-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JS+87U4fSiH6yJGlM9z4bH35jBhYLonqHikDCGIm6Na9PFpaCUhng9UDGJTBR04g 4Xedd6L67vLRf/tKgeZ8Wg== 0001047469-98-030747.txt : 19980813 0001047469-98-030747.hdr.sgml : 19980813 ACCESSION NUMBER: 0001047469-98-030747 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: K2 INC CENTRAL INDEX KEY: 0000006720 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 952077125 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04290 FILM NUMBER: 98683873 BUSINESS ADDRESS: STREET 1: 4900 S EASTERN AVE STREET 2: SUITE 200 CITY: LOS ANGELES STATE: CA ZIP: 90040 BUSINESS PHONE: 2137242800 MAIL ADDRESS: STREET 1: 4900 S EASTERN AVE STREET 2: SUITE 200 CITY: LOS ANGELES STATE: CA ZIP: 90040 FORMER COMPANY: FORMER CONFORMED NAME: ANTHONY INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ANTHONY POOLS INC DATE OF NAME CHANGE: 19720317 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report under Section 13 of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1998 Commission File No. 1-4290 K2 INC. (exact name of registrant as specified in its charter) DELAWARE 95-2077125 (State of Incorporation) (I.R.S. Employer Identification No.) 4900 South Eastern Avenue Los Angeles, California 90040 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (323) 724-2800 Former name, former address and former fiscal year, if changed since last report: Not applicable Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of July 31, 1998. Common Stock, par value $1 16,566,893 Shares FORM 10-Q QUARTERLY REPORT PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements STATEMENTS OF CONSOLIDATED INCOME (condensed) (Dollars in thousands, except per share figures)
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ------------------------------------------------------------- 1998 1997 1998 1997 ---------------------------- ---------------------------- (Unaudited) Net sales $ 180,951 $ 171,522 $ 354,116 $ 343,063 Cost of products sold 129,869 120,376 258,843 245,536 --------- --------- --------- --------- Gross profit 51,082 51,146 95,273 97,527 Selling expenses 23,145 22,891 45,946 45,282 General and administrative expenses 12,789 12,926 26,407 26,196 --------- --------- --------- --------- Operating income 15,148 15,329 22,920 26,049 Interest expense 3,175 2,679 6,314 5,198 Other expense (income), net (86) 63 (148) (228) --------- --------- --------- --------- Income before provision for income taxes 12,059 12,587 16,754 21,079 Provision for income taxes 3,980 3,900 5,530 6,530 --------- --------- --------- --------- Net income $ 8,079 $ 8,687 $ 11,224 $ 14,549 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per share: Basic $ 0.49 $ 0.53 $ 0.68 $ 0.88 Diluted $ 0.49 $ 0.52 $ 0.68 $ 0.87 Shares: Basic 16,548 16,540 16,544 16,547 Diluted 16,629 16,703 16,624 16,714 Cash dividend $ 0.11 $ 0.11 $ 0.22 $ 0.22
See notes to consolidated condensed financial statements. 1 CONSOLIDATED BALANCE SHEETS (condensed) (Dollars in thousands)
JUNE 30 DECEMBER 31 1998 1997 ----------- ----------- (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 4,720 $ 5,914 Accounts receivable, net 123,004 118,579 Inventories Finished goods 138,680 137,123 Work in process 11,610 20,802 Raw materials 36,778 35,238 ---------- ---------- 187,068 193,163 Less LIFO reserve 3,855 3,795 ---------- ---------- 183,213 189,368 Deferred taxes 2,755 9,236 Prepaid expenses and other current assets 5,553 7,071 ---------- ---------- Total current assets 319,245 330,168 Property, Plant and Equipment 190,541 179,562 Less allowance for depreciation and amortization 107,947 101,774 ---------- ---------- 82,594 77,788 Intangibles, principally goodwill 17,279 17,561 Other 3,573 3,411 ---------- ---------- Total Assets $ 422,691 $ 428,928 ---------- ---------- ---------- ----------
See notes to consolidated condensed financial statements. 2 CONSOLIDATED BALANCE SHEETS (condensed) (Dollars in thousands)
JUNE 30 DECEMBER 31 1998 1997 ----------- ----------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Bank loans $ 36,721 $ 48,967 Accounts payable 23,848 29,607 Accrued payroll and related 15,275 17,740 Other accruals 20,508 21,794 Current portion of long-term debt 4,444 4,445 ---------- ---------- Total current liabilities 100,796 122,553 Long-Term Debt 100,668 88,668 Deferred Taxes 11,376 14,822 Shareholders' Equity Preferred Stock $1 par value, authorized 12,500,000 shares, none issued Common Stock, $1 par value, authorized 40,000,000 shares, issued shares - 17,190,652 in 1998 and 17,160,080 in 17,191 17,160 1997 Additional paid-in capital 132,488 132,086 Retained earnings 77,253 69,668 Employee Stock Ownership Plan and stock option loans (3,113) (3,006) Treasury shares at cost, 623,759 shares in 1998 and in 1997 (8,106) (8,106) Cumulative translation adjustments (5,862) (4,917) ---------- ---------- Total Shareholders' Equity 209,851 202,885 ---------- ---------- Total Liabilities and Shareholders' Equity $ 422,691 $ 428,928 ---------- ---------- ---------- ----------
See notes to consolidated condensed financial statements. 3 STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed) (In thousands)
SIX MONTHS ENDED JUNE 30 ---------------------- 1998 1997 ---------------------- (unaudited) Operating Activities Net income $ 11,224 $ 14,549 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,175 6,615 Deferred taxes 3,035 (170) Changes in operating assets and liabilities: Accounts receivable (4,425) (8,960) Inventories 6,155 (3,939) Prepaid expenses and other current assets 1,518 398 Accounts payable (5,759) (4,402) Payrolls and other accruals (3,751) 7,244 --------- --------- Net cash provided by operating activities 16,172 11,335 Investing Activities Property, plant & equipment expenditures (12,679) (12,245) Disposals of property, plant & equipment 289 50 Sale of investments 6,408 Other items, net (1,090) (2,719) --------- --------- Net cash used in investing activities (13,480) (8,506) Financing Activities Borrowings under long-term debt 26,000 18,667 Payments of long-term debt (14,001) (28,087) Net (decrease) increase in short-term bank loans (12,246) 4,092 Repurchase of accounts receivable facility (4,725) Dividends paid (3,639) (3,642) Repayment of loans to ESOP 4,533 --------- --------- Net cash used in financing activities (3,886) (9,162) --------- --------- Net decrease in cash and cash equivalents (1,194) (6,333) Cash and cash equivalents at beginning of year 5,914 10,860 --------- --------- Cash and cash equivalents at end of period $ 4,720 $ 4,527 --------- --------- --------- --------- Supplemental disclosure of cash flow information: Interest paid $ 6,115 $ 4,936 Income taxes paid 2,495 6,700
See notes to consolidated condensed financial statements. 4 K2 INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTS RECEIVABLE AND ALLOWANCES Accounts receivable are net of allowances for doubtful accounts of $7,072,000 at June 30, 1998 and $7,418,000 at December 31, 1997. NOTE 3 - BORROWINGS AND OTHER FINANCIAL INSTRUMENTS Covenants contained in the Company's $100 million credit line and accounts receivable financing arrangement, among other things, restrict amounts available for payment of cash dividends by the Company. As of June 30, 1998, $18.7 million of retained earnings were free of such restrictions. At June 30, 1998, $50 million of accounts receivable were sold, fully utilizing the existing accounts receivable purchase facility. NOTE 4 - COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. SFAS No. 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. During the three and six months ended June 30, 1998, total comprehensive income amounted to $7.6 million and $10.6 million, respectively. For the three and six months ended June 30, 1997, total comprehensive income amounted to $6.3 million and $12.6 million, respectively. 5 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations A. COMPARATIVE SECOND QUARTER RESULTS OF OPERATIONS Net sales for the three months ended June 30, 1998 increased to $181.0 million from $171.5 million in the year-earlier period. Net income for the second quarter of 1998 declined to $8.1 million, or $.49 per diluted share, from $8.7 million, or $.52 per diluted share, in the second quarter of 1997. NET SALES. In the sporting goods and other recreational products group, net sales increased 6.8% to $121.7 million from $114.0 million in the year-earlier period. The growth was mainly due to double digit increases in shipments of snowboard products. The popularity of the Company's step-in bindings and boots and strong demand for high performance snowboards has resulted in an increase in orders in the current year. Sales of Shakespeare fishing tackle and Stearns equipment grew at strong double digit rates. Shakespeare fishing tackle benefited from the impact of new products recently introduced and from demand for its core fishing tackle products. Stearns grew based on new product sales and from a shift in customer ordering patterns. Sales of in-line skate sales rose moderately in the quarter, primarily driven by growth in the European market. In the US, although sales were comparable with the prior year, retailers continued to order cautiously to manage inventory levels and to more closely match purchases with sales rates. Cautious buying by ski retailers after a disappointing retail ski season has resulted in an industry-wide decline in preseason orders. Shipments for the quarter of the Company's K2 and Olin ski products were impacted by this condition. Sales of recreational products to the Japanese market declined reflecting economic conditions in that market. Net sales of the industrial products group in the second quarter rose 3.1% to $59.3 million from $57.5 million in the prior year's quarter. The gain was due to increased sales of monofilament products, and secondarily of composite light poles. Sales of residential and commercial building products declined due to competitive pricing pressures. GROSS PROFIT. Gross profit for the second quarter of 1998 was unchanged at $51.1 million from the year ago quarter, although as a percentage of net sales it declined to 28.2% from 29.8%. The decline was largely due to margin erosion from closeout sales of certain skate and bike inventories and higher manufacturing costs and competitive pricing pressures in certain segments of the industrial group. COSTS AND EXPENSES. In the second quarter of 1998, selling expenses of $23.1 million, or 12.8% of net sales were comparable to the prior year's quarter of $22.9 million, or 13.4% of net sales. General and administrative expenses for the quarter of $12.8 million, or 7.1% of net sales were also comparable to $12.9 million, or 7.5% of net sales, in the year-earlier period. 6 OPERATING INCOME. Operating income in the second quarter of 1998 declined slightly to $15.1 million, or 8.3% of net sales, from $15.3 million, or 8.9% of net sales, in the year-earlier period. The decline in percentage was attributable to the effect of the lower gross profit percentage. INTEREST EXPENSE. Interest expense increased $496,000 to $3.2 million in the second quarter of 1998 compared to the year-earlier period. Higher average borrowings incurred to support the growth in sales increased interest expense by $786,000, which was offset by a reduction of $290,000 of interest due to lower interest rates. B. COMPARATIVE SIX-MONTH RESULTS OF OPERATIONS Net sales for the six months ended June 30, 1998 increased to $354.1 million from $343.1 million in the corresponding prior-year period. Net income for the first half of 1998 declined to $11.2 million, or $.68 per diluted share, from $14.5 million, or $.87 per diluted share, in the first half of 1997. NET SALES. In the sporting goods and other recreational products group, net sales increased slightly to $238.2 million, from $235.8 million in the 1997 period. Shipments of snowboard products significantly increased due to strong demand for performance boards and Clicker step-in bindings and boots. Shakespeare fishing tackle products grew at a strong double digit rate from the introduction of new Shakespeare branded products and continued gains in core fishing tackle products. Stearns sports equipment contributed to sales growth as a result of new products as well as continued strength of core products. Partially offsetting these gains were lower shipments of K2 in-line skates, reflecting continued cautious ordering by retailers as they proceed to reduce inventory levels of plastic skates (manufactured by others) which have been high relative to retail sales levels. Sales of skis also declined due to a disappointing retail season industry-wide. Shipments of bikes declined during the seasonally weak first half of the year. The industrial products group reported an 8.0% increase in sales to $115.9 million from $107.3 million. The improvement was primarily due to increased sales of paperweaving product and cutting line in the monofilament business. GROSS PROFIT. Gross profit as a percentage of net sales for the period fell to 26.9% from 28.4% in the year-earlier period, resulting in gross profit declining to $95.3 million from $97.5 million a year ago. The reduction in the gross profit percentage reflects a less than favorable sales mix of higher margin products, margin pressures from closeout sales of certain skate and bike inventories and higher manufacturing costs and competitive pricing pressures in certain segments of the industrial group. COST AND EXPENSES. Selling expenses at $45.9 million, or 13.0% of net sales were comparable to the $45.3 million, or 13.2% of net sales in the corresponding year-earlier period. General and administrative expenses of $26.4 million, or 7.5% of net sales, were also comparable with the prior year period of $26.2 million, or 7.6% of net sales. 7 OPERATING INCOME. Operating income declined 11.9% to $22.9 million, or 6.5% of net sales, from $26.0 million, or 7.6% of net sales. The decline was mainly attributable to the effect of the lower gross profit percentage. INTEREST EXPENSE. Interest expense increased $1.1 million to $6.3 million in the first six months of 1998 compared to $5.2 million in the year-earlier period. Higher average borrowings incurred to support the growth in sales and new product development increased interest expense by $1.6 million, which was offset by a reduction of $500,000 of interest due to lower interest rates. C. FINANCIAL CONDITION The Company's operating activities provided $16.2 million of cash during the six months ended June 30, 1998, as compared with $11.3 million of cash during the six months ended June 30, 1997. The improvement in net cash provided in the 1998 period is attributable to a smaller seasonal buildup of accounts receivable and inventories as compared with the prior year's period which included a significant increase in in-line skate sales. Net cash used for investing activities was $13.5 million in the first half of 1998, compared to $8.5 million used in the first half of 1997. The 1997 period includes $6.4 million received in connection with a one-time sale of investments. Excluding the one-time sale, net cash used in investing activities is consistent from year to year. There were no material commitments for capital expenditures at June 30, 1998. Net cash used in financing activities was $3.9 million in the 1998 six month period as compared with $9.2 million in the corresponding year ago period. The net reduction of $5.3 million in cash used was due to an increase in borrowing to support the growth in sales and a decrease in the repayment of long-term borrowings. The Company anticipates its remaining cash needs in 1998 will be provided from operations and borrowings under existing credit lines. D. OTHER MATTERS The Company is currently working to resolve the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculation or system failures. Based on a preliminary study, the Company's management believes that most of the Company's information systems are Year 2000 compliant. Those systems that are not Year 2000 compliant will be either upgraded or replaced by the end of 1998 to ensure compliance. The total anticipated cost of compliance is not expected to be material. 8 STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE This Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including, but not limited to, the following: statements regarding sales and earnings, market trends regarding softboot in-line skates and skis, inventory levels at retail and overall market trends 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 Annual Report on Form 10-K filing with the Securities and Exchange Commission. 9 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K filed in the second quarter ended June 30, 1998 None 10 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. K2 INC. (registrant) Date: August 12, 1998 /s/ RICHARD M. RODSTEIN ----------------------------------- Richard M. Rodstein President and Chief Executive Officer Date: August 12, 1998 /s/ JOHN J. RANGEL ----------------------------------- John J. Rangel Senior Vice President - Finance 11 EX-27 2 EXHIBIT 27
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 4,720 0 130,076 (7,072) 183,213 319,245 190,541 (107,947) 422,691 100,796 0 0 0 17,191 192,660 422,691 354,116 354,264 258,843 258,843 71,305 1,048 6,314 16,754 5,530 11,224 0 0 0 11,224 .68 .68
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