CARLSBAD, Calif.–(BUSINESS WIRE)–Feb. 17, 2004–K2 Inc. (NYSE:KTO):

– Fourth quarter sales of $193.8 million and diluted earnings per share of $0.07, exceeding guidance estimates of $170 million in sales and $0.05 in diluted earnings per share

– 2003 fiscal year sales of $718.5 million and earnings per share of $0.62 before early debt extinguishment charges and the dilutive impact of convertible debt, exceeding guidance estimates of $690 million in sales and $0.57 in earnings per share before charges and convertible debt

– 2003 diluted earnings per share of $0.44 net of the charges and the dilutive impact of the convertible debt, exceeding guidance of $0.41

– Company reconfirms fiscal 2004 guidance of sales of $920 to $930 million and basic earnings per share of $0.92 to $0.94 before dilutive impact of convertible debt, or diluted earnings per share of $0.80 to $0.82 assuming full conversion of the convertible debt

K2 Inc. (NYSE:KTO) today reported record sales for the fourth quarter ended December 31, 2003, which increased 51.8% to $193.8 million from $127.7 million in the 2002 fourth quarter. Diluted earnings per share in the fourth quarter increased 133% to $0.07, including $0.01 relating to a gain on the sale of the light pole division, as compared to $0.03 in the year-earlier period, and $0.02 higher than guidance estimates of $0.05 previously provided by the Company.

2003 fiscal year sales increased 23.4% to $718.5 million from $582.2 million in 2002. Fiscal year 2003 earnings per share were $0.62, including $0.06 relating to a gain on the sale of the light pole division, before early debt extinguishment charges and the dilutive impact of the convertible debt, as compared to guidance estimates previously provided by the Company of earnings per share of $0.57 on the same basis. Diluted earnings per share were $0.44, including the gain on the sale of the light pole division, after giving effect to the debt extinguishment charges and assuming partial conversion of the convertible debt. Details on earnings per share calculations are provided in Table A below.

Richard Heckmann, Chairman and Chief Executive Officer, said, “In 2003, we laid the foundation for future growth at K2. We completed seven strategic acquisitions and now have the #1 brand in five major sports categories. In 2003, we improved our gross margin over 100 basis points from 2002, reflecting continued progress in manufacturing efficiencies. We chose to reinvest a portion of our higher gross profits in selling and marketing expense to further solidify our brand position in the current consolidating retail environment. Despite this significant growth, we also preserved our financial flexibility in maintaining a debt-to-capital ratio of 33% by raising $100 million in convertible debt, and by selling our non-strategic light pole business. The basic earnings per share guidance that we have provided of $0.92 to $0.94 (before the dilutive impact of the convertible debt) for 2004 demonstrates our belief in the underlying strength of both our existing businesses and our recent acquisitions, and represents a 39% increase when compared to the $0.67 that we earned in 2002.”

Review of 2003 Sales Trends

In 2003, K2 sales were $718.5 million, of which $113.9 million were from businesses acquired in that year. On May 19, 2003, K2 sold its light pole division, which contributed sales of $32.7 million in 2002 and $12.6 million in 2003 from January 1 to May 19. Sales in 2002 were $582.2 million, and no material acquisitions were completed in that year. Sales in 2003 excluding sales from acquisitions and the light pole division were $592.1 million, and sales in 2002 excluding the light pole division were $549.4 million, which results in sales growth excluding acquisitions and divestitures in 2003 of 8%.

Dilutive Impact of the Convertible Debt

In February and May of 2003, K2 completed two private placements of convertible debt with a total face ount of $100 million. The $25 million issue has a coupon of 7.25% and is convertible into 2.1 million shares of K2 common stock at a conversion price of $11.92 per share. The $75 million issue has a coupon of 5% and is convertible into 5.7 million shares of K2 common stock at a conversion price of $13.14 per share. In accordance with accounting principles generally accepted in the United States (“GAAP”), the Company is required to test whether the convertible debt “if converted” would have a dilutive impact on earnings per share. Consequently, the Company included 5.7 million shares in the diluted shares outstanding for the quarter ended September 30, 2003; there was no impact for the quarter ended December 31, 2003, and 3.2 million shares were included in the diluted shares outstanding for the fiscal year ended December 31, 2003. Although the Company has no expectation that the convertible debt will be converted in 2004, it is expected that GAAP will require that the total 7.8 million shares underlying the convertible debt will be included in the calculation of diluted earnings per share in future reporting periods.

Division Review

K2 Sports, which includes skis, snowboards, in-line skates, snowshoes, and bikes, generated sales of $72.2 million in the fourth quarter, up 24.7% from the 2002 fourth quarter. Sales for the twelve-month period were $241.7 million, up 10.9% from the previous year. Sales increases in this group in 2003 have been driven by significant growth in both skis and snowboards, growth in in-line skates despite the softness in that category, and the inclusion of sales of Winter Quest, which was acquired on October 17, 2003. Margins have improved due to increased manufacturing efficiencies and fewer closeout sales.

Marine and Outdoor, comprised of Shakespeare fishing tackle and monofilament and Stearns marine and outdoor products, generated sales of $60.5 million for the fourth quarter, down slightly from $61.1 million in the 2003 period due to lost sales associated with the previously announced divestiture of the light pole division in May of 2003, which had been combined with monofilament results and contributed sales of $32.7 million in 2002 and $12.6 million in 2003. Sales for the twelve-month period were $324.0 million, down slightly from $328.7 million in sales in 2002, again due to this divestiture. Net of the divestiture of the light pole division, sales in this division increased 5% in 2003 over 2002, and margins improved slightly.

Rawlings Team Sports, comprised of Rawlings and Worth, generated sales of $47.6 million in the fourth quarter and $116.9 million since the dates of their respective acquisitions in 2003. The Company acquired Rawlings on March 26, 2003, and Worth on September 16, 2003, and comparisons to the 2002 period are difficult since Rawlings previously reported earnings on a November, February, May, and August quarterly reporting basis.

Planet Earth generated sales for the fourth quarter of $8.2 million, up 137.3% over the 2002 fourth quarter, and sales for the twelve-month period were $30.6 million, up 88.5% for the comparable period in 2002. Margins in this division have improved primarily due to higher sales volumes.

Results are not provided for Brass Eagle, which was acquired on December 8, 2003, as the sales contribution was not material to K2′s total sales for the fourth quarter or the fiscal year.

Balance Sheet

K2′s balance sheet and working capital debt at December 31, 2003, reflects acquisitions and the seasonality associated with the build-up for winter products in the fourth quarter and team sports in the first quarter. At December 31, 2003, cash and receivables totaled $246.6 million as compared to $154.3 million at December 31, 2002. Inventories increased to $239.4 million from $144.2 million in the prior-year period.

Compared with the 2002 fourth quarter, the Company’s total debt increased to $216.1 million at December 31, 2003, from $96.1 million in 2002. The increase in debt as of December 31, 2003, is primarily caused by the Company’s acquisitions during 2003 and seasonal working capital requirements of these acquired businesses.

As a result of the acquisition of Rawlings in the first quarter, Worth in the third quarter, and Brass Eagle in the fourth quarter, the Company increased its number of shares of common stock outstanding by 8.8 million shares, 0.9 million shares, and 4.5 million shares, respectively, to 33.4 million shares outstanding at December 31, 2003, as compared to 17.9 million shares outstanding at December 31, 2002.

Outlook for 2004

The Company today also reconfirmed guidance for the first quarter of 2004 and fiscal 2004. For the quarter ended March 31, 2004, the Company expects first quarter sales of approximately $250 million and basic earnings per share of $0.30 assuming 34.4 million basis shares outstanding, and diluted earnings per share of $0.25 assuming outstanding shares of 43.9 million as if the convertible debt were converted into shares. On a full-year basis for fiscal 2004, the Company expects sales of $920 to $930 million, and basic earnings per share to be in the range of $0.92 to $0.94 assuming 34.4 million basis shares outstanding, and diluted earnings per share in the range of $0.80 to $0.82 on projected average diluted shares of 43.9 million as if the convertible debt were converted into shares.

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, Worth, Shakespeare, Pflueger, Brass Eagle, Stearns, K2, Ride, Olin, Morrow, Tubbs, and Atlas. K2′s diversified mix of products is used primarily in team and individual sports activities such as baseball, softball, fishing, paintball, watersports activities, alpine skiing, snowboarding, snowshoeing, in-line skating, and mountain biking. Among K2′s other recreational products are Dana Design backpacks, Planet Earth apparel, and Adio and Hawk skateboard shoes. K2 also manufacturers and markets Shakespeare extruded fishing lines and monofilaments, and marine antennas and marine accessories.n 2002. The increase in debt as of December 31, 2003, is primarily caused by the Company’s acquisitions during 2003 and seasonal working capital requirements of these acquired businesses.

As a result of the acquisition of Rawlings in the first quarter, Worth in the third quarter, and Brass Eagle in the fourth quarter, the Company increased its number of shares of common stock outstanding by 8.8 million shares, 0.9 million shares, and 4.5 million shares, respectively, to 33.4 million shares outstanding at December 31, 2003, as compared to 17.9 million shares outstanding at December 31, 2002.

Outlook for 2004

The Company today also reconfirmed guidance for the first quarter of 2004 and fiscal 2004. For the quarter ended March 31, 2004, the Company expects first quarter sales of approximately $250 million and basic earnings per share of $0.30 assuming 34.4 million basis shares outstanding, and diluted earnings per share of $0.25 assuming outstanding shares of 43.9 million as if the convertible debt were converted into shares. On a full-year basis for fiscal 2004, the Company expects sales of $920 to $930 million, and basic earnings per share to be in the range of $0.92 to $0.94 assuming 34.4 million basis shares outstanding, and diluted earnings per share in the range of $0.80 to $0.82 on projected average diluted shares of 43.9 million as if the convertible debt were converted into shares.

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, Worth, Shakespeare, Pflueger, Brass Eagle, Stearns, K2, Ride, Olin, Morrow, Tubbs, and Atlas. K2′s diversified mix of products is used primarily in team and individual sports activities such as baseball, softball, fishing, paintball, watersports activities, alpine skiing, snowboarding, snowshoeing, in-line skating, and mountain biking. Among K2′s other recreational products are Dana Design backpacks, Planet Earth apparel, and Adio and Hawk skateboard shoes. K2 also manufacturers and markets Shakespeare extruded fishing lines and monofilaments, and marine antennas and marine accessories.