K2 Inc. reported sales for the third quarter
ended September 30, 2004 of $333.5 million, an increase of 99% from $168.0 million in the prior year, and diluted earnings per share were $0.26. Operating income in the third quarter of 2004 was $27.6 million, a 256% increase from the 2003 comparable period, and net income of $13.2 million, a 293% increase from the third quarter of
2003.
Sales for the nine month period ended September 30, 2004 were
$861.8 million, an increase of 64% over the 2003 comparable period,
and diluted earnings per share of $0.69. Operating income for the
first nine months of 2004 was $59.5 million, a 124% increase over the
2003 comparable period, and net income was $30.1 million, a 225%
increase over the first nine months of 2003. Details on earnings per
share calculations are provided in Table A below.
Richard Heckmann, Chairman and Chief Executive Officer, said, “The
third quarter marked another strong period for K2 and its portfolio of
leading brands. We generated organic sales growth net of acquisitions
of nearly 12% in the quarter, driven principally by growth in our
winter products brands. Additionally, our trend of improved
profitability continued as reflected in higher margins and net income.
We are moving swiftly to integrate recent acquisitions, and the
combination of our scalable infrastructure, leading brands and strong
balance sheet position us well for future growth.”
Review of 2004 Third Quarter and Nine Month Sales and Profit
Results
K2 sales in the third quarter of 2004 were $187.3 million
excluding the impact of the Atlas, Tubbs, Brass Eagle, K2 Licensing &
Promotions, Ex Officio, Marmot, and Volkl and Marker acquisitions
which closed after the third quarter of 2003, and the Worth
acquisition which closed at the end of the 2003 third quarter. K2
sales in the third quarter of 2003 were $168.0 million, which reflects
a sales increase of 11.5% on a comparable basis, despite a decline in
sales of in-line skates of $4.2 million from the 2003 third quarter.
Sales of products other than in-line skates for the 2004 third quarter
increased 14.6% compared to the 2003 same period.
Gross profit in the third quarter of 2004 increased to 35.7% of
sales, as compared to 32.7% in the comparable 2003 period. Gross
profit in the nine months ended September 30, 2004 increased to 32.9%
of sales, as compared to 30.9% in the comparable 2003 period. Gross
profit as a percentage of sales in the 2004 third quarter benefited
from higher margins from the Action Sports and Apparel and Footwear
segments.
Operating income as a percentage of sales for the third quarter of
2004 increased to 8.3% compared to 4.6% in the comparable 2003 period.
Operating income increased to 6.9% of sales in the nine months ended
September 30, 2004 from 5.1% in the comparable 2003 period. Selling,
general and administrative expenses were 27.5% of sales in the third
quarter of 2004 compared to 28.1% of sales in the prior year. For the
nine months ended September 30, 2004, selling, general and
administrative expenses were essentially flat at 26.0% of sales
compared to 25.8% in the prior year period.
Third Quarter Division Review
Due to the acquisitions of Ex Officio and Marmot in the second and
third quarters, respectively, of 2004, K2 has formed a new apparel and
footwear reporting segment that also includes Earth Products.
Marine and Outdoor
Shakespeare fishing tackle and monofilament, and Stearns marine
and outdoor products, generated sales of $68.2 million in the third
quarter of 2004, up 10.5% from the comparable quarter in 2003. Sales
increases were driven by growth in Pflueger® reels, marine antennas
and waders and the addition of All-Star® rods and ATV accessory
product lines in the current period.
Team Sports
Rawlings, Worth, and K2 Licensing & Promotions had total sales of
$40.1 million in the 2004 third quarter, up 65.7% from the 2003
period. Growth was driven by the acquisition of Worth in September
2003 and K2 Licensing & Promotions in January 2004.
Action Sports
Sales of skis, snowboards, in-line skates, bikes and paintball
products totaled $180.1 million in the third quarter of 2004, an
increase of 152.6% over the 2003 period. Growth was driven by double
digit increases in skis and snowboards, and by acquisitions made in
the fourth quarter of 2003 consisting of Atlas® and Tubbs®
snowshoes, and Brass Eagle® paintball products and the acquisitions
of Volkl and Marker at the beginning of the third quarter of 2004.
Apparel and Footwear
Earth Products, Ex Officio and Marmot had sales of $45.1 million
in the third quarter of 2004, an increase of 317.6% over the 2003
period. The increase was due to 37.0% growth in technical skate
footwear and apparel and the acquisitions of Ex Officio and Marmot in
the second and third quarters, respectively, of 2004.
The segment information presented below is for the three months
ended September 30:
Sales to
Unaffiliated
Customers Operating
Profit (Loss)
---------------- ---------------
2004 2003 (a) 2004 2003 (a)
------- -------- ------ --------
(Millions)
Marine and Outdoor $68.2 $61.7 $6.7 $7.1
Team Sports 40.1 24.2 (5.2) (4.9)
Action Sports 180.1 71.3 23.2 6.8
Apparel and Footwear 45.1 10.8 6.1 0.8
------- -------- ------ --------
Total
segment
data $333.5 $168.0 30.8 9.8
======= ======== ------ --------
Corporate expenses, net (2.8) (2.0)
Interest expense (7.3) (2.6)
------ --------
Income before provision for income
taxes $20.7 $5.2
====== ========
The segment information presented below is for the nine months
ended September 30:
Sales to
Unaffiliated
Customers Operating
Profit (Loss)
---------------- ---------------
2004 2003 (a) 2004 2003 (a)
------- -------- ------ --------
(Millions)
Marine and Outdoor (b) $274.8 $263.5 $38.4 $37.6
Team Sports 195.9 69.3 5.1 (5.5)
Action Sports 324.3 169.5 17.6 (0.1)
Apparel and Footwear 66.8 22.5 8.2 0.6
------- -------- ------ --------
Total
segment
data $861.8 $524.8 69.3 32.6
======= ======== ------ --------
Corporate expenses, net (9.2) (5.8)
Gain on sale of operating division - 1.5
Debt extinguishment costs - (6.7)
Interest expense (13.8) (7.3)
------ --------
Income before provision for income
taxes $46.3 $14.3
====== ========
K2's balance sheet at September 30, 2004 reflects acquisitions and
the related seasonal working capital requirements of the acquired
businesses. At September 30, 2004, cash and accounts receivables
increased to $371.8 million as compared to $191.5 million at September
30, 2003 and, inventories at September 30, 2004 increased to $307.1
million from $200.8 million at September 30, 2003, in each case as a
result of the acquisitions that occurred after September 30, 2003.
Compared with the 2003 third quarter, the Company's total debt
increased to $383.2 million at September 30, 2004 from $147.8 million.
Total debt net of cash of $37.2 million at September 30, 2004 is
$346.0 million. The increase in debt as of September 30, 2004 is
primarily the result of the Company's acquisitions in the 2003 fourth
quarter and during 2004, including the related seasonal working
capital requirements of the acquired businesses. Primarily as the
result of the acquisitions of Brass Eagle in the 2003 fourth quarter,
K2 Licensing & Promotions in the 2004 first quarter, Marmot and Volkl
and Marker in the 2004 third quarter, the Company increased its number
of shares of common stock outstanding by 4.5 million shares, 1.0
million shares, 2.8 million and 1.8 million shares, respectively, to
46.7 million shares outstanding at September 30, 2004 as compared to
28.3 million shares outstanding at September 30, 2003.
The Company today also updated guidance for fiscal 2004, and
provided guidance for the fourth quarter ended December 31, 2004. On a
full year basis for fiscal 2004, the Company expects sales of
approximately $1.2 billion, and basic earnings per share of
approximately $0.96, assuming 40.8 million average basic shares
outstanding, and diluted earnings per share of approximately $0.86 on
projected average diluted shares of 49.9 million as if the Company's
$100 million of convertible debt was converted into shares. For the
quarter ended December 31, 2004, the Company expects sales of
approximately $325 million and basic earnings per share of
approximately $0.19 assuming 46.8 million basic shares outstanding,
and diluted earnings per share of approximately $0.18 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)
THIRD QUARTER NINE MONTHS
ended September 30 ended September 30
-------------------- --------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales $333,460 $167,963 $861,811 $524,754
Cost of products sold 214,274 113,094 578,627 362,524
--------- --------- --------- ---------
Gross
profit 119,186 54,869 283,184 162,230
Selling expenses 56,736 29,500 140,349 83,114
General and administrative
expenses 34,877 17,614 83,295 52,513
--------- --------- --------- ---------
Operating
income 27,573 7,755 59,540 26,603
Interest expense (a) 7,299 2,640 13,811 13,993
Other income, net (b) (426) (54) (604) (1,654)
--------- --------- --------- ---------
Income
before
provision
for
income
taxes 20,700 5,169 46,333 14,264
Provision for income taxes 7,502 1,808 16,217 4,992
--------- --------- --------- ---------
Net
income $13,198 $3,361 $30,116 $9,272
========= ========= ========= =========
Basic earnings per share:
Net
income 0.28 0.12 0.78 0.39
========= ========= ========= =========
Diluted earnings per share:
Net
income $0.26 $0.12 $0.69 $0.38
========= ========= ========= =========
Shares:
Basic 46,472 27,274 38,753 23,576
Diluted 55,148 34,487 47,503 26,623
