PR: K2 Inc. Launches 10 Percent Stock Buyback
10/12/98

LOS ANGELES--Oct. 12, 1998--K2 Inc. (NYSE:KTO) Monday reported that it has engaged a financial adviser to assist it in the planned sale of its Simplex building products division.

In connection with its adoption of a plan of disposal, K2 expects to report Simplex as a discontinued operation.

K2 also announced that Monday its board of directors has authorized the repurchase of up to 1.7 million shares, or approximately 10 percent, of the company's outstanding common stock. The repurchases will be made from time to time in the open market or through privately negotiated transactions.

K2 also reported that sales and earnings for its third quarter ended Sept. 30, 1998, are expected to be materially below published analysts' estimates. The company said net sales, excluding Simplex, would approximate $130 million, and earnings from continuing operations and prior to a one-time charge for reserves would approximate $1.5 million, or 9 cents per diluted share.

Net income for the period before the one-time charge for reserves is expected to approximate $1 million, or 6 cents per diluted share. The one-time charge, discussed below, will approximate $9.4 million after tax, or 57 cents per diluted share.

A year ago, the company reported third-quarter net sales of $121 million, excluding Simplex sales, and income from continuing operations of $2.9 million, or 18 cents per diluted share, and net income of $3.1 million, or 19 cents per diluted share. Actual results for the 1998 third quarter are expected to be released during the week of Oct. 19.

Richard M. Rodstein, president and chief executive officer, said: "We have decided to initiate several strategic actions that we believe are central to enhancing long-term shareholder value. We have engaged the services of Salomon Smith Barney to assist us in disposing of our Simplex building products division.

"Simplex has been an outstanding performer for K2 for many years. However, the division is a business that is not core to our strategic direction of expanding our sporting goods group. We hope to complete a transaction early in 1999."

Rodstein added, "We also believe that a stock repurchase program will help enhance shareholders' value given today's market environment."

Commenting on the third quarter, Rodstein said: "We believe that our brand and sporting goods products continue to do well relative to the competition in a challenging sporting goods marketplace. Our skate sales for the quarter were strong but margins eroded with the close-out of certain models.

"Late delivery by key suppliers of sourced snowboard products and a greater-than-expected loss in the bike group also impacted the quarter. During the period we continued to aggressively invest in new product development and marketing of our brands and products throughout the company."

Rodstein continued: "The bicycle group has had a significant negative impact on the operating results of K2 in the third quarter, and we anticipate its impact will continue for the remainder of the year.

"The high end of the full-suspension market declined rapidly, resulting in decreased sales and significant discounting, with little or no margin to help offset operating expenses associated with the business. In response, we are repositioning the product line to address this shift in the market and have reduced spending levels in all areas of the business.

"Late in the third quarter, we introduced our 1999 product line, which includes new BMX bikes, lower priced single- and full-suspension mountain bikes and an innovative new front fork featuring our Smart Technology. Within the inline skate market, our new adjustable children's skates have been successfully introduced; however, the demand for aggressive skates has abruptly declined."

According to Rodstein: "As a result of these and other challenges, we are taking several actions to enhance sales, streamline operations and reduce costs. The cost of these initiatives, together with the write-down of related assets is approximately $14.5 million before taxes.

"The repositioning of the bike business accounts for approximately 55 percent of the charge, of which approximately half represents write-downs of inventory. Half of the remaining 45 percent of the charge represents the cost of implementing planned cost- reduction programs at our winter sports and apparel operations, with the balance relating to inventory write-downs. These initiatives should begin to benefit operations in early 1999."

Rodstein commented: "As to the fourth quarter, as previously mentioned, we expect the negative impact of the bike business to continue through the end of the current year.

"We are also dealing with uncertainty in the marketplace, and our year is dependent on strong fourth-quarter reorders for inline skates, skis and snowboard products and on strong demand for our new bike line. As a result, we expect the current year's fourth-quarter earnings to be below the prior year's corresponding quarter."

Rodstein concluded: "The overall condition of the company's product lines and brand strength appear to be strong in the sporting goods marketplace. K2's position as the leading soft-boot inline skate is continuing and our snowboard products, led by the Clicker step-in binding and related boots and innovative boards, continue to grow.

"K2 skis continue to maintain a dominant position in the high-end of the domestic alpine ski market. Our Shakespeare fishing tackle business has also successfully grown in a difficult fishing tackle market. Our product development program continues to result in innovative products for the market.

"Earlier this year, for example, we introduced a new line of skateboard shoes, which have been exceptionally well received, and recently, we launched a new line of K2 lifestyle shoes."

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 inline 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 fiber-glass light poles.

This news release contains forward-looking statements regarding sales and earnings, market conditions, market positioning, product acceptance and demand, and restructuring efforts, which involve substantial risk 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.

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