventories) from $144.6 million in the prior-year period. Compared with the 2002 first quarter, the company’s debt, including the $75 million of senior notes discussed above, increased only slightly to $122.3 million (which included the repayment of $64 million of Rawlings’ seasonal working capital and other term debt in the 2003 first quarter) from $121.1 million. As a result of the acquisition of Rawlings in the first quarter, the company increased its number of shares of common stock outstanding by 8.8 million shares to 26.8 million shares outstanding at June 30, 2003 as compared to 18.0 million shares outstanding at June 30, 2002.

Agreement to Acquire V2 Optics

K2 has reached agreement to acquire V2 Optics, a designer, manufacturer and distributor of high-performance sunglasses and technologically advanced snow goggles. V2 is also the first company to develop a snow goggle specifically for women. V2’s principal strength is its ability to develop eyewear that combines unique styling with patented technology providing superior optical performance and comfort. Terms of the transaction have not been disclosed, and the acquisition is not expected to have any material effect on sales or earnings in 2003.

About K2 Inc.

K2 Inc. is a premier, branded consumer products company with a primary focus on sporting goods and other recreational products as well as certain niche industrial products. K2’s portfolio of leading brands includes Rawlings, Shakespeare, Pflueger, Stearns, K2, Ride, Olin and Morrow. K2’s diversified mix of products is used primarily in team and individual sports activities such as baseball, fishing, watersports activities, alpine skiing, snowboarding, in-line skating and mountain biking. Among K2’s other recreational products are Dana Design backpacks, Planet Earth apparel, Adio and Hawk skateboard shoes, Rawlings team sports apparel and Hilton corporate casuals. K2 also manufacturers and markets Shakespeare extruded monofilaments and marine antennas.

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