CARLSBAD, Calif. – The Marine and Outdoor division of K2 Inc. – comprised of Shakespeare fishing tackle and monofilament and Stearns marine and outdoor products – today reported a loss in generated sales over the fourth quarter, compared to the same period the previous year.
Generated sales for the fourth quarter, ending Dec. 31, 2003, were $60.5 million, compared to $61.1 million the year before. The company attributed the loss to the divestiture of the K2 Inc. light pole division in May 2003, which had been combined with monofilament results and contributed sales of $32.7 million in 2002 and $12.6 million in 2003, a company press release said.
Sales for the 12-month period were $324.0 million, down slightly from $328.7 million in sales in 2002, again due to this divestiture. Net of the divestiture of the light pole division, sales in this division increased five percent in 2003 over 2002, and margins improved slightly.
Overall, K2 Inc. reported record sales for the fourth quarter, which increased 51.8 percent to $193.8 million from $127.7 million in the 2002 fourth quarter. Diluted earnings per share in the fourth quarter increased 133 percent to $0.07, including $0.01 relating to a gain on the sale of the light pole division, as compared to $0.03 in the year-earlier period, and $0.02 higher than guidance estimates of $0.05 previously provided by the company.
The 2003 fiscal-year sales increased 23.4 percent to $718.5 million from $582.2 million in 2002. Fiscal year 2003 earnings per share were $0.62, including $0.06 relating to a gain on the sale of the light pole division, before early debt extinguishment charges and the dilutive impact of the convertible debt, as compared to guidance estimates previously provided by the company of earnings per share of $0.57 on the same basis.
Diluted earnings per share were $0.44, including the gain on the sale of the light pole division, after giving effect to the debt extinguishment charges and assuming partial conversion of the convertible debt.
K2 president optimistic
“In 2003, we laid the foundation for future growth at K2. We completed seven strategic acquisitions and now have the No. 1 brand in five major sports categories,” Richard Heckmann, K2 Inc. chairman and CEO said, “In 2003, we improved our gross margin over 100 basis points from 2002, reflecting continued progress in manufacturing efficiencies. We chose to reinvest a portion of our higher gross profits in selling and marketing expense to further solidify our brand position in the current consolidating retail environment. Despite this significant growth, we also preserved our financial flexibility in maintaining a debt-to-capital ratio of 33% by raising $100 million in convertible debt, and by selling our non-strategic light pole business.
“The basic earnings per share guidance that we have provided of $0.92 to $0.94 (before the dilutive impact of the convertible debt) for 2004 demonstrates our belief in the underlying strength of both our existing businesses and our recent acquisitions, and represents a 39% increase when compared to the $0.67 that we earned in 2002.”
In 2003, K2 sales were $718.5 million, of which $113.9 million were from businesses acquired in that year. On May 19, 2003, K2 sold its light pole division, which contributed sales of $32.7 million in 2002 and $12.6 million in 2003 from Jan. 1 to May 19. Sales in 2002 were $582.2 million, and no material acquisitions were completed in that year. Sales in 2003 excluding sales from acquisitions and the light pole division were $592.1 million, and sales in 2002 excluding the light pole division were $549.4 million, which results in sales growth excluding acquisitions and divestitures in 2003 of 8 percent.
K2’s balance sheet and working capital debt at Dec. 31, 2003, reflects acquisitions and the seasonality associated with the build-up for winter products in the fourth quarter and team sports in the first quarter. At Dec. 31, 2003, cash and receivables totaled $246.6 million as compared to $154.3 million at Dec. 31, 2002. Inventories increased to $239.4 million from $144.2 million in the prior-year period.
Compared with the 2002 fourth quarter, the company’s total debt increased to $216.1 million at Dec. 31, 2003, from $96.1 million in 2002. The increase in debt as of Dec. 31, 2003, is primarily caused by the company’s acquisitions during 2003 and seasonal working capital requirements of these acquired businesses.
As a result of the acquisition of Rawlings in the first quarter, Worth in the third quarter, and Brass Eagle in the fourth quarter, the company increased its number of shares of common stock outstanding by 8.8 million shares, 0.9 million shares, and 4.5 million shares, respectively, to 33.4 million shares outstanding at December 31, 2003, as compared to 17.9 million shares outstanding at December 31, 2002.
Outlook for 2004
The company today also reconfirmed guidance for the first quarter of 2004 and fiscal 2004. For the quarter ended March 31, 2004, the company expects first quarter sales of approximately $250 million and basic earnings per share of $0.30 assuming 34.4 million basis shares outstanding, and diluted earnings per share of $0.25 assuming outstanding shares of 43.9 million as if the convertible debt were converted into shares.
On a full-year basis for fiscal 2004, the company expects sales of $920 to $930 million, and basic earnings per share to be in the range of $0.92 to $0.94 assuming 34.4 million basis shares outstanding, and diluted earnings per share in the range of $0.80 to $0.82 on projected average diluted shares of 43.9 million as if the convertible debt were converted into shares.
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