K2 Inc. announced net sales for the year ended December 31, 2002 totaled $582.2 million compared with $589.5 million in 2001. Operating income surged to $27.3 million from $1.3 million a year earlier. Net income for the 2002 year grew to $12.1 million, or $0.67 per diluted share, from a net loss of $7.7 million, or $0.43 per share. Results in 2001 included down-sizing costs of $18.0 million ($11.7 million, or $0.65 per share, net of taxes). Included in the 2002 results was a $1.2 million charge ($0.8 million, or $0.04 per share after tax) for further down-sizing and severance costs.
For the 2002 fourth quarter, net sales totaled $127.7 million, compared with $126.8 million in the prior-year fourth quarter. Operating income grew to $2.4 million from $346,000 a year earlier. Net income for the 2002 fourth quarter rose to $521,000, or $0.03 per diluted share, contrasted to a net loss of $2.5 million, or $0.14 per share, for the 2001 fourth quarter.
Results in the 2002 fourth quarter benefited from strong sell-through and market share penetration of K2 skis, resulting in a 54% increase in ski sales over 2001. The company’s Shakespeare fishing tackle business also continued to post gains from an expanded product line, even during a seasonally slow quarter.
For the 2002 year, worldwide fishing tackle operating earnings grew by more than 30% over 2001. Operating earnings at Stearns grew by more than 80% for 2002 over the previous year, reflecting strong operating gains which boosted gross margins. The company also saw strong sales growth in its skateboard shoes under the Adio brand.
“We are now beginning to realize the tangible benefits from the restructuring and refocusing of the company, in particular the shift of manufacturing for skis, snow boards, fishing tackle, and flotation devices to China,” said Richard J. Heckmann, chairman and chief executive officer of K2. “Gross profit margins in this year’s fourth quarter were comparable with last year notwithstanding our aggressive initiative to reduce inventory levels of discontinued items. The result of the hard work of K2’s worldwide team was a remarkable $64 million reduction in total debt and a $4.7 million reduction in 2002 interest expense,” he added.
The company said that improved cash flow from operations and inventory reductions resulted in a much improved balance sheet with debt-to-capital at year-end reduced to 29% from 43% a year earlier.
“K2’s debt reduction and strong cash flow, combined with the recently completed issuance of $25 million in convertible subordinated debentures, have dramatically improved our financial flexibility, giving us ample resources for new product introductions and brand extension. We have a powerful collection of premium sports brands, and we look forward to adding Rawlings to the team,” said Heckmann. “With the addition of baseball’s most powerful brand, K2 is positioning itself for year-round sales growth and earnings stability through a broad and compelling product offering to our retailers and their customers,” he concluded.
K2 INC.
SUMMARY OF OPERATIONS
(in thousands except for per share figures)
FOURTH QUARTER YEAR
ended December 31 ended December 31
(unaudited)
2002 2001 2002 2001 (b)
Net sales $127,696 $126,773 $582,159 $589,519
Cost of products sold (c) 92,051 91,311 411,620 429,338
Gross profit 35,645 35,462 170,539 160,181
Selling expenses 21,228 24,620 86,394 103,688
General and administrative
expenses (a) and (d) 11,972 10,496 56,862 55,212
Operating income 2,445 346 27,283 1,281
Interest expense 1,836 3,818 8,966 13,631
Other income, net (194) (78) (253) (375)
Income (loss) before
provision for income
taxes 803 (3,394) 18,570 (11,975)
Provision (credit) for income
taxes 282 (891) 6,500 (4,271)
Net Income (Loss) $521 $(2,503) $12,070 $(7,704)
