K2 Net Revenues Up 6.5%, Pays Down Debt

CARLSBAD, Calif.–April 23, 2003–K2 Inc. (NYSE:KTO) today reported that net revenues for the first quarter ended March 31, 2003, increased 6.5 percent to $157.1 million from $147.5 million in the comparable prior-year period. Operating income rose 3.5 percent to $8.8 million from $8.5 million in the 2002 first quarter. Net income in the current first quarter was $137,000, or $0.01 per diluted share, after an after-tax charge of $0.24 per diluted share ($4.4 million) for charges related to the early extinguishment of debt. A year ago, K2 first quarter net income equaled $3.8 million, or $0.21 per diluted share.

The extinguishment of debt charges are the culmination of a previously reported debt refinancing process completed in the first quarter that will decrease interest expense by approximately $1.7 million per year, based on current interest rates, and will provide K2 with greater flexibility for future growth.

The 2003 first quarter did not include any results from the acquisition of Rawlings Sporting Goods Company, Inc., completed at the end of the quarter.

“Our first quarter results reflect solid growth, despite an extremely challenging retail environment,” said Richard J. Heckmann, chairman and chief executive officer. “We retired expensive debt and restructured our credit facility, resulting in reduced interest costs and a strengthened balance sheet. We had a strong sell-through for the quarter, and our gross margins improved more than a full percentage point to 30.0 percent in the current quarter from 28.6 percent a year earlier.”

Division Review

In the face of a down market for fishing tackle, sales for Shakespeare fishing tackle remained steady for the first quarter at $41.8 million, with continued strength in the Ugly Stik, the new Pflueger reels, and popular licensed products including Barbie and Scooby-Doo fishing kits.

First quarter sales of Stearns’ water safety and recreational products reached a record $26.1 million and benefited from higher sales of personal flotation devices (life vests) to the military, and sales of towables and Dry Wear products.

Sales of in-line skates rose to $30.0 million in the quarter, recovering from an unfavorable mix of sales in 2002 and reflecting a particularly strong performance in the German market.

Coming off a strong winter products selling season in the second half of 2002, K2 entered the seasonally slow first quarter well positioned with lean inventory levels. Sales of alpine skis and snowboards were $9.8 million and generated a strong sell-through and improved margins compared with the prior-year period. K2 believes its brand continues to gain market share and that its K2 brand snow skis captured the top rank in the domestic market for the season. K2’s snowboard brands are recognized as holding the number two worldwide market share position.

K2 said sales of its active footwear and apparel, including Hilton, Hawk, Adio and Planet Earth brands, increased to $9.9 million in the first quarter. Results were boosted by increased sell-through of Adio footwear, strong penetration in core specialty retail stores and an expanded retail distribution network.

Sales for the company’s composites, electronics and monofilaments rose to $30.5 million due to new product introductions, and with particular strength in marine antenna sales attributable to heightened demand from the military.

Debt Refinancing

In the first quarter, K2 completed a debt refinancing which will reduce interest expense and provide K2 with greater flexibility for growth. This debt refinancing included the issuance of $25 million of 7.25% convertible subordinated debentures due 2010 and a new $225 million senior secured credit facility. The proceeds of these debentures and bank facility were used to refinance $30.0 million in bank financings, and $58.9 million in private placement notes, consisting of $50.0 million of 9.01% senior notes due 2009 and $8.9 million of 8.89% senior notes due 22004. The extinguishment of debt charges related to the early payoff of $33.9 million of the private placement notes and the $30.0 million bank facility, and included $4.7 million ($3.1 million net of tax, or $0.17 per diluted share) for a make-whole premium and $2.0 million ($1.3 million net of taxes, or $0.07 per diluted share) for the write-off of capitalized debt costs.

Balance Sheet Review

K2’s balance sheet continued to strengthen, supporting the company’s growth objectives. At March 31, 2003, cash and receivables totaled $225.7 million, including $60.3 million of Rawlings’ cash and receivables. Inventories increased to $181.7 million (including $36.6 million of Rawlings’ inventories) from $157.7 million in the prior-year quarter. Compared with the 2002 first quarter, the company’s bank debt increased to $166.8 million (which included the payoff of $64 million of Rawlings’ seasonal working capital and other term debt on the acquisition date) from $155.0 million. As a result of the acquisition of Rawlings, the company increased its number of shares of common stock outstanding by 8.7 million shares to 26.7 million shares outstanding (weighted average number of shares outstanding for the 2003 first quarter was 18.3 million shares).

Heckmann added: “As we begin to integrate Rawlings into our distribution and manufacturing system, K2 will continue to build and strengthen an organization capable of providing our retailers and consumers a growing stable of brands. We think the sporting goods business offers significant opportunities to build a strong offering of products and services for those who enjoy sports of all kinds.”

About K2 Inc.

K2 Inc. is a premier, branded consumer products company with a primary focus on sporting goods and other recreational products. K2 holds leading market positions in fishing and baseball equipment, personal water sports and safety products, snowboards, alpine skis, and inline skates under the Shakespeare, Pflueger, Rawlings, Stearns, K2, Ride, Olin and Morrow brand names. Among K2’s other recreational products are K2 bikes, Dana Design backpacks, Planet Earth apparel, Adio skateboard shoes, Rawlings team sports apparel and Hilton corporate casuals. K2 also manufactures and markets Shakespeare extruded monofilaments and marine antennas.