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K2 Reports
Quarterly Results
2/17/99
LOS ANGELES--Feb. 17, 1999--K2 Inc. (NYSE:KTO) Wednesday reported
income from continuing operations of $13.3 million, or 80 cents
per diluted share, for the year ended Dec. 31, 1998, before an after-tax
charge for reserves (recorded in the third quarter) of $9.4 million,
or 57 cents per diluted share.
This compares with income from continuing operations for the prior
year of $20.9 million, or $1.24 per diluted share, before an after-tax
restructuring charge (recorded in the third quarter) of $1.6 million
or 9 cents per diluted share.
After the charge for reserves, the company reported income from
continuing operations of $3.9 million or 23 cents per diluted share,
and including discontinued operations, net income of $4.8 million,
or 29 cents per diluted share.
This compares with income from continuing operations of $19.3 million,
or $1.15 per diluted share, and net income of $21.9 million, or
$1.31 per diluted share, in the prior year. Sales for the year excluding
discontinued operations, rose to $574.5 million from $559.0 million
in the prior year.
Income from continuing operations for the fourth quarter ended
Dec. 31, 1998, was $1.6 million, or 10 cents per diluted share.
This compares with income from continuing operations in the year-ago
quarter of $3.5 million, or 21 cents per diluted share.
Net income, including discontinued operations, was $2.0 million,
or 12 cents per diluted share, as compared with net income of $4.3
million, or 26 cents per diluted share in the prior year. Sales
for the quarter, excluding discontinued operations, were $132.8
million, down from $141.5 million in the prior year.
In commenting on the results for the year, Richard M. Rodstein,
president and chief executive officer, said: "The bicycle business
was a large contributor to the unfavorable reduction in operating
profits of our sporting goods and other recreational products group.
During 1998, as we previously reported, the high-end of the full-suspension
bike market abruptly declined.
"Shipments of K2 bikes were sharply lower during this period and
a large portion of the shipments were sold as closeout products
at little or no margin. The worldwide ski market declined year-to-year
reflecting sluggishness in demand and the impact of an unseasonably
warm winter in the domestic market. These conditions impacted K2's
year-end reorders.
"The lower sales and an unfavorable mix of skis sold contributed
to an overall decline in profitability of the ski business. Skate
sales for the year were flat with the prior period reflecting the
strong sales of our children's skates which offset the decline in
aggressive skates; however, the lower margin children's skates and
closeout sales resulted in a modest decline in earnings.
"Strong demand for the Clicker step-in binding system enabled snowboard
sales to grow 16 percent for the year despite a soft weather-related
reorder season in the U.S."
Rodstein continued: "New product introductions helped the sales
and earnings of our fishing tackle business grow substantially during
the year in a market which has shown weakness. New product introductions
also helped Stearns report modest sales growth, while the earnings
of Hilton Corporate Casuals benefited from lowered costs and expenses.
"In the industrial products group, the year benefited from volume-driven
earnings gains in our Shakespeare monofilament products division
and volume gains and expense reductions in our light pole and composite
products business.
"As to the fourth quarter, sales declined in the sporting goods
and other recreational products group. As previously mentioned,
ski sales were impacted by unseasonably warm winter weather in the
U.S. While the weather also impacted reorders, snowboard sales grew
for the period, but profitability was affected by an unfavorable
sales mix, which included a greater proportion of international
sales.
"Skate sales were unfavorably impacted by the timing of shipments.
Despite a strong year for our domestic fishing tackle business,
during the fourth quarter certain major retailers reduced their
purchases to lower inventory levels. The group also reflected the
impact of downsizing the bike operation and delayed shipments of
bikes featuring our new Smart Technology fork."
Rodstein continued: "The overall condition of the company's product
lines and brand are strong and enable us to enjoy leading positions
in many of our markets. The warm winter in the U.S. continued into
the first quarter of 1999 and we must evaluate the impact of retail
inventory levels of skis and snowboards at season's end.
"However, retail inventory levels of skates have improved over
the year-ago period and the brand has a strong position in the high
price point segment. Our new children's skate has been well received
and our snowboard sales should benefit from the introduction of
many new products including a new expanded outerwear collection.
"The repositioning of the bike unit to focus on lower-priced models
and the downsizing of the operation is well underway. Our fishing
tackle business continues to introduce new products, led by the
new graphite Ugly Stik. Most importantly, we continue to add new
product categories as evidenced by the successful launch of our
skateboard and K2 lifestyle shoe lines.
"We continue to be committed to product innovation and on extending
the brand into logical crossover lifestyle categories, while renewing
our emphasis on cost and expense reduction to improve margins and
increase profitability," Rodstein concluded.
The board of directors Wednesday declared a regular cash dividend
of 11 cents per share payable April 1, 1999, to shareholders of
record at the close of business March 11, 1999.
K2 is a leading designer, manufacturer and marketer of brand-name
sporting goods, recreational and industrial products. The company's
sporting goods and recreational products include well-known names
such as K2 and Olin alpine skis; K2 snowboards, boots and bindings;
K2 in-line skates; Stearns sports equipment; Shakespeare fishing
tackle; K2 bikes; Dana Design backpacks; and Hilton active apparel.
K2's industrial products include Shakespeare extruded monofilaments,
marine antennas and fiberglass light poles.
This news release contains forward-looking statements regarding
sales and earnings; market conditions; product innovation, introduction
and acceptance; product demand; restructuring, repositioning and
growth efforts; all of which involve substantial risks and uncertainties.
The company cautions that these statements are further qualified
by important factors that could cause actual results to differ materially
from those in the forward-looking statements, including, but not
limited to, economic conditions, product demand, competitive pricing
and products, and other risks described in the company's filings
with the Securities and Exchange Commission.
SUMMARY OF OPERATIONS
(in thousands except for per share figures)
FOURTH QUARTER YEAR ENDED
ended December 31 ended December 31
(unaudited)
1998 1997 1998(a) 1997
Net Sales $ 132,794 $141,521 $574,510 $559,030
Cost of products
sold (b) 95,779 101,940 418,950 391,860
Gross profit 37,015 39,581 155,560 167,170
Selling, general
and administrative
expenses (c) 32,086 32,735 138,810 130,114
Operating inco 4,929 6,846 16,750 37,056
Interest expense 3,016 2,788 12,163 10,560
Other income, net (28) (513) (236) (619)
Income before
provision for
income taxes 1,941 4,571 4,823 27,115
Provision for
income taxes 312 1,036 955 7,815
Income from
continuing
operations 1,629 3,535 3,868 19,300
Discontinued
operations,
net of taxes 348 749 975 2,600
Net Income$ 1,977 $ 4,284 $4,843 $21,900
Income from continuing
operations before
1998 charge for
reserves ($9,425 net
of taxes) and 1997
restructuring costs
($1,560netoftaxes) $1,629 $3,535 $13,293 $20,860
Basic earnings
per share:
Continuing operations
before 1998 charge for
reserves ($.57 per
share) and 1997
restructuring costs
($.09 per share) $0.10 $0.21 $ 0.80 $1.26
Continuing ops $0.10 $ 0.21 $ 0.23 $ 1.17
Discontinued ops 0.02 0.05 0.06 0.15
Net income $0.12 $0.26 $ 0.29 $ 1.32
Diluted earnings
per share:
Continuing operations
before 1998 charge for
reserves ($.57 per
share) and 1997
restructuring costs
($.09/share) $ 0.10 $ 0.21 $ 0.80 $ 1.24
Continuing ops 0.10 $ 0.21 $ 0.23 $ 1.15
Discontinued ops 0.02 0.05 0.06 0.16
Net income $ 0.12 $ 0.26 $ 0.29 $ 1.31
Basic shares out 16,553 16,542 16,554 16,541
Diluted shares
outstanding 16,649 16,718 16,637 16,713
Cash dividend $ 0.11 $ 0.11 $ 0.44 $ 0.44
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