LOS ANGELES–(BUSINESS WIRE)–Feb. 28, 2002–K2 Inc. (NYSE:KTO) today announced results for the fourth quarter and year ended December 31, 2001 that were consistent with previously announced expectations.

For the 2001 fourth quarter, net sales totaled $128.0 million, compared with $157.9 million in the comparable 2000 period. Loss from continuing operations for the fourth quarter ended December 31, 2001 was $2.5 million, or $0.14 per diluted share, as compared with income from continuing operations of $2.5 million, or $0.14 per diluted share a year ago. Net loss for the fourth quarter ended December 31, 2001 was $2.5 million, or $0.14 per diluted share, as compared with net income of $2.0 million, or $0.12 per diluted share in the year ago period.

For the year ended December 31, 2001, net sales decreased to $595.5 million, compared with $670.8 million in the 2000 year. In the third quarter, the company recorded charges for restructuring and downsizing of $11.7 million, or $0.65 per diluted share, net of tax. Income from continuing operations, before the impact of the previously reported third quarter restructuring and downsizing charges, totaled $4.0 million, or $0.22 per diluted share, compared with income from continuing operations of $16.7 million, or $0.93 per diluted share, reported in the prior year period. Net loss for the year ended December 31, 2001 was $7.7 million (after the $11.7 million, net of tax, restructuring and downsizing charge), or $0.43 per diluted share, as compared with net income of $16.6 million, or $0.92 per diluted share in the year ago period.

Commenting on the quarter, K2 President and Chief Executive Officer Richard M. Rodstein said, “Our financial results for the quarter were consistent with our expectations, reflecting the challenging industry conditions that have affected our inline skate business for most of the year. The quarter also reflected the softness we expected in reorder sales of winter sports products, resulting from retailer caution caused by the effects of the recession and exacerbated by mild winter conditions in parts of the US and Europe. Early indications, however suggest that we gained market share in several key winter sports categories. Quarterly comparisons also suffered from the collapse of the scooter market worldwide. Despite these declines, sales of our domestic fishing tackle business increased over the prior year reflecting an increase in our market share within an industry that has historically fared well during periods of economic slowdown. Consistent with our third quarter announcement, we began to see the effects of our cost and expense reduction efforts in the quarter, although sales of closeout skates at reduced prices had a negative impact on overall margins.”

Mr. Rodstein continued, “For the year, 84 percent of the decline in sales was due to the drop in inline skate sales and the collapse of the scooter market. Absent the drop in small-wheeled product sales and its impact on earnings, our operating income for the year would have exceeded prior year levels. This improvement was driven by broad based gains in our sporting goods segment, including earnings improvements in domestic fishing tackle, Stearns, skis, snowboards and bikes. During 2001, we took aggressive actions to downsize our worldwide skate business in order to return inline skates to profitability on a lower sales base. We also made the difficult decision to permanently close four manufacturing plants, including our ski manufacturing facility in Washington. Additionally, we reduced our salaried work force, instituted hiring freezes and reduced spending in several other areas of the company. At the same time, we continued to invest in new product development to build a platform for future growth. Of the remaining businesses, recession-related sales declines were experienced by our industrial and Hilton apparel businesses.”

SEGMENTS

The Sporting Goods segment includes K2′s skand snowboard businesses, K2 inline skates, Shakespeare fishing tackle and Stearns outdoor products. Sales of the sporting goods group for the fourth quarter totaled $92.5 million, compared with $122.0 million in the year-ago quarter. For the year ended December 31, 2001, sales of the sporting goods group totaled $445.2 million, compared with $509.6 million in the year-ago period.

“Sales of K2 skis grew for the year, despite historically low reorder sales caused by the economy and poor snow conditions, reflecting gains in market shares in the North American market. The success of the K2 Axis ski line with the consumer has been gratifying, and we believe that K2 had among the highest sell-through rates this season. Historically low fourth quarter reorder sales rates for the snowboard group caused by the economy and poor snow conditions offset strong preseason gains. As a result, sales declined for the year despite market share gains achieved in snowboards and bindings. Our winter sports businesses benefited from lower manufacturing costs in China resulting in earnings improvements for both skis and snowboards,” said Rodstein. “As previously reported, the inline skate market has been sluggish in Europe and the US since the second quarter of the year, resulting in a decline in purchases by cautious retailers as they managed down their inventory levels. Although sales of inline skates have continued to be soft in the fourth quarter, the magnitude of the decline lessened reflecting the demand for our new laceless Slip Fit(TM) technology skates and lower retail inventory levels. We continue to have a dominant market share in Europe and the US in the performance segment and our market share will continue to benefit from our worldwide softboot patents. The collapse in the scooter market, together with the slowdown in inline skate sales resulted in a decline in small-wheeled product sales of $63 million for the year. By contrast, our domestic fishing tackle business has increased despite a slowing economy, due entirely to growth in the U.S. market and gains in market share in rod and reel kits, the fastest growing segment of the market, and in reels driven by new model introductions. The year also benefited from sales of our Pfleuger rods and reels. Growth of new products at Stearns resulted in a modest sales gain for the year.”

The Recreational Products segment includes K2′s skateboard shoe and apparel business and its corporate casuals business. Sales of the recreational products group for the fourth quarter totaled $10.8 million, compared with $11.4 million in the year-ago quarter. For the year ended December 31, 2001, sales of the recreational products group totaled $39.7 million, compared with $42.2 million in the year-ago period. The company’s growth in skateboard shoes, particularly in its Adio and Hawk brands partially offset the recession-related decline of sales and earnings in its corporate casuals business.

The Industrial Products segment includes K2′s monofilaments, marine antennas and composite light poles. The company’s industrial sales for the fourth quarter of 2001 were $24.7 million, as compared to $24.4 million during the prior year’s quarter and for the 2001 year, sales declined to $110.5 million from $119.0 million in the prior year because of soft demand for paperweaving and other monofilaments, composite light poles and marine antennas. “We have recently seen an improvement in our profitability for the group from aggressive cost reduction measures taken,” Rodstein explained.

Excluding the impact of the restructuring charges, gross profit as a percentage of sales in the year decreased to 30.5 percent, compared with 31.1 percent in the prior year. Higher sales of reduced margin products, including close out sales of skates in Europe, fewer winter sports reorder sales and the impact of lower sales volume offset cost reductions obtained from selling product manufactured in China.

LIQUIDITY

For the year ended December 31, 2001, the company reduced total debt by approximately $13 million. As previously reported, since the third quarter of 2001, K2 has not been in compliance with covenants in its bank credit facility and two long-term notes. K2 has now reached an understanding with the lenders and note holders on the principal terms of amendments intended to enable K2 to operate in compliance with the applicable provisions. Completion of the amendments is subject to approval of definitive documentation. Short-term waivers have been received to allow time for documentation.

BUSINESS OUTLOOK

The following statements are based on management plans for the year and reflect assumptions as to numerous factors beyond K2′s control. These statements are forward-looking, and actual results may differ materially. Certain of the material uncertainties are more specifically referenced below.

In looking ahead, Mr. Rodstein said, “Despite the current difficult economic environment, we see some encouraging bright spots throughout the company. Based on early indications in our winter sports preseason order writing, we appear to have positive momentum in skis, snowboards and snowboard bindings. The domestic fishing tackle business continues to be a very positive story, and growth appears to be accelerating based on an order position that is ahead of last year’s pace by strong double digits. Stearns is also reporting broader listings across all major customers. Within our sporting goods segment only our inline skate business continues to be soft. Since the decline in inline skate sales occurred first in the second quarter of 2001, first quarter 2002 order levels, although lower than the prior year, are in line with expectations. Spring retail sales activity will begin to provide us with additional insight into the probable size of the inline skate market for 2002. Within our industrial group, some segments are beginning to regain momentum in the marketplace. In addition to these favorable sales growth opportunities, the company should benefit from cost and expense reduction initiatives implemented in 2001 that have the potential to impact earnings by up to $15 million in 2002, helping to reduce the impact of an unfavorable first quarter skate comparison. While we are confronted with uncertainty, we are confident that we have taken several steps to provide the company with the opportunities to report strong earnings growth in 2002.”or the year ended December 31, 2001, the company reduced total debt by approximately $13 million. As previously reported, since the third quarter of 2001, K2 has not been in compliance with covenants in its bank credit facility and two long-term notes. K2 has now reached an understanding with the lenders and note holders on the principal terms of amendments intended to enable K2 to operate in compliance with the applicable provisions. Completion of the amendments is subject to approval of definitive documentation. Short-term waivers have been received to allow time for documentation.

BUSINESS OUTLOOK

The following statements are based on management plans for the year and reflect assumptions as to numerous factors beyond K2′s control. These statements are forward-looking, and actual results may differ materially. Certain of the material uncertainties are more specifically referenced below.

In looking ahead, Mr. Rodstein said, “Despite the current difficult economic environment, we see some encouraging bright spots throughout the company. Based on early indications in our winter sports preseason order writing, we appear to have positive momentum in skis, snowboards and snowboard bindings. The domestic fishing tackle business continues to be a very positive story, and growth appears to be accelerating based on an order position that is ahead of last year’s pace by strong double digits. Stearns is also reporting broader listings across all major customers. Within our sporting goods segment only our inline skate business continues to be soft. Since the decline in inline skate sales occurred first in the second quarter of 2001, first quarter 2002 order levels, although lower than the prior year, are in line with expectations. Spring retail sales activity will begin to provide us with additional insight into the probable size of the inline skate market for 2002. Within our industrial group, some segments are beginning to regain momentum in the marketplace. In addition to these favorable sales growth opportunities, the company should benefit from cost and expense reduction initiatives implemented in 2001 that have the potential to impact earnings by up to $15 million in 2002, helping to reduce the impact of an unfavorable first quarter skate comparison. While we are confronted with uncertainty, we are confident that we have taken several steps to provide the company with the opportunities to report strong earnings growth in 2002.”