Third Quarter Sales Increase 12% to $168 million; Earnings per share of $0.12 in-line with consensus estimates; Company provides fiscal 2003 earnings guidance

CARLSBAD, Calif.–(BUSINESS WIRE)–Oct. 22, 2003–K2 Inc. (NYSE: KTO) today reported net sales for the third quarter ended September 30, 2003 increased 12.1% to $168.0 million from $149.8 million in the 2002 third quarter. Diluted earnings per share in the third quarter increased 140% to $0.12, in-line with consensus estimates, as compared to $0.05 in pro forma diluted earnings per share after giving effect to the Rawlings acquisition in the year ago period. On an as reported basis, third quarter fiscal 2002 diluted earnings per share were $0.21. More details on as reported and pro forma earnings per share are provided in Table A below.

Richard Heckmann, Chairman and Chief Executive Officer said, “Our solid results for the quarter were driven by high single digit sales increases in alpine skis, continued double digit growth in our Ride snowboard business, which we believe is the fastest growing brand in the industry, and significant gains in our Planet Earth skate shoe division. In addition, our gross margin for the quarter increased 1 percentage point from the comparable 2002 period due to continuing benefits of off-shore manufacturing and a lower incidence of closeout sales.”

“We were also pleased to have made excellent strategic progress during the third quarter,” Mr. Heckmann further commented. “We continued to acquire leading sporting goods brands through accretive transactions. During the quarter, we closed on the acquisition of Worth, Inc., a leader in softballs, softball bats and accessories, and we recently acquired WinterQuest LLC, which owns the #1 and #2 brands in snowshoeing, Tubbs and Atlas. Both of these acquisitions will not only help us further cement our position as the premier sporting good supplier in the world, but are expected to lead to new growth opportunities and should create compelling long-term value for our shareholders.”

Year-to-Date Results

Net sales for the nine months ended September 30, 2003 increased 15.5% to $524.8 million from $454.5 million, and operating income rose 7.3% to $26.6 million from $24.8 million in the comparable prior-year period. Net income for the nine months ended September 30, 2003 was $9.3 million, or $0.38 per diluted share, including $0.04 per diluted share relating to a gain on the sale of utility and light pole assets in the second quarter and a first quarter charge of $0.16 per diluted share for the early extinguishment of debt, as compared to $11.5 million, or $0.64 per diluted share, in the 2002 comparable nine-month period. Pro forma diluted earnings per share for the nine months ended September 30, 2003, after giving effect to the Rawlings acquisition, increased 25% to $0.55 as compared to $0.44 per pro forma diluted earnings per share in the year ago period. The impact on earnings per share caused by the acquisition of Rawlings, the charge associated with the early extinguishment of debt, and the issuance of convertible debt is more fully detailed in Table A below.

Division Review

The K2 sports group, which includes skis, snowboards, in-line skates and bikes, generated net sales of $71.3 million in the third quarter, up 2.0% from the 2002 third quarter. Net sales for the nine-month period were $169.4 million, up 5.9% from the previous year. Net sales increases in this group in 2003 have been driven by growth in nearly all major product categories, and margins have benefited from lower manufacturing costs, fewer closeout sales, and reduced selling expenses.

In a seasonally slow quarter, Shakespeare had worldwide fishing tackle sales of $24.2 million for the third quarter, down 3.9% from the 2002 period, and net sales for the nine months ended September 30, 2003 were $109.3 million, down 2.6% from the 2002 period. Lower sales were principally a result of unfavorable weather. Margins remaisteady in this division.

Rawlings generated net sales of $20.2 million in the third quarter, and $56.5 in the nine months ended September 30, 2003, since the acquisition by the Company on March 26, 2003. Comparisons to the 2002 period are not provided since Rawlings previously reported earnings on a November, February, May and August reporting basis.

In a seasonally slow quarter, Stearns’ sales for the third quarter were $18.4 million, down 10.0% from 2002, and sales for the nine month period ended September 30, 2003 were $74.0 million, up 4.5% from the comparable year period. Third quarter sales in 2003 were down principally due to reduced military sales in 2003 compared to 2002. Margins were down slightly due to lower sales volumes and a less-favorable product mix.

Shakespeare monofilament sales for the third quarter were $15.8 million, up 12.3% over the 2002 third quarter, and for the nine month period were $56.6 million, up 12.7% for the comparable period in 2002. Sales of monofilament products benefited from the unusually wet weather in many parts of the country that generated higher levels of sales for weed trimmer applications. Margins in this division were down due to competitive pricing pressures.

Planet Earth generated sales for the third quarter of $10.8 million, up 154.4% over the 2002 third quarter, and for the nine month period were $22.5 million, up 75.3% for the comparable period in 2002. Margins in this division have improved significantly due to higher sales volumes and reduced closeouts.

Balance Sheet Review

K2′s balance sheet continued to strengthen, supporting the Company’s growth objectives. At September 30, 2003, cash and receivables totaled $191.5 million (including $22.9 million and $8.7 million of Rawlings’ and Worth receivables, respectively) as compared to $158.2 million at September 30, 2002. Inventories increased to $200.8 million (including $44.7 million and $11.9 million, respectively of Rawlings’ and Worth inventories) from $136.5 million in the prior-year period.

Compared with the 2002 third quarter, the Company’s debt increased to $147.8 million at September 30, 2003 from $97.4 million in 2002. The increase in debt as of September 30, 2003 is primarily caused by the Worth and Rawlings transactions and their respective working capital requirements.

As a result of the acquisition of Rawlings in the first quarter and Worth in the third quarter, the Company increased its number of shares of common stock outstanding by 8.8 million shares and 0.9 million shares, respectively, to 28.3 million shares outstanding at September 30, 2003 as compared to 17.9 million shares outstanding at September 30, 2002.

Guidance

The Company today also issued guidance for the remainder of fiscal 2003. The Company expects fourth quarter diluted earnings per share to range from $0.04 to $0.05, assuming diluted shares outstanding of 29.3 million. On a full year basis, for fiscal 2003, the Company expects earnings per share to be in the range of $0.55 to $0.56, on projected average diluted shares of 25.6 million.

Investor Conference Call

K2′s regular quarterly earnings conference call is scheduled to begin at 8:00 a.m. Pacific Daylight Time (USA), on Thursday October 23, 2003. K2 plans to do a live broadcast of the conference call over the Internet. Investors can listen to the live webcast at www.k2inc.net and www.fulldisclosure.com. For those who are not available for the live broadcast, the call will be archived on www.fulldisclosure.com for one year.

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, Stearns, K2, Ride, Olin and Morrow. K2′s diversified mix of products is used primarily in team and individual sports activities such as baseball, softball, 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, and Rawlings team sports. K2 also manufacturers and markets Shakespeare extruded fishing lines and monofilaments, and marine antennas and marine accessories.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, and Rawlings team sports. K2 also manufacturers and markets Shakespeare extruded fishing lines and monofilaments, and marine antennas and marine accessories.