LOS ANGELES–Nov. 18, 1999–K2 Inc. (NYSE:KTO) today announced a strategic initiative to significantly reduce the cost structure of its ski and snowboard operations by downsizing its Seattle manufacturing operation to take advantage of lower cost manufacturing and sourcing opportunities.
Initial year gross profit improvement from the change is estimated at $4 million for 2000, with increasing contributions in subsequent years. An aftertax charge in the 1999 fourth quarter for the downsizing is expected to approximate $6.5 million or $.36 per diluted share, and reflects costs associated with the winding down of production and reduction of personnel as well as the write-off of related equipment and inventory. Approximately one-third of the expected charge is cash-related.
Richard M. Rodstein, president and chief executive officer, said, “The planned realignment of our ski and snowboard manufacturing operations is designed to lower our cost structure and at the same time broaden the price points in which we participate, thereby creating a new catalyst for sales growth.”
K2 will move approximately half of its ski and all its snowboard manufacturing to its wholly owned China or California production facilities and to sourcing operations worldwide. High-end skis, mostly featuring the Company’s recently introduced MOD ski technology, will be produced in Washington, most of which will be sold into the domestic market.
The Company’s recently acquired Ride operations in Corona, Calif., will manufacture primarily mid- and high-end snowboards, while the remainder of the line will be produced in K2′s China factory and sourced worldwide.
In conjunction with the downsizing, K2′s bike products, which had been assembled in the Company’s facility, will now be done by suppliers. All K2 non-manufacturing functions will remain in Washington.