k2 investor presentation april 2005 - iis windows...

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K2 Inc.Investor Presentation

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This presentation includes forward-looking statements. K2 Inc. (“K2” or the “Company”) cautions that

these statements are qualified by important factors that could cause actual results to differ materially

from those in the forward-looking statements, including but not limited to K2’s ability to successfully

execute its acquisition plans and growth strategy, integration of the companies that K2 has acquired,

weather conditions, consumer spending, continued success of manufacturing in China, global economic

conditions, product demand, financial market performance, and other risks described in the company’s

most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and current

reports on Form 8-K, each as filed with the Securities and Exchange Commission. The company cautions

that the foregoing list of important factors is not exclusive, any forward-looking statements included in

this presentation is made as of the date of this presentation, and the company does not undertake to

update any forward-looking statement.

Safe Harbor and Other Disclosures

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The Opportunity

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Business Overview

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Sporting Goods Market Overview

$52.1 billion U.S. wholesale sales in principal K2 product linesSports Equipment: $18.0 billion

Sports Apparel: $24.1 billion

Athletic Footwear: $10.0 billion

Highly fragmented industry in sports equipmentTop 25 suppliers account for less than 30%

Sporting goods is consolidating at retail Wal-Mart, Target, GART/Sports Authority, Dick’s/Galyan’s, regional chains

Increasing retailer preference for fewer manufacturers with broader array of quality brands and services, and ability to innovate and support brands

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Over 35 Major Brands

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Flexible and Diversified Platform

Team Sports

Baseball

Softball

Basketball

Football

Lacrosse

Soccer

Paintball

Markers

Paintballs

Protective Gear

Loaders

Brass Eagle

Winter

Skis In-line Skate

Snowboards Bike

Bindings

Snowshoes

Accessories

Summer

Action Sports

Outdoor/Industrial

PFDs

Towables

Inflatable Kayaks

Waders

Raingear

Hunting Accessories

Fishing

Rods

Reels

Kits & Combos

Accessories

Monofilament

Marine Antennas

Marine & Outdoor

Technical and

AdventureApparel

Footwear

Backpacks

Tents

Winter and

SummerApparel

Footwear & Apparel

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Premier Production Facilities

ChinaChina facility established in mid 80’sStaff― China employees: 8,000 employees at seasonal peak― Hong Kong sourcing: 60 employees― Engineers: 90 employees

Production floor space― Current: 2 million ft2

Other FacilitiesAlso manufacture in the U.S., Costa Rica, Europe and the Philippines

Now manufacturing the majority of K2 products in K2 controlled factories

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Scale to Supply the Global Sporting Goods Market

Sales in approximately 100 countriesMore than 15,000 individual customers

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Sales Growth & Margin Expansion

Research & development, product innovation and brand extension Low-cost China manufacturing allows expanded R&D and focus on qualityConstant product innovation and brand extensions are a key focusEvery division has several new product lines launched or in-process

Team Sports

Brass Eagle

Action Sports Marine & Outdoor Footwear & Apparel

Helmets

Poles

Goggles

Binding systems

Mid-price markers

Premium markers

High end composite softball bats

Premium rods

Premium reels

Fish line

Premium PFD’s

Children's swimwear

Outdoor apparel and gear

New apparel lines that will exploit K2’s brand portfolio

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Retail and geographic landscapeFewer more capable suppliers continues to be a key theme of leading retailers

Growth in the top 25 K2 retail customers is outpacing the industry growth rate― Facilitates more focused relationship building between K2 and

retailers

Winter sports in Europe is bigger than the U.S.― Recent acquisitions provide K2 with infrastructure to capitalize on

expansion opportunities in several categories including apparel and footwear


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Manufacturing, sourcing and distributionK2’s control over manufacturing minimizes supply disruptions― A key concern of retailers

K2 global sourcing in Hong Kong ― Margin improvement opportunity with recently acquired product

lines

International distribution for major product lines is in the process of being consolidated in Europe, Canada and Japan

Consolidation of domestic distribution underway― First step is establishment of new West Coast distribution facility

combining 4 existing warehouses


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Acquisitions and integrationIntegration of acquisitions with K2’s China manufacturing has consistently demonstrated the ability to expand gross margins ― Over 400 basis point improvement from 2002 to 2004

Recent major acquisitions are only partly integrated with K2 manufacturing, with significant remaining up-side:― Rawlings/Worth <50%― Brass Eagle <10%― Völkl/Marker 0%


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LicensingK2’s new licensing and corporate alliance initiative will generate direct bottom line profit

MerchandisingK2’s merchandising initiative becomes more scalable as additional brands and SKUs are added at retail

S,G&A scaleDue to major initiatives, K2 expects S,G&A expenses to begin showing scalability


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Acquisition Growth Strategy

Acquisition candidate criteriaLeading brand name

Accretive / attractive valuation

Synergies in manufacturing and distribution― Focused on revenue vs. cost synergies

Transforming platform acquisitions with focus on “tuck-in” acquisitions

Team Sports

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Post Acquisition Integration is Key

Völkl, Marker and K2 Sports Canadian office integration completedEuropean, Japan and US integration underway

Ex Officio, Marmot and Earth Products Initiating migration to common apparel software platform Continuing development of strategies for more efficient sourcingBeginning exploitation of other K2 branded apparel opportunities

Worr Game Products and Brass Eagle Introduction of Worr Games gun into sporting goods channel

SOS and StearnsClosed deal: November 10, 2004Integration completed: Q4 2004Shipment of Stearns produced SOS product: Q1 2005

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Financial Overview

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Summary Financial Information

Income statement data ($ in thousands, except per share data)*Income statement data ($ in thousands, except per share data)*

* The 2005 forecast reflects the impact of a full year of all of K2’s acquisitions completed during 2003 and 2004 as compared to the 2003 and 2004 results, which reflect only the full year pro forma results of K2’s acquisitions of Rawlings, Brass Eagle, Marmot and Völkl and Marker.

Fiscal Year Ended December 31, Quarter Ended March 31,2003 2004 2005 Forecast 2005 Forecast

Low High Low High

Net SalesPro Forma $1,104,551 $1,258,777 - - - -GAAP $718,539 $1,200,727 $1,300,000 $1,350,000 $295,000 $305,000

Operating IncomePro Forma/Adjusted $64,962 $74,195 $93,927 $97,347 $9,171 $10,671GAAP $32,052 $81,020 $87,100 $90,520 $8,300 $9,800

Net IncomePro Forma/Adjusted $22,720 $31,853 $44,966 $47,266 $1,695 $2,695GAAP $11,424 $38,941 $38,350 $40,650 $600 $1,600

EBITDA $50,582 $113,302 $119,095 $122,515 - -

Pro Forma/Adjusted EPSBasic $0.53 $0.70 $0.97 $1.02 $0.04 $0.06Diluted $0.51 $0.65 $0.87 $0.91 $0.04 $0.06

GAAP EPSBasic $0.46 $0.97 $0.83 $0.88 $0.01 $0.03Diluted $0.44 $0.86 $0.75 $0.79 $0.01 $0.03

Pro Forma SharesBasic 42,998 45,816 - - - -Diluted 48,750 54,876 - - - -

GAAP SharesBasic 24,958 40,285 46,379 46,379 46,223 46,223Diluted 28,750 49,345 55,698 55,698 47,835 47,835

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Forecast adjustment data ($ in thousands, except per share data)*Forecast adjustment data ($ in thousands, except per share data)*

* The 2005 forecast reflects the impact of a full year of all of K2’s acquisitions completed during 2003 and 2004 as compared to the 2003 and 2004 results, which reflect only the full year pro forma results of K2’s acquisitions of Rawlings, Brass Eagle, Marmot and Völkl and Marker.

Fiscal Year Ended December 31, Quarter Ended March 31,2005 Forecast 2005 Forecast

Low High Low High

GAAP Net Income $38,350 $40,650 $600 $1,600

Amortization of acquired intangibles and amortizationof increase in fair value of acquired inventories $2,222 $2,222 $498 $498

Non-cash stock compensation expense $2,338 $2,338 $83 $83Amortization of capitalized debt costs $2,056 $2,056 $514 $514

Pro Forma/Adjusted Net Income $44,966 $47,266 $1,695 $2,695

GAAP EPS $0.75 $0.79 $0.01 $0.03

Amortization of acquired intangibles and amortizationof increase in fair value of acquired inventories $0.04 $0.04 $0.01 $0.01

Non-cash stock compensation expense $0.04 $0.04 $0.01 $0.01Amortization of capitalized debt costs $0.04 $0.04 $0.01 $0.01

Adjusted EPS $0.87 $0.91 $0.04 $0.06

SharesBasic 46,379 46,379 46,223 46,223Diluted 55,698 55,698 47,835 47,835

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Balance sheet statement data ($ in millions)Balance sheet statement data ($ in millions)

As of December 31,2004 2003

Cash $25.6 $21.3

Accounts receivable, net 369.9 224.8Inventories, net 325.1 237.2

Accounts payable 103.2 77.3Total debt 415.9 216.1

Shareholders' equity 682.9 434.0Total Capitalization $1,098.8 $650.2

Debt/Capitalization 37.9% 33.2%Debt/EBITDA 3.7x 4.3x

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The K2 Opportunity

Portfolio of leading, well-established products and brands

Highly diversified revenues, cash flows and customers

Platform and infrastructure in place for scalable growth

Premier off-shore production capabilities

Proven and disciplined management team

Strong balance sheet

Unique ability to capitalize on a consolidating industry

k2 investor presentation april 2005 - iis windows...

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