K2 Announces Increase in Third Quarter 2002

LOS ANGELES–Oct. 23, 2002–K2 Inc. announced results for the three months ended September 30, 2002, reflecting the third consecutive year over year quarterly increase in the company’s earnings per share as well as continued reductions in debt.

Net sales for the 2002 third quarter increased to $149.8 million compared with $148.1 million in the comparable 2001 period. Net income rose to $3.9 million, contrasted to a loss of $10.7 million a year ago. Diluted earnings per share for the current third quarter totaled $0.21, up from a loss of $0.59 in the prior year. The 2001 third quarter earnings per share was $0.06 before certain charges for restructuring and downsizing totaling $11.7 million after tax, or $0.65 per share.

For the nine months ended September 30, 2002, net sales totaled $454.5 million, down from $462.7 million reported in the same period in 2001. Net income, however, increased to $11.5 million compared with a loss of $5.2 million a year ago. Diluted earnings per share increased to $0.64, up from a loss of $0.29 in the prior year’s nine-month period, or a profit of $0.36 per share before the charges for restructuring and downsizing described above.

The quarter benefited mainly from continued growth of its worldwide Shakespeare fishing tackle business and from positive trends in its Stearns outdoor products and life vest business. Sales of Shakespeare fishing tackle were driven by favorable acceptance of its new line of fishing reels and other products recently introduced for the upcoming product year. Stearns also reported higher sales, resulting from the popularity of its flotation devices for children and sporting applications together with new sales to the U.S. Navy. Sales of inline skates, in a seasonally slow quarter, continued to gain over the prior year, while the industrial products businesses grew modestly. Shipments of winter sports products declined reflecting the impact of lower preseason orders primarily in the North American market.

Gross profit as a percentage of sales increased to 31.7 percent from 20.6 percent (31.2 percent before charges) in the same quarter last year, despite the impact on margins of the company’s aggressive inventory reduction program, due mainly to lower cost China manufacturing and an improved mix of products sold.

K2’s expense reduction program resulted in a $2.5 million decrease in total expenses (before charges) for the quarter despite higher accruals for bad debts and increased pension and insurance costs. Interest expense declined $0.8 million, reflecting reduced borrowing levels and lower interest rates. In accordance with SFAS No. 142, effective January 1, 2002, goodwill is no longer required to be amortized. Amortization of goodwill was $685,000, or $0.04 per diluted share, in the prior year’s quarter.

K2 has continued to generate strong cash flow from operating activities and has reduced debt by $54 million from the prior year primarily from a reduction of inventories of $35 million. As previously reported, beginning in the first quarter of 2002, the receivables and debt related to the company’s new asset securitization program facility are reflected on K2’s balance sheet.

K2 Inc. is a leading designer, manufacturer and marketer of brand-name sporting goods, recreational and industrial products. The company’s sporting goods and recreational products include well-known names such as K2 and Olin alpine skis; K2, Ride and Morrow snowboards, boots and bindings; K2 inline skates; Stearns sports equipment; Shakespeare fishing tackle; K2 bikes; and Dana Design backpacks. K2’s other recreational products include Planet Earth apparel, Adio skateboard shoes and Hilton corporate casuals. K2’s industrial products include Shakespeare extruded monofilaments, marine antennas and composite light poles.