K2 sales , for the second quarter ended June 30, 2004, were $251.0 million, an increase of 25.7% from $199.7 million in the prior year, and diluted earnings per share were 16 cents for the quarter. Operating income in the second quarter was $12.4 million, a 23.3% increase from the 2003 comparable period, and net income was $6.2 million, a 28.8% increase from the 2003 second quarter excluding the gain on divestitures in that quarter.
Sales for the six month period ended June 30, 2004 were $528.4
million, an increase of 48.1% over the 2003 comparable period, and
operating income for the period was $32.0 million, a 69.6% increase
over the 2003 six month period. Diluted earnings per share were $0.43
for the first six months of 2004. Details on earnings per share
calculations are provided in Table A below.
Richard Heckmann, Chairman and Chief Executive Officer, said, “The
second quarter marked several significant accomplishments at K2. We
acquired Volkl, Marker and Marmot, three leading brands in premium
skis, ski bindings, and outdoor technical apparel, respectively.
Through a debt and equity issue that was significantly oversubscribed,
we raised $200 million in 10 year 7.375% notes, and $100 million in
equity. Equally as important, we generated organic sales growth of 9%
of our products other than in-line skates, which declined quarter to
quarter as previously forecasted. Additionally, we continued to see
improvement in gross margins resulting from manufacturing
efficiencies. We have a strong balance sheet that provides tremendous
liquidity for future growth, and we look forward to an exciting third
quarter that we expect will be driven by growth in our winter sports
division.”
In the second quarter of 2004, K2 sales were $196.1 million
excluding the impact of Worth, Atlas, Tubbs, and Brass Eagle which
closed after the second quarter of 2003. K2 sales in the second
quarter of 2003 were $194.5 million net of divestitures (as described
in the table below), which reflects a sales increase of 0.8% on a
comparable basis. Sales of in-line skates declined $15.8 million from
the 2003 second quarter. Sales of products other than in-line skates
for the 2004 second quarter increased 9.0% compared to the 2003 same
period.
Gross profit in the second quarter of 2004 increased to 30.8%, as
compared to 30.2% of sales in the comparable 2003 period. Gross profit
in the six months ended June 30, 2004 increased to 31.0%, as compared
to 30.1% of sales in the comparable 2003 period. Higher gross profits
reflect a continuation of trends in previous quarters including
manufacturing efficiencies and fewer close-outs. The 2004 second
quarter also benefited from a positive mix of higher margin product
sales from the Marine and Outdoor segment.
Operating income as a percentage of sales for the second quarter
was flat year over year at 5%. Operating income increased to 6.1% of
sales in the six months ended June 30, 2004 from 5.3% in the
comparable 2003 period. Selling, general and administrative expenses
were 25.9% of sales in the second quarter of 2004 compared to 25.1% of
sales in the prior year due to higher expenses associated with
acquired businesses that are seasonally slow in the second quarter.
For the six months ended June 30, 2004, selling, general and
administrative expenses were essentially flat at 25.0% of sales
compared to 24.8% in the prior year period.
Shakespeare fishing tackle and monofilament, and Stearns marine
and outdoor products, generated sales of $107.4 million in the second
quarter of 2004, up 9.3% from the comparable quarter in 2003, net of
divestitures. Sales increases were driven by strong growth in
Pflueger® reels, Ugly Stik® combos, marine antennas, and
children's flotation devices.
Rawlings, Worth, and K2 Licensing & Promotions had total sales of
$61.8 million in the 2004 second quarter, up 51.1% from the 2003
period. Growth was driven by the acquisition of Worth in September
2003 and K2 Licensing & Promotions in January 2004, and by mid single
digit unit growth in several key product areas including balls, bats
and gloves.
Sales of skis, snowboards, in-line skates, bikes, skateboard shoes
and paintball products totaled $81.8 million in the second quarter of
2004, an increase of 47.7% over the 2003 period. Despite the decline
in in-line skates, growth was driven by double digit increases in skis
and snowboards, a 58.4% increase in sales of skateboard shoes, and by
acquisitions made in the fourth quarter of 2003 consisting of Atlas®
and Tubbs® snowshoes, and Brass Eagle® paintball products. In a
seasonally slow quarter, Brass Eagle generated a sales increase of
13.4% to total sales of $27.9 million compared to the second quarter
of 2003 due to strong demand in all major distribution channels.
The segment information presented below is for the three months
ended June 30:
Sales to Unaffiliated
Customers Operating
Profit (Loss)
--------------------- ---------------
2004 2003 (a) 2004 2003 (a)
------------ -------- ------ --------
(Millions)
Marine and Outdoor (b) $107.4 $103.4 $16.4 $15.0
Team Sports 61.8 40.9 (0.7) (0.1)
Action Sports 81.8 55.4 0.6 (2.4)
------------ -------- ------ --------
Total segment data $251.0 $199.7 16.3 12.5
============ ======== ------ --------
Corporate expenses, net (3.7) (2.3)
Gain on sale of operating
division - 1.5
Interest expense (3.2) (2.8)
------ --------
Income before provision for
income taxes $9.4 $8.9
====== ========
The segment information presented below is for the six months ended
June 30:
Sales to
Unaffiliated
Customers Operating
Profit (Loss)
---------------- ---------------
2004 2003 (a) 2004 2003 (a)
------- -------- ------ --------
(Millions)
Marine and Outdoor (b) $206.6 $201.8 $31.7 $30.5
Team Sports 155.9 45.2 10.3 (0.6)
Action Sports 165.9 109.8 (3.5) (7.1)
------- -------- ------ --------
Total segment data $528.4 $356.8 38.5 22.8
======= ======== ------ --------
Corporate expenses, net (6.4) (3.8)
Gain on sale of
operating division - 1.5
Debt extinguishment
costs - (6.7)
Interest expense (6.5) (4.7)
------ --------
Income before provision
for income taxes $25.6 $9.1
====== ========
K2's balance sheet at June 30, 2004 reflects acquisitions and the
seasonal working capital debt associated with the Marine and Outdoor
and Team Sports segments first and second quarter activities. At June
30, 2004, cash and accounts receivables totaled $235.9 million as
compared to $202.5 million at June 30, 2003 and, inventories at June
30, 2004 increased to $212.5 million from $177.2 million at June 30,
2003, in each case as a result of the acquisitions that occurred after
June 30, 2003.
Compared with the 2003 second quarter, the Company's total debt
increased to $200.8 million at June 30, 2004 from $122.3 million. The
increase in debt as of June 30, 2004 is primarily the result of the
Company's acquisitions during 2003 and 2004 and seasonal working
capital requirements of these acquired businesses. Debt, net of cash,
was $182.6 million as of June 30, 2004.
Primarily as the result of the acquisitions of Worth in the 2003
third quarter, Brass Eagle in the 2003 fourth quarter, K2 Licensing &
Promotions in the 2004 first quarter, the Company increased its number
of shares of common stock outstanding by 0.9 million shares, 4.5
million shares and 1.0 million shares, respectively, to 35.6 million
shares outstanding at June 30, 2004 as compared to 27.0 million shares
outstanding at June 30, 2003.
The Company today also reconfirmed guidance for fiscal 2004, and
provided guidance for the third quarter ended September 30, 2004. On a
full year basis for fiscal 2004, the Company expects sales of
approximately $1.15 billion, and basic earnings per share of
approximately $0.97, assuming 40.8 million basic shares outstanding,
and diluted earnings per share of approximately $0.86 on projected
average diluted shares of 50.3 million as if the Company's $100
million of convertible debt was converted into shares. For the quarter
ended September 30, 2004, the Company expects sales of approximately
$320 million and basic earnings per share of approximately $0.28
assuming 46.4 million basic shares outstanding, and diluted earnings
per share of approximately $0.25 assuming outstanding shares of 55.9
million as if the convertible debt were converted into shares.
K2 INC.
STATEMENTS OF INCOME
(unaudited)
(in thousands except for per share figures)
SECOND QUARTER SIX MONTHS
ended June 30 ended June 30
-------------------- --------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $250,987 $199,671 $528,351 $356,791
Cost of products sold 173,622 139,454 364,353 249,430
--------- --------- --------- ---------
Gross profit 77,365 60,217 163,998 107,361
Selling expenses 41,566 30,444 83,613 53,614
General and administrative
expenses 23,354 19,679 48,418 34,899
--------- --------- --------- ---------
Operating income 12,445 10,094 31,967 18,848
Interest expense (a) 3,210 2,814 6,512 11,353
Other income, net (125) (1,604) (178) (1,600)
--------- --------- --------- ---------
Income before provision
for income taxes 9,360 8,884 25,633 9,095
Provision for income taxes 3,182 3,110 8,715 3,184
--------- --------- --------- ---------
Net income $6,178 $5,774 $16,918 $5,911
========= ========= ========= =========
Basic earnings per share:
Net income 0.18 0.22 0.48 0.27
========= ========= ========= =========
Diluted earnings per share:
Net income $0.16 $0.19 $0.43 $0.26
========= ========= ========= =========
Shares:
Basic 35,273 26,832 34,894 21,954
Diluted 44,019 30,733 43,659 23,034
