<PAGE>
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, 2000 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, 2000.
Common Stock, par value $1 17,950,000 Shares
<PAGE>
FORM 10-Q QUARTERLY REPORT
PART - 1 FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENTS OF CONSOLIDATED INCOME (condensed)
(In thousands, except per share figures)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
-----------------------------------------------------------------
2000 1999 2000 1999
-------------------------------- -------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $159,049 $158,292 $340,861 $321,352
Cost of products sold 107,065 110,122 237,817 228,871
--------------- --------------- --------------- ---------------
Gross profit 51,984 48,170 103,044 92,481
Selling expenses 25,356 22,855 52,320 45,951
General and administrative expenses 13,001 11,787 27,578 25,244
--------------- --------------- --------------- ---------------
Operating income 13,627 13,528 23,146 21,286
Interest expense 3,992 3,031 8,558 6,328
Other income, net (59) (14) (139) (114)
--------------- --------------- --------------- ---------------
Income before income taxes 9,694 10,511 14,727 15,072
Provision for income taxes 3,296 3,365 5,007 4,823
--------------- --------------- --------------- ---------------
Income from continuing operations 6,398 7,146 9,720 10,249
Discontinued Operations
Income from operations, net of taxes 623 858 1,039 1,007
Estimated loss on disposal, net of taxes (718) - (718) -
--------------- --------------- --------------- ---------------
(95) 858 321 1,007
Net income $6,303 $8,004 $10,041 $11,256
=============== =============== =============== ===============
Basic earnings (loss) per share:
Continuing operations $0.36 $0.43 $0.54 $0.62
Discontinued operations (0.01) 0.05 0.02 0.06
--------------- --------------- --------------- ---------------
Net income $0.35 $0.48 $0.56 $0.68
=============== =============== =============== ===============
Diluted earnings (loss) per share:
Continuing operations $0.36 $0.43 $0.54 $0.62
Discontinued operations (0.01) 0.05 0.02 0.06
--------------- --------------- --------------- ---------------
Net income $0.35 $0.48 $0.56 $0.68
=============== =============== =============== ===============
Basic shares outstanding 17,949 16,566 17,949 16,565
Diluted shares outstanding 18,000 16,566 17,998 16,565
Cash dividend per share $ - $ - $ - $0.11
</TABLE>
See notes to consolidated condensed financial statements.
1
<PAGE>
CONSOLIDATED BALANCE SHEETS (condensed)
(In thousands, except number of shares)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $2,262 $9,421
Accounts receivable, net 117,010 149,151
Inventories, net 161,801 172,154
Deferred taxes 3,559 10,030
Prepaid expenses and other current assets 9,554 5,053
------------------ ------------------
Total current assets 294,186 345,809
Property, plant and equipment 165,586 162,453
Less allowance for depreciation and amortization 95,241 89,858
------------------ ------------------
70,345 72,595
Intangibles, principally goodwill, net 40,982 38,928
Net assets of discontinued operations 24,706
Other 4,177 5,840
------------------ ------------------
Total Assets $409,690 $487,878
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank loans $21,944 $57,359
Accounts payable 35,952 44,231
Accrued payroll and related 17,642 19,781
Other accruals 35,766 32,808
Current portion of long-term debt 4,444 4,444
------------------ ------------------
Total current liabilities 115,748 158,623
Long-term debt 68,443 107,280
Deferred taxes 3,423 3,455
Commitments and Contingencies
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
18,682,810 in 2000 and 1999 18,674 18,673
Additional paid-in capital 143,331 143,326
Retained earnings 85,289 75,248
Employee Stock Ownership Plan and stock option loans (1,837) (1,975)
Treasury shares at cost, 733,810 shares in 2000 and 733,110 in 1999 (8,998) (8,992)
Accumulated other comprehensive loss (14,383) (7,760)
------------------ ------------------
Total Shareholders' Equity 222,076 218,520
------------------ ------------------
Total Liabilities and Shareholders' Equity $409,690 $487,878
================== ==================
</TABLE>
See notes to consolidated condensed financial statements
2
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS (condensed)
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-----------------------------------
2000 1999
-----------------------------------
(unaudited)
<S> <C> <C>
Operating Activities
Income from continuing operations $ 9,720 $ 10,249
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,493 6,221
Deferred taxes 6,439 2,323
Changes in operating assets and liabilities:
Accounts receivable 39,922 12,462
Inventories 10,353 34,550
Prepaid expenses and other current assets (4,501) (2,192)
Accounts payable (8,279) (11,144)
Payrolls and other accruals (5,139) 1,362
----------------- ----------------
Net cash provided by operating activities 55,008 53,831
Investing Activities
Property, plant & equipment expenditures (4,493) (6,136)
Disposals of property, plant & equipment 600 136
Purchase of business (2,961)
Other items, net (7,226) (329)
----------------- ----------------
Net cash used in investing activities (11,119) (9,290)
Financing Activities
Borrowings under long-term debt 67,000 11,500
Payments of long-term debt (106,273) (24,500)
Net decrease in short-term bank loans (34,979) (28,088)
Net payment on accounts receivable facility (7,781)
Dividends paid (1,820)
----------------- ----------------
Net cash used in financing activities (82,033) (42,908)
----------------- ----------------
Net increase (decrease) in cash and cash equivalents (38,144) 1,633
from continuing operations
Discontinued operations
Income from discontinued operations 321 1,007
Proceeds received from sale of discontinued operation 27,500
Adjustments to reconcile income to net cash provided by (used in)
discontinued operations:
Depreciation and amortization 1,426 1,510
Capital expenditures (287) (1,824)
Other items, net 2,025 (763)
----------------- ----------------
Cash provided by (used in) discontinued operations 30,985 (70)
Net increase (decrease) in cash and cash equivalents (7,159) 1,563
Cash and cash equivalents at beginning of year 9,421 3,394
----------------- ----------------
Cash and cash equivalents at end of period $ 2,262 $ 4,957
================= ================
</TABLE>
See notes to consolidated condensed financial statements
3
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
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, 2000 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the Consolidated Financial Statements and
Notes to Financial Statements included in K2 Inc.'s ("K2's) Annual Report on
Form 10-K for the year ended December 31, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTS RECEIVABLE AND ALLOWANCES
Accounts receivable are net of allowances for doubtful accounts of $6,175,000 at
June 30, 2000 and $6,572,000 at December 31, 1999.
INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
-------------- ---------------
(Thousands)
<S> <C> <C>
Finished goods $123,625 $129,429
Work in process 9,732 10,573
Raw materials 30,324 34,228
-------------- ---------------
Total at lower of FIFO cost or market (approximates
current cost) 163,681 174,230
Less LIFO valuation reserve 1,880 2,076
-------------- ---------------
$161,801 $172,154
-------------- ---------------
</TABLE>
4
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 3 - DISCONTINUED OPERATIONS
On September 10, 1998, K2 adopted a plan to dispose of its Simplex building
products division (the "Division") as part of K2's strategic focus on the core
sporting goods and other recreational businesses. Accordingly, the Division has
been shown in the consolidated financial statements as a discontinued operation
since that date.
On June 30, 2000, K2 completed the sale of the assets and business of the
Division to Ludlow Building Products, ("Ludlow") a subsidiary of Tyco
International Ltd. Consideration included $27.5 million in cash and the
assumption of certain liabilities by Ludlow. The purchase price is subject to
final adjustment prior to the end of the fiscal year. The estimated loss on
disposal of the Division, net of a tax benefit of $386,000, includes an estimate
of the costs of disposal, a reserve for final purchase price adjustments and
reserves related to the retention of certain liabilities by K2.
NOTE 4 - ACQUISITIONS
On October 7, 1999 K2 completed the acquisition of Ride, Inc. ("Ride"), a
designer and manufacturer of snowboard equipment, apparel and accessories, in an
all-stock merger transaction accounted for using the purchase method of
accounting. The results of operations of Ride have been included in the
consolidated financial statements since the date of acquisition. The following
summarized unaudited pro forma results of operations of K2 assume the
acquisition of Ride had occurred as of the beginning of the respective periods.
This pro forma information does not purport to be indicative of what would have
occurred had the acquisition been made as of those dates, or of results which
may occur in the future:
PRO FORMA INFORMATION (UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1999
--------------- ------------------
<S> <C> <C>
Net sales $159,927 $326,565
Income (loss) from continuing operations (3,831) (4,450)
Diluted earnings (loss) per share - continuing operations (0.21) (0.25)
</TABLE>
5
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 5 - BORROWINGS AND OTHER FINANCIAL INSTRUMENTS
Covenants contained in K2's $75 million credit line and accounts receivable
financing arrangement, among other things, restrict amounts available for
payment of cash dividends and stock repurchases by K2. As of June 30, 2000,
$11.1 million of retained earnings was free of such restrictions.
At June 30, 2000, $42 million of accounts receivable were sold: $41 million
under K2's $75 million domestic accounts receivable purchase facility and $1
million under a new $20 million facility available in Germany. On April 4, 2000,
K2 increased the capacity of the domestic accounts receivable purchase facility
from $50 million to $75 million.
NOTE 6 - COMPREHENSIVE INCOME
During the three and six months ended June 30, 2000 total comprehensive income
amounted to $4.7 million and $3.5 million, respectively. For the three and six
months ended June 30, 1999, total comprehensive income amounted to $7.0 million
and $7.9 million, respectively.
NOTE 7- EARNINGS PER SHARE DATA
Basic earnings per share ("EPS") is determined by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS
reflects the potential dilutive effects of stock options, using the treasury
stock method. For the three and six month periods ended June 30, 2000, the
computation of diluted EPS included the dilutive effects of 51,000 and 48,000
stock options, respectively, and excluded all 1,014,000 stock options
outstanding since their inclusion would have been antidilutive. For both the
three and six month periods ended June 30, 1999, computation of diluted EPS
excluded all 1,095,000 stock options outstanding since their inclusion would
have been antidilutive.
6
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 8 - SEGMENT INFORMATION
The segment information presented below is for the three months ended June 30:
<TABLE>
<CAPTION>
Net Sales to
Unaffiliated
Customers Intersegment Sales Operating Profit (Loss)
------------------------- ------------------------- --------------------------
2000 1999 2000 1999 2000 1999
------------ ------------ ------------ ------------ ------------ -----------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Sporting goods $116.8 $115.9 $11.1 $8.1 $10.2 $9.5
Other recreational 9.5 10.4 0.3 0.1 (0.2) (0.1)
Industrial 32.8 32.0 0.3 0.2 4.7 5.5
------------ ------------ ------------ ------------ ------------ -----------
Total segment data $159.1 $158.3 $11.7 $8.4 14.7 14.9
============ ============ ============ ============ ------------ -----------
Corporate expenses, net 1.0 1.4
Interest expense 4.0 3.0
------------ -----------
Income from continuing operations before provision for income taxes $9.7 $10.5
============ ===========
</TABLE>
The segment information presented below is for the six months ended June 30:
<TABLE>
<CAPTION>
Net Sales to
Unaffiliated
Customers Intersegment Sales Operating Profit (Loss)
------------------------- ------------------------- --------------------------
2000 1999 2000 1999 2000 1999
------------ ------------ ------------ ------------ ------------ -----------
(Millions)
<S> <C> <C> <C> <C> <C> <C>
Sporting goods $256.1 $237.2 $20.8 $13.9 $17.3 $14.4
Other recreational 18.8 20.3 0.4 0.1 (0.9) (0.8)
Industrial 66.0 63.9 0.8 0.5 9.5 10.6
------------ ------------ ------------ ------------ ------------ -----------
Total segment data $340.9 $321.4 $22.0 $14.5 25.9 24.2
============ ============ ============ ============ ------------ -----------
Corporate expenses, net 2.6 2.8
Interest expense 8.6 6.3
------------ -----------
Income from continuing operations before provision for income taxes $14.7 $15.1
============ ===========
</TABLE>
7
<PAGE>
K2 INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
NOTE 9 - CONTINGENCIES
K2 is subject to various legal actions and proceedings in the normal course of
business. While the ultimate outcome of these matters cannot be predicted with
certainty, management does not believe these matters will have a material
adverse effect on K2's financial statements.
K2 is one of several named potentially responsible parties ("PRP") in three
Environmental Protection Agency matters involving discharge of hazardous
materials at old waste sites in South Carolina and Michigan. Although
environmental laws technically impose joint and several liability upon each PRP
at each site, the extent of the K2's required financial contribution to the
cleanup of these sites is expected to be limited based upon the number and
financial strength of the other named PRPs and the volume and types of waste
involved which might be attributable to K2.
Environmental and related remediation costs are difficult to quantify for a
number of reasons including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of environmental regulation and the continuing
advancement of remediation technology. K2's environmental engineers, consultants
and legal counsel have developed estimates based upon cost analyses and other
available information for this particular site. K2 accrues for these costs when
it is probable that a liability has been incurred and the amount can be
reasonably estimated. At June 30, 2000 and December 31, 1999, K2 had accrued
approximately $905,000 and $806,000, respectively, with no provision for
expected insurance recovery.
The ultimate outcome of these matters cannot be predicted with certainty,
however, management does not believe these matters will have a material adverse
effect on K2's financial statements.
8
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARATIVE SECOND QUARTER RESULTS OF OPERATIONS
Net sales from continuing operations for the three months ended June 30, 2000
increased to $159.0 million from $158.3 million in the year-earlier period.
Income from continuing operations for the second quarter of 2000 declined 10.5%
to $6.4 million, or $.36 per diluted share, from $7.1 million, or $.43 per
diluted share, in the second quarter a year ago. Net income for the quarter was
$6.3 million, or $.35 per diluted share, as compared with $8.0 million, or $.48
per diluted share, in the prior year quarter.
NET SALES. In the sporting goods segment, net sales improved to $116.8 million
from $115.9 million in the 1999 second quarter. Shakespeare fishing tackle sales
experienced strong domestic sales led by growth in new reels and new product
introductions such as the outdoor furniture line. New sales have resulted from
the popularity of the Kickboard, a three-wheeled scooter, primarily in European
markets. Snowboard product sales increased reflecting the impact of the
acquisition of Ride, Liquid and 5150 in the prior year's fourth quarter. As
expected, sales of Stearns products increased, especially in children's life
vests, reflecting a shift in the timing of the business. In-line skate sales
declined for the quarter, due in part to the weakening of the German currency in
the past year, which resulted in lower translated sales for the period. Strong
sales in the first quarter, however, resulted in an overall increase of in-line
skate sales for the first six months over the prior year period. Ski shipments
declined for the quarter due to the continued movement of production offshore
resulting in product being delivered closer to the season. Bike shipments
declined in a seasonally slow sales quarter reflecting the changing nature of
K2's bike business.
In the other recreational products segment, net sales declined to $9.5 million
from $10.4 million in the prior year's quarter. The decrease was attributable
mainly to lower apparel sales to the corporate apparel market in continued
sluggish market conditions.
Net sales of the two businesses in the industrial products group improved 2.5%
to $32.8 million from $32.0 million in the prior year's quarter. The sales
increase reflected higher demand for specialty resins, elastomers and increased
sales of composite light poles.
GROSS PROFIT. Gross profit for the second quarter of 2000 increased 7.9% to
$52.0 million, or 32.7% of net sales, as compared with $48.2 million, or 30.4%
of net sales, in the year ago quarter. The gross profit improvement reflects the
cost reduction programs implemented by K2, including a shift of more of K2's
manufacturing to its overseas plants and increasing offshore product sourcing.
COSTS AND EXPENSES. Selling expenses increased to $25.4 million, or 15.9% of net
sales, from $22.9 million, or 14.4% of net sales, in the prior year's quarter.
General and administrative expenses increased to $13.0 million, or 8.2% of net
sales, from $11.8 million, or 7.4% of net sales, in the 1999 first quarter.
These increases largely reflect seasonal expenses associated with recent
acquisitions in a seasonally slower sales quarter. In addition, K2 also
initiated certain marketing programs in the quarter which ordinarily would have
occurred later in the year.
9
<PAGE>
OPERATING INCOME. Operating income for the second quarter improved to $13.7
million or 8.6% of net sales, as compared to operating income of $13.5
million, or 8.5% of net sales, a year ago. The improvement reflects increased
gross profit margins, offset by increased selling and general and
administrative expenses.
INTEREST EXPENSE. Interest expense increased $961,000 to $4.0 million in the
second quarter of 2000 compared to $3.0 million in the year-earlier period.
Lower average borrowings reduced interest expense by $725,000, which was offset
by an increase in interest expense of $1,686,000 due to higher interest rates.
The interest rate increase was due to an increase in the LIBOR variable rate as
compared to the prior year, an increase in international borrowing costs and the
refinancing of variable debt into higher cost long-term fixed debt.
COMPARATIVE SIX-MONTH RESULTS OF OPERATIONS
Net sales from continuing operations for the six months ended June 30, 2000
increased 6.1% to $340.9 million from $321.4 million in the year-earlier period.
Income from continuing operations for the first half of 2000 was $9.7 million,
or $.54 per diluted share, as compared with $10.2 million, or $.62 per diluted
share, in the first six months of 1999. Net income was $10.0 million, or $.56
per diluted share, as compared with $11.3 million, or $.68 per diluted share, in
the prior year six months.
NET SALES. In the sporting goods segment, net sales increased 8.0% to $256.1
million from $237.2 million in the 1999 period. The growth was primarily the
result of increases in worldwide fishing tackle, snowboard, Kickboard and
in-line skate sales. Fishing tackle sales continue to be strong led by the
continued growth of the Ugly Stik line, new packaged rods and reels and other
new products. Increased snowboard sales are the result of recent acquisitions.
New sales of the Kickboard, a recent product innovation, are the result of high
demand in the European markets. In-line skate sales have increased for the
period despite a substantial weakening in the German currency which had a
negative impact on translated sales from the German subsidiary. Partially
offsetting these increases were lower sales of ski and bike products. Ski
shipments declined for the period reflecting the mild winter weather in the
domestic market, the movement of certain production offshore and the plan to
deliver product closer to the season. Bike sales declined reflecting the
changing nature of the K2's bike business with later delivery of product, closer
to the season. Sales of Stearns products were comparable with the prior year.
In the other recreational products segment, net sales for the first six months
declined to $18.8 million from $20.3 million in the prior year. The decrease was
attributable mainly to lower apparel sales to the advertising specialty market
in continued sluggish market conditions.
Net sales of the two businesses in the industrial products group, improved 3.4%
to $66.0 million from $63.9 million in the prior year. The sales increase
reflects higher demand for specialty resins and elastomers and increased sales
of composite light poles.
GROSS PROFIT. Gross profits for the first half of 2000 increased 11.4% to $103.0
million, or 30.2% of net sales, from $92.5 million, or 28.8% of net sales, in
the prior year period. The gross profit improvement reflects an increase in
sales volume and the cost reduction programs implemented
10
<PAGE>
by K2 including a shift of more of K2's manufacturing to it's overseas plants
and increasing offshore product sourcing.
COSTS AND EXPENSES. Selling expenses increased to $52.3 million, or 15.3% of net
sales, from $46.0 million, or 14.3% of net sales, in the prior year. General and
administrative expenses were $27.5 million, or 8.1% of net sales as compared
with $25.2 million or 7.9% of net sales, in the prior year. These increases
reflect the increase in sales during the first six months of the year and the
timing of seasonal expenses associated with recent acquisitions with most of the
related sales volume to occur in the second half of the year. In addition, K2
also initiated certain marketing programs in the first six months which
ordinarily would have occurred later in the year.
OPERATING INCOME. Operating income for the first six months improved 8.9% to
$23.2 million, or 6.8% of net sales as compared with $21.3 million, or 6.6% in
the prior year. The improvement reflects increased gross profit margins, offset
by increased selling and general and administrative expenses.
INTEREST EXPENSE. Interest expense increased $2.2 million to $8.6 million for
the first six months of 2000 compared to $6.3 million in the year-earlier
period. Lower average borrowings reduced interest expense by $940,000, which was
offset by an increase in interest expense of $3.2 million due to higher interest
rates. The interest rate increase was due to an increase in the LIBOR variable
rate as compared to the prior year, an increase in international borrowing costs
and the refinancing of variable debt into higher cost long-term fixed debt.
LIQUIDITY AND SOURCES OF CAPITAL
K2's continuing operating activities provided $55.0 million of cash during the
six months ended June 30, 2000 as compared with $53.8 million of cash provided
during the six month period a year ago.
Net cash used for investing activities was $11.1 million in the first half of
2000, compared to $9.3 million in the first half of 1999. Capital expenditures
in the 2000 period were $1.6 million lower compared to the 1999 first six months
which also had a $3.0 million cash outlay for the acquisition of certain assets
of a snowboard company. The current year six months also reflected an increase
of $3.2 million in (accumulated other comprehensive loss) over the prior year
six months. There were no material commitments for capital expenditures at June
30, 2000.
Net cash used in financing activities was $82.0 million during the six months
ended June 30, 2000 as compared with $42.9 million of cash used during the six-
month period a year ago. The year to year increase of $39.1 million in cash used
was due to higher net repayments of short and long-term debt as well as a net
paydown on the domestic accounts receivable facility.
The disposition of the Division resulted in cash of $27.5 million in the period.
K2 anticipates its remaining cash needs in 2000 will be provided from operations
and borrowings under existing credit lines.
11
<PAGE>
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 K2's
expectations or beliefs concerning future events, including, but not limited
to, the following: statements regarding sales and earnings, market trends,
market conditions, market positioning, product cost reduction efforts,
expense control efforts and overall trends which involve substantial risks
and uncertainties. K2 cautions that these statements are further qualified by
important factors which 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 the impact of
foreign exchange on product costs, and other risks described in K2's Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
ITEM 3 Quantitative and Qualitative Disclosures of Market Risk
K2's earnings and cash flow are subject to fluctuations due to changes in
foreign currency exchange rates. K2 manages its exposure to changes in
foreign currency exchange rates on certain firm purchase commitments and
anticipated, but not yet committed purchases, by entering into foreign
currency forward contracts. K2's risk management objective is to reduce its
exposure to the effects of changes in exchange rates on the cost of products
sold over quarterly time horizons. Foreign currency exchange rate movements
also affect K2's competitive position, as exchange rate changes may affect
business practices and/or pricing strategies of non-U.S. based competitors
and may affect the profitability and pricing strategies of K2 as well. K2's
foreign currency risk policies entail entering into foreign currency
derivative instruments only to manage risk of currency fluctuations over a
given period of time, not for speculative investments.
Considering both the anticipated cash flows from firm purchase commitments
and anticipated purchases for the next quarter and the foreign currency
derivative instruments in place, the continued weakness of the euro and DM
against the U.S. dollar is expected to continue to increase the cost of
products purchased in U.S. dollars for sale in the European market. As a
result, this will have an unfavorable impact on the remainder of 2000, and
consequently on earnings and on cash flows. This impact is offset in part by
the favorable impact of cost reduction programs that were initiated in
anticipation of the continued weakness in these currencies. This analysis
ignores the potential effect that may result from changing costs. In addition,
currency exchange rates are subject to change which could result in lesser or
greater impacts to earnings and cash flows.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of
this report.
10 Material Contracts
(a) Amended and Restated Transfer and
Administration Agreement among
Enterprise Funding Corporation, as
the Company, K2 Funding, Inc., as
the Transferor, K2 Inc. as the
Master Servicer and Bank of America,
National Association as Agent and
Bank Investor dated as of April 4,
2000.
(b) Asset Purchase Agreement dated June
8, 2000 by and between Tyco
International (US) Inc., Ludlow
Building Products, Inc., as Buyer,
Tyco Plastics Services AG, as IP
Buyer, and K2 Inc., as Seller
27 Financial Data Schedule for the six
months ended June 30, 2000.
(b) Reports on Form 8-K filed since the date of
the last Form 10-Q
Report on Form 8-K dated July 5, 2000
containing K2's press release dated June 29,
2000 announcing the execution of the
agreement for the sale of assets and
business of K2's Simplex building products
division to Ludlow Building Products.
13
<PAGE>
SIGNATURES
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 14, 2000 /S/ RICHARD M. RODSTEIN
-------------------------------
Richard M. Rodstein
President and Chief Executive
Officer
Date: August 14, 2000 /S/ JOHN J. RANGEL
-------------------------------
John J. Rangel
Senior Vice President - Finance
14
