K2 is set to go on the offensive in 2003 after spending much of the last 18 months paying down debt and building a war chest. The umbrella company for several Inline Skate, Ski & Snowboard and Fishing Tackle and Water Products brands is also expected to sell off part of its industrial products group in the next 30-60 days in a cash deal.

KTO generated $65 million in cash in 2002 versus $41 million in 2001 and showed a $64 million reduction in total debt for the year. Debt-to-capital at year-end was reduced to 29% from 43% a year earlier.

The company has expanded its Asian production capacity by 50% in the last year, now totaling over 750,000 square feet. The move to China has helped expand margins and fueled growth in operating profits for the Fishing Tackle business.

KTO saw market share gains in the Shakespeare Fishing Tackle business in 2002, increasing sales by 8% in an otherwise flat category at retail. Worldwide fishing tackle operating earnings grew by more than 30% over 2001. Operating earnings at the Stearns Water Products group grew by more than 80% for 2002 over the previous year, due in large part to the increase in domestic production at its Minnesota facility. Stearns reported $10 million in sales to the U.S. Navy for the year.

The company said it remains “cautiously optimistic” about the Inline Skate business, suggesting that retailers will consolidate to the top brands. K2 expects to capture much of the business along with market leader Rollerblade. Margins in the segment improved due to fewer sales of off-price goods and lower inventories.

In the Snow Sports business, KTO claims it has the top spot in unit sales in skis in the U.S. The K2 brand reportedly has a 21% share in the specialty store channel and a 26% share in chain stores. The company said it sold 3 of the top 5 ski models in chain stores in 2002 and 6 of the top 10 models in specialty stores.

KTO did reveal that its push to a lower reliance on re-orders caused it to miss fill-in sales in Q4, even as ski sales increased 54% for the quarter.


KEY METRICS:

    FULL YEAR 2002

  • Net sales off 1.2% to $582.2 million
  • Profit = $12.1 million vs. $7.7 million loss in ‘01
  • EPS = $0.67 vs. $0.43 loss per share in 2001

    FOURTH QUARTER

  • Net sales $127.7 million vs. $126.8 million in Q4.01
  • Net income rose to $521,000 vs. net loss of $2.5 million in Q4 2001
  • EPS = $0.03 vs. $0.14 loss per share for Q4 2001