K2 Reverses Loss, Posts Fourth-Quarter Profit

Sporting goods manufacturer K2 Inc. scored a profit in the fourth quarter, rebounding from a loss a year earlier and dramatically slashing its debt load.

The Los Angeles maker of K2 skis, Morrow snowboards and Shakespeare fishing gear said Tuesday that it earned $521,000, or 3 cents a share, in the quarter ended Dec. 31. That reverses a loss of $2.5 million, or 14 cents a share, posted in the same period a year earlier. The company is in the process of acquiring the Rawlings Sporting Goods Co. baseball equipment business.

K2’s revenue was flat, rising less than 1% to $127.7 million in the quarter compared with $126.8 million a year earlier.

The company also trimmed borrowings by $64 million, leaving it with $97 million in debt. That reduced interest expenses by $4.7 million in 2002.

Richard Heckmann, K2’s chairman and chief executive, credited savings from the company’s shift in manufacturing from the United States to China in 2001 for the improved finances.

“Manufacturing in Asia has really come through for us,” Heckmann said.

For the year, K2 saw earnings rise to $12.1 million, or 67 cents a share, from a loss of $7.7 million, or 43 cents. Sales dipped to $582.2 million from $589.5 million in 2001.

Before the release of its earnings statement, K2 shares rose 16 cents on the New York Stock Exchange to close at $9.37.

The improvement in K2’s cash flow and balance sheet over the last year will help the company in its search for more acquisitions in the sporting goods industry, Heckmann said.

K2 agreed to pay $84 million for Fenton, Mo.-based Rawlings in a stock deal reached in December.

The transaction, which also includes the assumption of about $40 million in Rawlings debt, would be the first in Heckmann’s plan to turn the ski and snowboard maker into a major sporting goods company by acquiring other name brands in the heavily fragmented business. The merger is set to close next month.

The Rawlings merger initially faced opposition from Rawlings’ biggest shareholder, Daniel Gilbert, who made his own all-cash bid for the company at $8.50 a share, or about $69.1 million. Gilbert owns 15% of Rawlings’ stock.

At the time, Gilbert said he was concerned about K2’s debt load.

But on Tuesday, Heckmann said he has had several “positive” meetings with Gilbert and is hopeful that the dissident shareholder will support the transaction when it comes to a vote March 26.

Gilbert, who is chairman of Livonia, Mich.-based Quicken Loans Inc., could not be reached for comment.