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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 10-K

ANNUAL REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

|For the Year Ended December 31, 2000 |  | Commission File No. 1-4290
|------------------------------------ |  | --------------------------

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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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange
on which registeredCommon Stock, par value $1

New York Stock ExchangePacific ExchangeSeries A Preferred Stock Purchase Rights

New York Stock ExchangePacific Exchange


Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by an "X" whether the registrant 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 has been subject to such filing requirements for the past 90 days. Yes /x/

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X

The
aggregate market value of the voting stock of the registrants held by nonaffiliates was approximately $152,354,188 as of March 7, 2001.

Indicate
the number of shares outstanding of each of the issuer's classes of common stock as of March 23, 2001.

Common
Stock, par value $1                   17,945,134 Shares

Documents Incorporated by Reference

Portions of the proxy statement for the Annual Meeting of Shareholders to be held May 3, 2001 are incorporated by reference in Part III.

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FORM 10-K ANNUAL REPORT

PART I

ITEM 1. BUSINESS:

General

K2 Inc. ("K2") is a premier, branded consumer products company with a primary focus on sporting goods and other recreational products as well as certain
niche industrial products. The Company offers a diverse portfolio of products used primarily in individual sports activities such as alpine skiing, snowboarding, in-line skating, mountain
and BMX biking, fishing and watersport activities. K2's sporting goods include several name brand lines such asK2and Olinalpine skis,K2, Ride and Morrowsnowboards, boots and bindings, K2in-line skates,K2 Kickboardscooters,K2bikes,Shakespearefishing rods and reels,Stearnspersonal flotation devices, rainwear, and wet suits
andK2backpacks. K2's other recreational products includeHiltoncorporate casual apparel, Planet Earthskateboards and apparel andAdioshoes. K2's industrial products consist primarily of Shakespearemonofilament line used in weed trimmers, in paper mills
and as fishing line, andShakespearefiberglass and composite marine antennas, and composite utility and decorative light poles. Founded in 1946, K2 has grown to over $670 million in annual sales through a combination of internal
growth and strategic acquisitions. For segment and geographic information, see Note 14 to Notes to Consolidated Financial Statements. Registered and other trademarks and tradenames of Company
products are italicized in this Form 10-K.

In
recent years, K2 has aggressively expanded into several new sporting goods markets in the United States, Europe and Japan, includingKickboardscooters, in-line skates, snowboards, footwear and fishing
tackle reels and kits and combos. Management believes these newer products have benefited from the brand
strength, reputation, distribution, and the market share positions of other K2 products, several of which are now among the top brands in their respective markets. For example, management believes K2has the #1 market position in worldwide in-line skates and in premium-priced scooters in Europe, and the #2 market position worldwide in
snowboard products. Management also believes thatStearnshas the #1 worldwide market position in personal flotation devices and that Shakespeareleads in
worldwide fishing rods, reels, kits and combo sales, while theUgly Stikis the top
selling line of moderately priced fishing rods.

In
1998, K2 adopted a plan to sell its Simplex building products division ("Division"). As a result, K2 reclassified the Division as a discontinued operation in 1998 and similarly
reclassified prior years' operations (see Note 3 to Notes to Consolidated Financial Statements for further discussion). On June 30, 2000, K2 completed the sale of the assets and
business. Consequently, the discussion which follows focuses on the continuing operations of K2.

K2's
common stock was first offered to the public in 1959 and is currently traded on the New York and Pacific Stock Exchanges (symbol: KTO).

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Sporting Goods Products

Net sales for sporting goods products were $509.6 million in 2000, $480.6 million in 1999 and $410.0 million in 1998. The following table
lists K2's principal sporting good products and the brand names under which they are sold.

Product

Brand NameAlpine skis

K2, OlinSnowboards and accessories

K2, Ride, 5150, Liquid, MorrowIn-line skates

K2Kickboard scooters

K2Fishing rods, reels and fishing kits

Shakespeare, Ugly Stik, PfleugerActive water sports products

StearnsMountain and BMX bikes

K2Backpacks

K2, Dana Design


Alpine Skis.K2 sells its alpine skis under the names K2andOlinin the 3
major ski markets of the worldthe United States, Europe and Japan.
While participation rates for alpine skiing have been relatively flat during the past several years, K2 believes that industry retail sales have declined in the domestic market during the same period.
In particular, K2 believes poor weather conditions in certain markets, the high cost of skiing, the opportunity to participate in alternative activities such as snowboarding, and the increased use of
rental or demo skis further contributed to a decline in retail sales.K2skis, however, have benefited in the last year from their increasing popularity
among retail purchasers, resulting from recent innovations including performing enhancingMODtechnology, attractive graphics and creative marketing.
K2's newMODski line has been well received by dealers and customers, especially in the United States market.

K2andOlinskis are manufactured by K2 in the United States and in its
low-cost facility in China. The skis are sold to specialty retail shops and sporting goods chains in the U.S. by independent sales representatives and in Europe and Japan through
independent and Company-owned distributors.K2andOlinalpine skis are marketed to skiers ranging from
beginners to top racers using youthful and fun advertising. Within each brand, K2 offers various styles of skis to meet the performance, usage and terrain requirements of the consumer. From a pricing
perspective, K2 positions the brands in the mid-level and premium price points, reflecting the quality of the product and the continual incorporation of technological innovations. To
assist in its marketing efforts, K2 sponsors amateur and professional skiers.

Snowboards.K2 sells snowboards, boots, bindings and snowboard apparel under the K2,Ride, Morrow,
5150andLiquidbrands. K2 also sells
strapless snowboard bindings and compatible snowboard boots under theK2 Clickerbrand. Back country accessories, including packs and high performance
snowshoes integrating theClickerbindings and backpacks for carrying snowboards and other gear when hiking into the back country are being marketed
under theK2Brand. The snowboard market, which is highly fragmented, has been consolidating in favor of the larger, better established brands. K2
manufactures most of its own snowboards. K2 believes its manufacturing capability and ability to innovate provide a competitive advantage. Like its alpine skis, K2snowboards are of high quality, have
innovative features and attractive graphics and are creatively marketed.

K2's
innovations in its snowboarding line include theClicker, an advanced step-in binding system for snowboards, the RideM2 construction featuring the edge
contact system which results in a better turning board, and the Fatbob board, an extra-wide
snowboard for people with large feet. TheClickerwas among the first commercially available step-in binding systems for snowboards.

K2's
snowboards are manufactured by K2 in its world-class facility in China. During early 2001, K2 consolidated its remaining snowboard production into its low-cost China
facility. K2's snowboard brands

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are sold to specialty retail shops and sporting goods chains in the U.S. by independent sales representatives and in Europe and Japan through independent and Company-owned distributors. Like K2skis,K2, RideandMorrowsnowboards are marketed
using youthful and fun advertising, and K2 sponsors professional and amateur snowboarders.

In-Line Skates.K2 introduced itsK2soft boot
in-line skates in 1994. The in-line skate market in the U.S. grew dramatically as K2's sales of this product went from $10 to $117 million in four years. The domestic
market, however, declined in 1999 and 2000. Growth in the European market also slowed in 1999 and declined in 2000.

K2's
in-line skates target the enthusiast and are priced at the mid to upper end of the industry's price points.K2skates
are attractive and of high quality and have innovative features such as a soft mesh and leather upper designed for improved comfort, with a rigid plastic cuff for support. K2's skates incorporate
several innovations, including a soft boot with hinged support cuffs outside the walls of the soft boot. The patented product line is designed for performance as well as superior comfort and support.
K2 also sells women's-specific skates and adjustable-size, softboot skates for children.

K2in-line skates are manufactured to Company specifications and primarily assembled by a vendor in China. They are sold to
specialty retail shops and sporting goods chains in the U.S. by independent sales representatives and in Europe and Japan through independent and Company-owned distributors. During 2000, sales of
in-line skates in Europe amounted to approximately 54% of total in-line skate sales.

Kickboard Scooters.K2 sells a line of scooters under theK2 Kickboardbrand, primarily in Europe. The line of scooters includes two, three and four-wheeled scooters with innovative steering and deck designs. The kickboards are used for recreational and
transportation uses by a wide range of consumers.

K2 Kickboardsare manufactured to Company specifications and assembled by vendors in China. Independent and Company-owned distributors
sell them to specialty retail and sporting goods chains primarily in Europe. The kickboards are marketed in youthful and fun advertising.

Fishing Rods, Reels and Fishing Kits and Combos.K2 sells fishing rods, reels and fishing line throughout the world. K2
believes that Shakespeare'sUgly Stikmodels have been the best selling fishing rods in the U.S. over the past 20 years. The success of these
fishing rods has allowed K2 to establish a strong position with retailers and mass merchandisers, thereby increasing sales of new rods, reels and kits and combos and allowing K2 to introduce new
products such as collapsible furniture to its distribution.Shakespearerods and reels are manufactured principally in China, although blanks for the Ugly Stikfishing rod are made by K2 in the United States.Shakespeareproducts are sold directly by K2
and through independent sales representatives to mass merchandisers and sporting goods retailers.

Active Water Sports Products.K2 sellsStearnsflotation vests, jackets
and suits ("personal flotation devices"), cold water immersion products, waders, wet suits, outdoor products, rainwear and inflatable and towable water products in the United States and in certain
foreign countries. In the United States, occupants of boats are required by law either to wear or have available personal flotation devices meeting Coast Guard standards. Stearnspersonal flotation
devices are manufactured to such standards and are subject to rigorous testing for certification by Underwriters
Laboratories. Stearns manufactures most of its personal flotation devices in the U.S. and sources its other products from Asia.Stearnsproducts are
sold principally through an in-house marketing staff and independent sales representatives to mass merchandisers, specialty shops and chain stores and to the off-shore oil
industry, commercial fishermen and other commercial users through independent sales representatives.

Mountain and BMX Bikes.K2 designs and distributes high quality full-suspension mountain bikes, front
suspension mountain bikes, comfort bikes, road bikes and BMX bikes and accessories under the

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K2name in the United States and internationally. Performance and comfort are provided by mountain bikes which have shock absorbing elements for either front and rear wheels or
front wheels only, thereby improving climbing ability and decreasing rider fatigue and off-road vibration. K2 entered the high-end, full-suspension mountain bike
business in 1993 through its acquisition of Girvin and in late 1998, introduced several new products to reposition its product line at more popular price points. In addition to its premium bike, K2's
product line includes front suspension or "hardtail" bikes, the K2 road bike and comfort series and K2 BMX bikes. The comfort series line, is designed to appeal to a more mature recreational audience
and is equipped with dampening technology in the seat and handlebar stem. K2's BMX line is supported by a professional BMX rider, providing the product with exposure on television and at other events.

The
bikes are manufactured and assembled to K2's specifications by vendors and are marketed by an in-house marketing staff and are sold by independent sales
representatives to independent bicycle dealers and other K2 retailers in the U.S. and through distributors internationally.

Backpacks.Dana Design, which was acquired by K2 in 1995, manufactures and distributes high-end backpacks
in the U.S.Dana Designproducts are known for their comfort, high quality and innovative features, such as custom fitting. The line also includes a
series of "activity specific" packs marketed by K2 ski, bike and snowboard.Dana DesignandK2backpacks
are primarily manufactured to K2's specifications by vendors internationally for sale by independent sales representatives to specialty retailers in the United States.

Other Recreational Products

Net sales for other recreational products were $42.2 million in 2000, $42.8 million in 1999 and $45.2 million in 1998. The following table
lists K2's principal other recreational products and brand names under which they are sold.

Product

Brand NameImprinted Corporate Casuals

HiltonSkateboard apparel

Planet EarthSnowboard apparel

Planet EarthSkateboard shoes

AdioandHawk


Corporate Casuals.K2 manufactures and distributes jackets, shirts, fleece tops and other active wear under the HiltonandUSAbrand names. The products are sold in the United States to either corporate buyers or
advertising specialty distributors, embroiderers and screen printers who in turn sell imprinted items, including garments, principally to corporate buyers. HiltonandUSAapparel, which are both manufactured by K2 in the United States and sourced from offshore
vendors, are sold through catalogs, by a direct sales force and by independent sales representatives.

Skateboard and snowboard apparel and skateboard shoes.Skateboard and snowboard apparel and skateboard shoes are sold
in the U.S., Europe and Japan. Suppliers, primarily located in Asia, manufacture these products to K2's specifications. Independents sales representatives sell the products through Company-owned and
independent distributors in Europe and Asia and to retailers in the domestic market. K2's skateboard shoes are designed with significant assistance from a group of well-known professional
skateboarders. With favorable demographic trends, skateboarding has been enjoying a significant resurgence in popularity, principally among pre-teen and early teen boys. Skateboard shoes,
are marketed under theAdioandHawkbrand names, and models are named after the specific skateboarder
who aided in the design. TheHawkbrand of shoes has been designed and introduced in cooperation with Tony Hawk, the best known professional
skateboarder in the world.

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Industrial Products

Net sales of industrial products were $119.0 million in 2000, $122.6 million in 1999 and $128.8 million in 1998. The following table lists
K2's principal industrial products and the brand names under which they are sold.

Product

Brand NameMonofilament Line

ShakespeareComposite Utility and Decorative Light Poles

ShakespeareFiberglass Marine Radio Antennas

Shakespeare


Monofilament Line.Nylon and polyester monofilament line is domestically manufactured and sold by K2 in a variety of
diameters, tensile strengths and softness. Monofilament is used in various applications including the manufacture of woven mats for use by paper producers in the United States, Europe and South
America and for use as line in weed trimmers in the United States and are sold directly to paperweavers and distributors of cutting line and to others through independent sales representatives.
Monofilament sold in Europe for woven mats is manufactured primarily in K2's U.K. facility. Shakespeare monofilament also manufactures fishing line domestically, which is marketed by Shakespeare's
fishing tackle division to retailers and mass merchandisers through independent sales representatives.

Composite Utility and Decorative Light Poles.K2 produces and directly sells composite utility and decorative light
poles under theShakespearename in the United States, principally to public and private utilities and developers for specialty and unique applications.
K2 believes a large majority of major utility companies in the United States have approved the use of composites for its light and utility poles.

Marine Radio Antennas.K2 manufactures fiberglass radio antennas in the United States for marine, citizen band and
military application under theShakespearename. The products are sold primarily in the United States. K2 also distributes marine radios and other
marine electronics under theShakespearename which are manufactured in Asia to K2's specifications. The antennas, radios and other marine electronics
are sold by an in-house sales department and independent sales representatives to specialty marine dealers.

Competition

K2's competition varies among its business lines. The sporting goods markets and recreational products markets are generally highly competitive, with
competition centering on product innovation, performance and styling, price, marketing and delivery. Competition in these products (other than snowboards and active wear) consists of a relatively
small number of large producers, some of whom have greater financial and other resources than K2. A relatively large number of companies compete in snowboards and active wear. While K2 believes its
well-recognized brand names, established distribution networks and reputation for developing and introducing innovative products have been key factors in the successful introduction of its
sporting goods products, there are no significant technological or capital barriers to entry into the markets for many sporting goods and recreational products. These markets face competition from
other leisure activities, and sales of leisure products are affected by changes in consumer tastes, which are difficult to predict.

K2
believes its industrial products segment competes based on product quality, service and delivery, however, K2's industrial products are, in most instances, subject to price
competition, ranging from moderate in marine antennas and monofilament line to intense for commodity-type products. Composite utility and light poles compete with products made of other
materials, such as wood and aluminum. Certain industrial competitors have greater financial and other resources than K2.

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Manufacturing, Foreign Sourcing and Raw Materials

K2 believes that for the products within its core categories, it is of strategic importance to develop the capability to source and manufacture high-quality,
low cost products. As a result, K2 currently manufactures several products in the People's Republic of China, including most of its fishing rods and reels and snowboards, approximately one-half of its
skis and certain low-cost marine antennas. Additionally, K2's sourcing group currently purchases all in-line skates from a vendor in China. Certain other products are sourced from various vendors in
Asia, Latin America and Europe. The remaining products are manufactured by K2 in its U.S. factories and in England.

K2
has not experienced any substantial difficulty in obtaining raw materials, parts or finished goods inventory for its sporting goods and other recreational products businesses,
although the cost of certain raw materials has increased. Certain components and finished products, however, are manufactured or assembled abroad and therefore could be subject to interruption as a
result of local unrest, currency exchange fluctuations, increased tariffs, trade difficulties and other factors. K2's sporting goods products are manufactured in the People's Republic of China which
trades with the United States under Normal
Trade Relations ("NTR") status. While K2 believes alternative sources for these products produced in China could be found, maintaining its existing costs of such products will depend on China's
continuing to be treated under NTR tariff rates, which the United States must shortly review. Timely supply from its factories and suppliers in China is dependent on uninterrupted trade with China.
Should there be an interruption in trade with China, it could have a significant adverse impact on sales and earnings. Additionally, the gross margins on K2's products manufactured or sourced in the
U.S. or in Asia and distributed in Europe will depend on the relative exchange rates between the U.S. dollar and the Euro.

K2
has not experienced any substantial difficulty in obtaining raw materials for its industrial products segment, although the cost of certain raw materials has increased.

Seasonality and Cyclicality; Backlog

Sales of K2's sporting goods are generally highly seasonal and in many instances are dependent on weather conditions. K2's industrial products are mildly
seasonal. This seasonality causes K2's financial results to vary from quarter to quarter, and K2's sales and earnings are usually weakest in the first quarter. In addition, the nature of K2's ski,
snowboard, bike, in-line skate, fishing tackle and water sports products businesses requires that in anticipation of the selling season for these products, it make relatively large
investments in inventory. The selling season, in the case of skis and snowboards runs from August through December, in the case of bikes runs from October through April, in the case of
in-line skates, runs primarily from October through May, in the case of fishing tackle and water sports products runs from January to June. Relatively large investments in receivables
consequently exist during and after such seasons. The rapid delivery requirements of K2's customers for its sporting goods products and other recreational products also result in investment in
significant amounts of inventory. K2 believes that another factor in its level of inventory investment is the shift by certain of its sporting goods customers from substantial purchases of
pre-season inventories to deferral of deliveries until the products' retail seasons and ordering based on rates of sale.

Sales
of sporting goods and other recreational products depend to a large extent on general economic conditions including the amount of discretionary income available for leisure
activities, consumer confidence and favorable weather conditions. Sales of K2's industrial products are dependent to varying degrees upon economic conditions in the container and paper industries, and
are subject to threat from vertical integration and consolidation among its customers.

As
a result of the nature of many of K2's businesses, backlog is generally not significant, except for the in-line skate business. The backlog of in-line skate
sales as of February 28, 2000 and 1999 was approximately $44.7 million and $44.2 million, respectively. The backlog ofKickboardsccoter sales as of

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February 28, 2000 was approximately $21.9 million. The backlog may be subject to cancellation or other adjustments and is not necessarily indicative of future sales.

Customers

K2 believes that its customer relationships are excellent, and no one customer of K2 accounted for ten percent or more of its consolidated annual net sales or
5% of its operating income in 2000 or 1999.

Research and Development

Consistent with K2's business strategy of continuing to develop innovative brand name products and improving the quality, cost and delivery of products, K2
maintains decentralized research and development departments at several of its manufacturing centers, which are engaged in product development and the search for new applications and manufacturing
processes. Expenditures for research and development activities totaled approximately $13.3 million in 2000, $12.1 million in 1999 and $12.4 million in 1998 and were expensed as a
part of general and administrative expenses in the year incurred.

Environmental Factors

K2 is one of several potentially responsible parties ("PRP") named in an Environmental Protection Agency matter 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 K2's required financial
contribution to the cleanup of these sites is expected to be limited based on 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 a liability has
been incurred and the amount can be
reasonably estimated. At December 31, 2000 and 1999, K2 accrued approximately $762,000 and $806,000, respectively, for such liability and made no provision for expected insurance recovery.

Employees

K2 had approximately 2,900 and 3,000 employees at December 31, 2000 and 1999, respectively. K2 believes its relations with employees generally have been
good.

Patents and Intellectual Property Rights

While product innovation is a highly important factor in K2's sporting goods and other recreational products segments and many of K2's innovations have been
patented, K2 does not believe the loss of any one patent would have a material effect on it, however, the loss of the in-line skate patent could result in increased competition and reduced
sales and margins. Certain of its brand names, such asK2,Olin,Ride,
Morrow,Shakespeare,Ugly Stik, Pfleuger,StearnsandDana Designare believed by K2 to
be well-recognized by consumers and therefore important in the sales of these products. Registered and other trademarks and tradenames of Company products are italicized in this
Form 10-K.

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ITEM 2. PROPERTIES

The table below provides information with respect to the principal production and distribution facilities utilized by K2 for continuing operations as of
December 31, 2000.

|                            |                |  |                             | Owned Facilities |   | Leased Facilities
|--------------------------- | -------------- |  | --------------------------- | ---------------- | - | -----------------
|
|Sporting Goods              |                |  |                             |                  |   |                  
|                            | Minnesota      |  | Distribution and production |                  | 2 |                  
|                            | South Carolina |  | Distribution and production |                  | 1 |                  
|                            | Washington     |  | Distribution and production |                  | 1 |                  
|                            | California     |  | Production and warehouse    |                  |   |                  
|                            | Montana        |  | Distribution and production |                  |   |                  
|                            | Nevada         |  | Distribution and production |                  |   |                  
|                            | Foreign        |  | Distribution and production |                  | 1 |                  
|                            |                |  |                             |                  |   |                  
|                            |                |  |                             | 5                |   | 577,000          
|                            |                |  |                             |                  |   |                  
|Other Recreational Products |                |  |                             |                  |   |                  
|                            | Alabama        |  | Distribution and production |                  | 2 |                  
|                            | California     |  | Distribution                |                  |   |                  
|                            | Illinois       |  | Distribution                |                  |   |                  
|                            |                |  |                             |                  |   |                  
|                            |                |  |                             | 2                |   | 160,000          
|                            |                |  |                             |                  |   |                  
|Industrial Products         |                |  |                             |                  |   |                  
|                            | Florida        |  | Production                  |                  |   |                  
|                            | South Carolina |  | Distribution and production |                  | 2 |                  
|                            | Foreign        |  | Distribution and production |                  | 1 |                  
|                            |                |  |                             |                  |   |                  
|                            |                |  |                             | 3                |   | 548,000          
|                            |                |  |                             |                  |   |                  

The
corporate headquarters of K2 is located in 11,000 square feet of leased office space in Los Angeles, California. The terms of K2's leases range from one to ten years, and many are
renewable for additional periods. The termination of any lease expiring during 2001 would not have a material adverse effect on K2's operations.

K2
believes, in general, its plants and equipment are adequately maintained, in good operating condition and are adequate for K2's present needs. K2 regularly upgrades and modernizes
its facilities and equipment and expands its facilities to meet production and distribution requirements.

ITEM 3. LEGAL PROCEEDINGS

Certain of K2's products are used in relatively high risk recreational settings and from time to time K2 is named as a defendant in lawsuits asserting product
liability claims relating to its sporting goods products. To date none of these lawsuits has had a material effect on K2, and K2 does not believe that any lawsuit now pending could reasonably be
expected to have such an effect. K2 maintains product liability, general liability and excess liability insurance coverages. No assurances can be given such insurance will continue to be available at
an acceptable cost to K2 or such coverage will be sufficient to cover one or more large claims, or that the insurers will not successfully disclaim coverage as to a pending or future claim.

K2
is one of several potentially responsible parties ("PRP") named in an Environmental Protection Agency matter involving discharge of hazardous materials at old waste sites in
Michigan and South

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Carolina. Although environmental laws technically impose joint and several liability upon each PRP at each site, the extent of K2's required financial contribution to the cleanup of these sites is
expected to be limited based on 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 these particular sites. K2 accrues for these costs when it is probable a liability
has been incurred and the amount can be reasonably estimated. At December 31, 2000 and 1999, K2 accrued approximately $762,000 and $806,000, respectively, for such liability and made no
provision for expected insurance recovery

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF K2

|Name                 |  | Position                                              |  | Age
|-------------------- |  | ----------------------------------------------------- |  | ---
|Richard M. Rodstein  |  | President and Chief Executive Officer                 |  | 46 
|John J. Rangel       |  | Senior Vice PresidentFinance                         |  | 47 
|J. Wayne Merck       |  | Executive Vice PresidentOperations                   |  | 41 
|David G. Cook        |  | Vice President; President of Stearns                  |  | 63 
|Timothy C. Cronin    |  | Vice President; President of Hilton Corporate Casuals |  | 50 
|David H. Herzberg    |  | Vice President; President of Shakespeare Monofilament |  | 58 
|James A. Vandergrift |  | Vice President                                        |  | 50 
|Diana C. Crawford    |  | Secretary                                             |  | 33 

Mr. Rodstein
has been President of K2 since 1990 and Chief Executive Officer since January 1, 1996.

Mr. Rangel,
a CPA, has been Senior Vice PresidentFinance of K2 for more than the past five years.

Mr. Merck
has been Executive Vice PresidentOperations of K2 since July 2000. Mr. Merck was Vice President of K2 from January 1, 1996 to
July 2000 and president of Shakespeare Composites & Electronics since June 1996. Mr. Merck was president of K2's former Anthony Pools business from February 1994 to
June 1996.

Mr. Cook
has been a Vice President of K2 and president of Stearns for more than the past five years.

Mr. Cronin
has been a Vice President of K2 since January 1, 1996 and president of Hilton Corporate Casuals since November 1996. Mr. Cronin was Executive
Vice President of Hilton Corporate Casuals from October 1992 to October 1996.

Mr. Herzberg
has been a Vice President of K2 and president of Shakespeare Monofilament for more than the past five years.

Mr. Vandergrift
has been a Vice President of K2 since January 1, 1996 and Vice President of Product Development of K-2 Corporation for more than the past
five years.

Ms. Crawford
has been Secretary of K2 since December 2000 and Corporate Controller since July 1999. Prior to joining K2, Ms. Crawford was Controller of Kent H.
Landsberg Company from January 1996 to June 1999, and an executive with Ernst & Young LLP for more than one year prior.

Officers
of K2 are elected for one year by the directors at their first meeting after the annual meeting of shareholders and hold office until their successors are elected and
qualified.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Principal Markets

K2's Common Stock is listed on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "KTO." At March 7, 2001 there were 1,772
holders of record of Common Stock of K2.

Common Stock Prices and Dividends

The following table sets forth, for the quarters indicated, the reported high, low and closing sales prices of K2's Common Stock, as reported by the New York
Stock Exchange during K2's two most recent fiscal years, and the cash dividends per share declared by K2 during those years:

Stock PricesCash Dividends
Per ShareHigh

Low

Close2000Fourth

9
3/4
7
3/8
8


Third

11
3/8
8
3/8
8
15/16

Second

8
13/16
7

8
5/16

First

8

6
3/4
7
15/16

1999Fourth

8
15/16
6
15/16
7
3/4

Third

10
9/16
8
13/16
8
13/16

Second

11
5/8
7
7/8
8
15/16

First

11
5/8
8
9/16
9

$
.11


Dividends

On May 6, 1999, the Board of Directors of K2 announced the discontinuance of the cash dividend. K2 is subject to credit agreements which limit its
ability to pay cash dividends. As of December 31, 2000, $11.9 million of retained earnings were free of such restrictions. See Note 6 of Notes to Consolidated Financial Statements
for further description of K2's credit facilities.

Transfer Agent, Registrar and Dividend Disbursing Agent for Common Stock

Computershare
Investor Services
515 South Figueroa Street, Suite 1020
Los Angeles, California 90071

11

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ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

|                       |                                                                     | Year Ended December 31(a) |  
|---------------------- | ------------------------------------------------------------------- | ------------------------- | -
|
|
|Income Statement Data: |                                                                     |                           |  
|                       | Net sales                                                           |                           | $
|                       | Cost of products sold(e)                                            |                           |  
|                       |                                                                     |                           |  
|                       | Gross profit                                                        |                           |  
|                       | Selling expenses                                                    |                           |  
|                       | General and administrative expenses(e)                              |                           |  
|                       | Research and development expenses                                   |                           |  
|                       |                                                                     |                           |  
|                       | Operating income                                                    |                           |  
|                       | Interest expense                                                    |                           |  
|                       | Other income, net                                                   |                           |  
|                       |                                                                     |                           |  
|                       | Income from continuing operations before provision for income taxes |                           |  
|                       | Provision for income taxes                                          |                           |  
|                       |                                                                     |                           |  
|                       | Income from continuing operations                                   |                           |  
|                       | Discontinued operations, net of taxes(f)                            |                           |  
|                       |                                                                     |                           |  
|                       | Net Income                                                          |                           | $
|                       |                                                                     |                           |  
|                       | Basic earnings per share:                                           |                           |  
|                       |                                                                     | Continuing operations     |  
|                       |                                                                     | Discontinued operations   |  
|                       |                                                                     |                           |  
|                       |                                                                     | Net income                |  
|                       |                                                                     |                           |  
|                       | Diluted earnings per share:                                         |                           |  
|                       |                                                                     | Continuing operations     |  
|                       |                                                                     | Discontinued operations   |  
|                       |                                                                     |                           |  
|                       |                                                                     | Net income                |  
|                       |                                                                     |                           |  
|                       | Dividends:                                                          |                           |  
|                       |                                                                     | Cashper share            |  
|                       | Basic shares                                                        |                           |  
|                       | Diluted shares                                                      |                           |  
|Balance Sheet Data:    |                                                                     |                           |  
|                       | Total current assets                                                |                           | $
|                       | Total assets                                                        |                           |  
|                       | Total current liabilities                                           |                           |  
|                       | Long-term debt                                                      |                           |  
|                       | Shareholders' equity                                                |                           |  

---

12

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

K2 is a leading designer, manufacturer and marketer of brand name sporting goods and other recreational products, and is also a manufacturer and supplier of
selected industrial products. The sporting goods segment represents $509.6 million, or 76.0% of K2's 2000 consolidated net sales, and other recreational products represent $42.2 million
in 2000 sales. Industrial products had sales of $119.0 million in 2000.

In
1998, K2 adopted a plan to dispose of its Simplex building products division. As a result, K2 reclassified Simplex as a discontinued operation in 1998 and similarly reclassified
prior years' operations. On June 30, 2000, K2 completed the sale of the assets and business of Simplex to Ludlow Building Products, a subsidiary of Tyco International Ltd. (see
Note 3 of Notes to Consolidated Financial Statements). The discussion that follows focuses on the continuing operations of K2.

Certain
amounts included in prior years' net sales and selling expense have been reclassified to conform to the current year presentation (see Note 1 to Notes to Consolidated
Financial Statements for details). The following discussion reflects the effects of such changes.

Review of Operations: Comparison of 2000 to 1999

Net sales from continuing operations increased to $670.8 million from $646.0 million in the prior year. Income from continuing operations for
2000 was $16.7 million, or $.93 per diluted share in 2000 as compared to $8.5 million, or $.50 per diluted share, in the prior year. Net income improved to $16.6 million, or $.92
per diluted share, from $9.8 million, or $.58 per diluted share, in the prior year.

Net sales.In the sporting goods segment, net sales increased 6.0% to $509.6 million from $480.6 million
in 1999. The increase was attributable to strong demand during the year for most of the products in the segment. Snowboard products, Kickboard scooters, fishing tackle and Stearns marine products
registered double-digit growth. The increase in shipments of snowboard products reflected strong demand for K2 and Ride products and from the full year benefit of the 1999 Ride acquisition. Sales of
the innovative K2 Kickboard scooter increased mainly due to strong demand in the European market.
Fishing tackle sales improved, led by growth of new packaged rods and reels and other new products such as a line of fishing reels. New product introductions at Stearns fueled sales increases
primarily in children's flotation devices and outdoor water products. Offsetting these increases were declines in sales of skis, in-line skates and bikes. The decline in skis sales,
despite an increase in U.S. shipments, was due to a decline in international ski shipments for the year reflecting the higher price of dollar denominated US-produced skis.
In-line skate sales declined due to softness in the European market, and due to lower translated European sales resulting from the weakness of the Euro compared to the prior year. Bike
sales declined due to the repositioning of the bike business.

In
the other recreational products segment, net sales declined to $42.2 million from $42.8 million in the prior year. Sales of skateboard shoes and apparel for the year
increased substantially over the prior year, however, declines in sales to the advertising specialty market more than offset K2's strength in the skateboard business.

In
the industrial products group, net sales declined 2.9%, to $119.0 million from $122.6 million in 1999. The sales decline reflected a slowdown and consolidation in the
paperweaving industry. Partially offsetting this decline were improved sales of composite light poles.

Gross profit.Gross profit for the year increased to $208.5 million, or 31.1% of sales in 2000, from
$184.0 million, or 28.5% of sales in 1999. For the year ended 1999, gross profit was net of a $10.5 million charge. In the fourth quarter of 1999, K2 announced a strategic initiative to
significantly reduce the cost structure of its ski and snowboard operations by restructuring and downsizing the Seattle manufacturing operation to take advantage of lower cost manufacturing and
sourcing

13

---

opportunities in Asia, Europe and the United States. This resulted in a charge to cost of products sold for restructuring costs of $6.5 million and related downsizing costs of
$4.0 million. Excluding the impact of the charge in 1999, gross profit as a percentage of sales for 1999 was 30.1%. The improvement in gross profit percentage in the current year reflects the
benefits from K2's global cost reduction initiatives partially offset by the product cost impact of weak European currencies and declining margins in the manufacture of monofilaments.

Costs and expenses.Selling expenses increased 6.4% to $113.5 million, or 16.9% of net sales as compared with
$106.7 million, or 16.5% of sales in 1999. The increase was attributable to increased sales volume in the sporting goods segment along with increased selling expenses related to a full year of
Ride Snowboard operations, an acquisition made in the 1999 fourth quarter.

General
and administrative expenses increased 6.7% to $43.0 million, or 6.4% of net sales, compared with $40.3 million, or 6.2% of net sales in 1999. The increase was
attributable to increased expenses related to a full year of Ride Snowboard operations, an acquisition made in the 1999 fourth quarter. In addition, declining sales in the industrial products group
resulted in an increase as a percentage of sales for certain fixed expenses. Research and development expenses increased to $13.3 million from $12.1 million in 1999.

Operating income.Operating income from continuing operations improved 56% to $38.8 million, or 5.8% of net
sales, from $24.8 million, or 3.8% of net sales, in 1999. Excluding 1999 restructuring and downsizing costs totaling $10.5 million, operating income from continuing operations for the
year ended December 31, 1999 was $35.3 million, or 5.5% of sales. The improvement is attributable to increased sales volume and an improvement in gross margins over the prior year.

Interest expense.Interest expense increased $2.1 million to $14.8 million in 2000. Lower average
borrowings resulted in interest savings of $1.9 million, which was offset by $4.0 million of additional interest as the result of higher average interest rates. The interest rate
increase was due to an increase in the LIBOR variable rate as compared to the prior year and the refinancing of variable debt into higher cost long-term fixed debt at the end of 1999.

Other income.Other income, which includes royalties, interest income and other miscellaneous income, decreased to
$.2 million from $.4 million in 1999.

Income taxes.The income tax rate for 2000 decreased due to the impact of net operating loss benefits on foreign
earnings.

Segment information.Total segment operating profit or loss (before interest, corporate expenses and income taxes)
improved to $42.3 million from $30.6 million in 1999. In the sporting goods segment, operating profit increased to $32.3 million from $15.0 million in 1999. Excluding the
$10.5 million charge for restructuring and downsizing costs in 1999, segment operating profit was $25.5 million. The improvement in 2000 was attributable to the increases in sales volume
and improved margins over the prior year.

In
the other recreational products segment, an operating loss of $2.7 million was reported in 2000 as compared with an operating loss of $1.9 million in 1999. The
increase in the loss was attributable to the decline in corporate apparel sales due to continued sluggish market conditions. This decline was partially offset by improved sales volume of skateboard
shoes and apparel.

In
the industrial products segment, operating profit declined to $12.7 million from $17.5 million in 1999. The decline was due to reduced sales volume of monofilament
line used in the paper industry and from declining gross margins.

14

---

Review of Operations: Comparison of 1999 to 1998

Net sales from continuing operations increased to $646.0 million from $584.0 million in the prior year. Income from continuing operations for
1999 was $8.5 million, or $.50 per diluted share in 1999 as compared to $3.9 million, or $.23 per diluted share, in the prior year. Net income improved to $9.8 million, or $.58
per diluted share, from $4.8 million, or $.29 per diluted share, in the prior year.

Net sales.In the sporting goods segment, net sales increased 17.2% to $480.6 million from $410.0 million
in 1998. The increase was attributable to strong demand during the year for most of the products in the segment. In-line skates, snowboard products, fishing tackle and bikes all registered
double-digit growth. The increase in shipments of in-line skates reflected the strong demand for K2's softboot skates, especially in the European market, and worldwide growth of the
children's softboot skate line. Improved snowboard volume reflected the benefit of the Ride and Morrow acquisitions completed during the year and expansion of distribution into the Japanese market.
Shakespeare fishing tackle continued to show strength in sales led by the popular Ugly Stik fishing rod series, packaged rods and reels and new product introductions. Bikes benefited from its
repositioned bike product line. Sales of Stearns products increased due to new product introductions. Offsetting these increases was a decline in ski shipments for the year reflecting the mild winter
season in the domestic market and K2's lower domestic market share.

In
the other recreational products segment, net sales declined 5.3% to $42.8 million from $45.2 million in the prior year. Sales of skateboard shoes and apparel for the
year increased substantially over the prior year, however, declines in sales to the advertising specialty market more than offset K2's strength in the skateboard business.

In
the industrial products group, net sales declined 4.8%, to $122.6 million from $128.8 million in 1998. The sales decline reflected reduced demand for monofilament
line used in the paper industry. Partially offsetting this decline was improved sales of specialty resins and marine antennas.

Gross profit.Gross profit for the year increased to $184.0 million, or 28.5% of sales in 1999, from
$165.0 million, or 28.3% of sales in 1998. For the years ended 1999 and 1998, gross profit was net of a $10.5 million charge in each period. In the fourth quarter of 1999, K2 announced a
strategic initiative to significantly reduce the cost structure of its ski and snowboard operations by restructuring and downsizing the Seattle manufacturing operation to take advantage of lower cost
manufacturing and sourcing opportunities in Asia, Europe and the United States. This resulted in a charge to cost of products sold for restructuring costs of $6.5 million and related downsizing
costs of $4.0 million. In 1998, a charge was recorded to write-down the cost of high-end, full suspension mountain bike and "aggressive" skate inventory resulting from
the sudden shift in market demand and subsequent repositioning of the bike business into more popularly priced, front suspension mountain bikes, comfort bikes and BMX bikes. Excluding the impact of
the charge in both years, gross profit as a percentage of sales was comparable at 30.1%

Costs and expenses.Selling expenses increased 10.2% to $106.7 million, or 16.5% of net sales as compared with
$96.8 million, or 16.6% of sales in 1998. The increase was attributable to increased sales volume in the sporting goods segment along with increased selling expenses related to recent
acquisitions.

General
and administrative expenses increased 3.3% to $40.3 million, or 6.2% of net sales, compared with $39.0 million, or 6.7% of net sales in 1998. 1998 expense
included a $4.0 million charge to write-down equipment and other items no longer used to manufacture mountain bikes, and for the costs related to repositioning the bike business.
Excluding the impact of the 1998 charge, expenses for 1999 increased due to the fourth quarter impact of the Ride acquisition. Research and development expenses declined to $12.1 million from
$12.4 million in 1998.

15

---

Operating income.Operating income from continuing operations improved to $24.8 million, or 3.8% of net sales,
from $16.8 million, or 2.9% of net sales, in 1998. Excluding 1999 restructuring and downsizing costs totaling $10.5 million and the 1998 charges of $14.5 million, operating income
from continuing operations for the years ended December 31, 1999 and 1998 was $35.3 million, or 5.5% of sales, and $31.2 million, or 5.4% of sales, respectively. The improvement
is attributable to increased sales volume over the prior year on comparable gross margins.

Interest expense.Interest expense increased largely due to higher average borrowing balances, by $.6 million in
1999.

Other income.Other income, which includes royalties, interest income and other miscellaneous income, increased to
$.4 million from $.2 million in 1998.

Income taxes.The income tax rate for 1999 increased due to an increase in domestic earnings as percentage of total
earnings.

Segment information.Total segment operating profit or loss (before interest, corporate expenses and income taxes)
improved to $30.6 million from $22.6 million in 1998. In the sporting goods segment, operating profit increased to $15.0 million from $5.3 million in 1998. Excluding the
$10.5 million charge for restructuring and downsizing costs in 1999 and the $14.5 million charge for reserves in 1998, segment operating profit was $25.5 million compared with
$19.8 million in 1998. The improvement was attributable to the increases in sales volume at comparable margins in most product lines over the prior year.

In
the other recreational products segment, an operating loss of $1.9 million was reported in 1999 as compared with an operating loss of $1.1 million in 1998. The
increase in the loss was attributable to the decline in sales volume without a corresponding reduction in related expenses in the advertising specialty market.

In
the industrial products segment, operating profit declined to $17.5 million from $18.4 million in 1998, but was comparable as a percentage of net sales at 14.3%. The
decline was due to reduced sales volume of monofilament line used in the paper industry.

Liquidity and Sources of Capital

K2's continuing operations provided $58.9 million of cash as contrasted with $47.4 million provided in 1999. The increase in cash provided from
operations was attributable to higher earnings, cash from working capital and from the sale of $23 million of accounts receivable. Net cash used in investing activities from continuing
operations was $21.8 million, as compared to $14.7 million in 1999. The current year reflected an increase of $8.1 million in accumulated other comprehensive loss over the prior
year due to the impact of the weakened Euro on K2's net investments overseas. No material commitments for capital expenditures existed at year end.

Cash
used in financing activities was $68.6 million as contrasted with cash used of $28.0 million in 1999. Cash provided in 2000 from operations and from the proceeds
from the sale of Simplex, was used to
pay down short and long-term debt, resulting in a reduction of total balance sheet debt of $68.9 million as compared to the prior year.

K2's
principal long-term borrowing facility is a $75 million Credit Line ("Credit Line") which becomes due on September 30, 2004. Additionally, K2 has a
$75 million accounts receivable purchase facility ("Purchase Facility") that during 2000 was increased from $50 million. In addition a $20 million accounts receivable purchase
facility is available in Germany. At December 31, 2000, $6.5 million was outstanding under the Credit Line and $73.1 million of accounts receivable had been sold under the
domestic Purchase Facility. No receivables were sold at December 31, 2000 under the German purchase facility. Under the Credit Line and Purchase Facility, K2 is subject to an agreement which,
among

16

---

other things, restricts amounts available for payment of cash dividends and stock repurchases by K2. As of December 31, 2000, $11.9 million of retained earnings were free of such
restrictions. K2 also had $17.8 million of 8.39% unsecured senior notes due through 2004, payable in six equal principal payments, and $50.0 million of 8.51% unsecured notes due through
2009, payable in seven equal principal payments commencing in 2003. The notes are subject to agreements which are generally less restrictive than the long-term borrowing facilities.
Additionally, at December 31, 2000, although K2 had $56.8 million under foreign short-term lines of credit under K2's debt covenant restrictions, $45.4 million was
available and $25.8 million was outstanding. For further information regarding K2's borrowings, see Note 6 to Notes to Consolidated Financial Statements.

K2
anticipates its cash needs in 2001 will be provided from operations and from borrowings, principally under its Credit Line and Purchase Facility and, to a lesser extent, other
existing credit lines.

Environmental Matters

K2 is one of several named potentially responsible parties ("PRP") in an Environmental Protection Agency matter 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 K2's required financial
contribution to the cleanup of these sites is expected to be limited based on 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 a liability has been incurred and the amount can be reasonably estimated. At December 31, 2000 and 1999, K2 had recorded an estimated
liability of approximately $762,000 and $806,000, respectively, for such liability and made no provision for expected insurance recovery.

The
ultimate outcome of this matter cannot be predicted with certainty, however, and taking into consideration reserves provided, management does not believe this matter will have a
material adverse effect on K2's financial statements.

Newly Adopted Accounting Standards

During 2000, K2 implemented new criteria set forth by the Security and Exchange Commission. K2 recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectibility is reasonably assured. Appropriate accruals for discounts, volume
incentives, and other allowances are recorded as reductions against sales. The implementation of this new criterion did not affect net sales, operating income or net income for 2000 or for prior
years.

Effective
October 1, 2000, K2 adopted a new method of accounting for derivatives as required by a new accounting standard becoming effective. As a result, K2 recognizes
financial instruments, such as foreign exchange contracts, at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments
are either recognized periodically through the income statement or through shareholders' equity as a component of comprehensive income or loss. The classification depends on whether the derivative
financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives designated as fair value
hedges are matched in the income statement against the respective gain or loss relating to the hedged items. Changes in fair values of derivatives

17

---

accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive income or loss net of deferred taxes. Changes in fair values of derivatives not
qualifying as hedges are reported in income.

K2's
adoption of the standard resulted in an increase of comprehensive income, of $472,000, net of taxes. This adjustment recognized the increase in the fair value of derivatives
designated as effective cash-flow hedges. No other change was required.

Impact of Inflation and Changing Prices

The inflation rate, as measured by the Consumer Price Index, has been relatively low in the last few years, and therefore, pricing decisions by K2 have largely
been influenced by competitive market conditions. Depreciation expense is based on the historical cost to K2 of its fixed assets, and therefore, is considerably less than it would be if it were based
on current replacement cost. While buildings, machinery and equipment acquired in prior years will ultimately have to be replaced at significantly higher prices, it is expected this will be a gradual
process over many years.

Statement Regarding Forward Looking Disclosure

This Annual Report on Form 10-K contains "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 market trends regarding softboot in-line skates, scooters, bikes, skis, snowboards, fishing tackle and watersports products, foreign exchange fluctuations,
debt reduction, inventory levels at retail, product acceptance and demand, growth efforts, cost reduction efforts, margin enhancement efforts, product development efforts, success of new product
introductions, and overall market trends which involve substantial risks and uncertainties.

Actual
results could differ materially from those indicated in forward-looking statements by reason of a number of factors, many of which are outside of K2's control. Among such
factors are the following:



18

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

K2's earnings and cash flow are subject to fluctuations due to changes in foreign currency exchange rates. K2 manages its exposures to changes in foreign
currency exchange rates on certain firm purchase commitments and anticipated, but not yet committed purchases, by entering into some 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 at
year end, a hypothetical 10% weakening of the U.S. dollar relative to other currencies would not materially adversely affect expected first quarter 2001 earnings or cash flows. This analysis is
dependent on actual purchases during the next quarter occurring within 90% of budgeted forecasts. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on
other variables including competitive risk. If it were possible to quantify this competitive impact, the results could well be different than the sensitivity effects shown above. In addition, it is
unlikely currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen.

19

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

K2 INC.

STATEMENTS OF CONSOLIDATED INCOME

|                                      |                                                                     | Year ended December 31 |        
|------------------------------------- | ------------------------------------------------------------------- | ---------------------- | -------
|
|
|Net sales                             |                                                                     | $                      | 670,786
|Cost of products sold                 |                                                                     |                        | 462,242
|                                      |                                                                     |                        |        
|                                      | Gross profit                                                        |                        |        
|Selling expenses                      |                                                                     |                        | 113,498
|General and administrative expenses   |                                                                     |                        | 42,952 
|Research and development expenses     |                                                                     |                        | 13,271 
|                                      |                                                                     |                        |        
|                                      | Operating income                                                    |                        |        
|Interest expense                      |                                                                     |                        | 14,814 
|Other income, net                     |                                                                     |                        | (191   
|                                      |                                                                     |                        |        
|                                      | Income from continuing operations before provision for income taxes |                        |        
|Provision for income taxes            |                                                                     |                        | 7,502  
|                                      |                                                                     |                        |        
|                                      | Income from continuing operations                                   |                        |        
|Discontinued operations, net of taxes |                                                                     |                        | (119   
|                                      |                                                                     |                        |        
|Net income                            |                                                                     | $                      | 16,579 
|                                      |                                                                     |                        |        
|Basic earnings per share:             |                                                                     |                        |        
|                                      | Continuing operations                                               |                        | $      
|                                      | Discontinued operations                                             |                        |        
|                                      |                                                                     |                        |        
|                                      | Net income                                                          |                        | $      
|                                      |                                                                     |                        |        
|Diluted earnings per share:           |                                                                     |                        |        
|                                      | Continuing operations                                               |                        | $      
|                                      | Discontinued operations                                             |                        |        
|                                      |                                                                     |                        |        
|                                      | Net income                                                          |                        | $      
|                                      |                                                                     |                        |        
|Basic shares outstanding              |                                                                     |                        | 17,949 
|Diluted shares outstanding            |                                                                     |                        | 18,040 

See
notes to consolidated financial statements

20

---

K2 INC.

CONSOLIDATED BALANCE SHEETS

|                                        |                                                                                                                   | December 31                                |        
|--------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|
|Assets                                  |                                                                                                                   |                                            |        
|Current Assets                          |                                                                                                                   |                                            |        
|                                        | Cash and cash equivalents                                                                                         |                                            | $      
|                                        | Accounts receivable, net                                                                                          |                                            |        
|                                        | Inventories, net                                                                                                  |                                            |        
|                                        | Deferred taxes and income taxes receivable                                                                        |                                            |        
|                                        | Prepaid expenses and other current assets                                                                         |                                            |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   | Total current assets                       |        
|Property, Plant and Equipment           |                                                                                                                   |                                            |        
|                                        | Land and land improvements                                                                                        |                                            |        
|                                        | Buildings and leasehold improvements                                                                              |                                            |        
|                                        | Machinery and equipment                                                                                           |                                            |        
|                                        | Construction in progress                                                                                          |                                            |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   |                                            | 167,216
|                                        | Less allowance for depreciation and amortization                                                                  |                                            |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   |                                            | 71,995 
|Other Assets                            |                                                                                                                   |                                            |        
|                                        | Intangibles, principally goodwill, net                                                                            |                                            |        
|                                        | Net assets of discontinued operations                                                                             |                                            |        
|                                        | Other                                                                                                             |                                            |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   | Total Assets                               |        
|                                        |                                                                                                                   |                                            |        
|Liabilities and Shareholders' Equity    |                                                                                                                   |                                            |        
|Current Liabilities                     |                                                                                                                   |                                            |        
|                                        | Bank loans                                                                                                        |                                            | $      
|                                        | Accounts payable                                                                                                  |                                            |        
|                                        | Accrued payroll and related                                                                                       |                                            |        
|                                        | Other accruals                                                                                                    |                                            |        
|                                        | Current portion of long-term debt                                                                                 |                                            |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   | Total current liabilities                  |        
|Long-term Debt                          |                                                                                                                   |                                            | 69,836 
|Deferred taxes and income taxes payable |                                                                                                                   |                                            | 3,423  
|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18,673,646 in 2000 and 18,672,646 in 1999 |                                            |        
|                                        | Additional paid-in capital                                                                                        |                                            |        
|                                        | Retained earnings                                                                                                 |                                            |        
|                                        | Employee Stock Ownership Plan and stock option loans                                                              |                                            |        
|                                        | Treasury shares at cost, 738,676 in 2000 and 733,110 in 1999                                                      |                                            |        
|                                        | Accumulated other comprehensive loss                                                                              |                                            |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   | Total Shareholders' Equity                 |        
|                                        |                                                                                                                   |                                            |        
|                                        |                                                                                                                   | Total Liabilities and Shareholders' Equity |        
|                                        |                                                                                                                   |                                            |        

See
notes to consolidated financial statements

21

---

K2 INC.

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

|                             |                                                                              | For the three years ended December 31, 2000 |       
|---------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------- | ------
|
|
|Balance at December 31, 1997 |                                                                              | $                                           | 17,160
|                             | Net income for the year 1998                                                 |                                             |       
|                             | Translation adjustments                                                      |                                             |       
|                             |                                                                              |                                             |       
|                             | Comprehensive income                                                         |                                             |       
|                             | Exercise of stock options                                                    |                                             |       
|                             | Cash dividends, $.44 per share                                               |                                             |       
|                             | Stock option loan(s)                                                         |                                             |       
|                             | Employee Stock Ownership Plan, amortization, loan and partial loan repayment |                                             |       
|                             |                                                                              |                                             |       
|Balance at December 31, 1998 |                                                                              |                                             | 17,191
|                             | Net income for the year 1999                                                 |                                             |       
|                             | Translation adjustments                                                      |                                             |       
|                             |                                                                              |                                             |       
|                             | Comprehensive income                                                         |                                             |       
|                             | Issuance of shares from acquisition of Ride, Inc.                            |                                             |       
|                             | Repurchase of shares                                                         |                                             |       
|                             | Exercise of stock options                                                    |                                             |       
|                             | Cash dividends, $.11 per share                                               |                                             |       
|                             | Stock option loan(s)                                                         |                                             |       
|                             | Employee Stock Ownership Plan, amortization, loan and partial loan repayment |                                             |       
|                             |                                                                              |                                             |       
|Balance at December 31, 1999 |                                                                              |                                             | 18,673
|                             | Net income for the year 2000                                                 |                                             |       
|                             | Translation adjustments                                                      |                                             |       
|                             | Change in fair value of derivatives                                          |                                             |       
|                             |                                                                              |                                             |       
|                             | Comprehensive income                                                         |                                             |       
|                             | Repurchase of shares                                                         |                                             |       
|                             | Exercise of stock options                                                    |                                             |       
|                             | Stock option loan(s)                                                         |                                             |       
|                             | Employee Stock Ownership Plan, amortization, loan and partial loan repayment |                                             |       
|                             |                                                                              |                                             |       
|Balance at December 31, 2000 |                                                                              | $                                           | 18,674
|                             |                                                                              |                                             |       

See notes to consolidated financial statements

22

---

K2 INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

|                                                                                |                                                                                                                      | Year ended December 31                        |                                          
|------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | -----------------------------------------
|
|
|Operating Activities                                                            |                                                                                                                      |                                               |                                          
|                                                                                | Income from continuing operations                                                                                    |                                               | $                                        
|                                                                                | Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities:   |                                               |                                          
|                                                                                |                                                                                                                      | Depreciation of property, plant and equipment |                                          
|                                                                                |                                                                                                                      | Amortization of intangibles                   |                                          
|                                                                                |                                                                                                                      | Deferred taxes and income taxes receivable    |                                          
|                                                                                |                                                                                                                      | Changes in operating assets and liabilities:  |                                          
|                                                                                |                                                                                                                      |                                               | Accounts receivable                      
|                                                                                |                                                                                                                      |                                               | Sale of receivables                      
|                                                                                |                                                                                                                      |                                               | Inventories                              
|                                                                                |                                                                                                                      |                                               | Prepaid expenses and other current assets
|                                                                                |                                                                                                                      |                                               | Accounts payable                         
|                                                                                |                                                                                                                      |                                               | Payrolls and other accruals              
|                                                                                |                                                                                                                      |                                               |                                          
|                                                                                | Net cash provided by (used in) continuing operations                                                                 |                                               |                                          
|Investing Activities                                                            |                                                                                                                      |                                               |                                          
|                                                                                | Property, plant and equipment expenditures                                                                           |                                               |                                          
|                                                                                | Disposals of property, plant and equipment                                                                           |                                               |                                          
|                                                                                | Purchases of businesses, net of cash acquired                                                                        |                                               |                                          
|                                                                                | Other items, net                                                                                                     |                                               |                                          
|                                                                                |                                                                                                                      |                                               |                                          
|                                                                                | Net cash used in investing activities                                                                                |                                               |                                          
|Financing Activities                                                            |                                                                                                                      |                                               |                                          
|                                                                                | Borrowings under long-term debt                                                                                      |                                               |                                          
|                                                                                | Payments of long-term debt                                                                                           |                                               |                                          
|                                                                                | Net increase (decrease) in short-term bank loans                                                                     |                                               |                                          
|                                                                                | Exercise of stock options                                                                                            |                                               |                                          
|                                                                                | Dividends paid                                                                                                       |                                               |                                          
|                                                                                | Net repayments by ESOP                                                                                               |                                               |                                          
|                                                                                |                                                                                                                      |                                               |                                          
|                                                                                | Net cash (used in) provided by financing activities                                                                  |                                               |                                          
|                                                                                |                                                                                                                      |                                               |                                          
|Net increase (decrease) in cash and cash equivalents from continuing operations |                                                                                                                      |                                               | (31,562                                  
|Discontinued Operations                                                         |                                                                                                                      |                                               |                                          
|                                                                                | Income (loss) from discontinued operations                                                                           |                                               |                                          
|                                                                                | Net proceeds received from sale of discontinued operation                                                            |                                               |                                          
|                                                                                | Adjustments to reconcile income (loss) from discontinued operations to net cash provided by discontinued operations: |                                               |                                          
|                                                                                |                                                                                                                      | Depreciation and amortization                 |                                          
|                                                                                |                                                                                                                      | Capital expenditures                          |                                          
|                                                                                |                                                                                                                      | Other items, net                              |                                          
|                                                                                |                                                                                                                      |                                               |                                          
|Cash provided by discontinued operations                                        |                                                                                                                      |                                               | 25,315                                   
|                                                                                |                                                                                                                      |                                               |                                          
|Net increase (decrease) in cash and cash equivalents                            |                                                                                                                      |                                               | (6,247                                   
|Cash and cash equivalents at beginning of year                                  |                                                                                                                      |                                               | 9,421                                    
|                                                                                |                                                                                                                      |                                               |                                          
|Cash and cash equivalents at end of year                                        |                                                                                                                      | $                                             | 3,174                                    
|                                                                                |                                                                                                                      |                                               |                                          

See
notes to consolidated financial statements

23

---

K2 INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000

Note 1Summary of Significant Accounting Policies

Organization

K2 is a leading designer, manufacturer and marketer of brand name sporting goods, which represent $509.6 million, or 76.0%, of K2's 2000 consolidated
net sales, and other recreational products, which represent $42.2 million in 2000 net sales. K2 is also a manufacturer and supplier of selected industrial products, which had sales of
$119.0 million in 2000.

Principles of Consolidation

The consolidated financial statements include the accounts of K2 and its subsidiaries. Intercompany accounts and transactions have been eliminated in
consolidation.

Fiscal Periods

K2 maintains its books using a 52/53 week year ending on the last Sunday of December. For purposes of the consolidated financial statements, the year end is
stated as of December 31. The year ended December 31, 2000 consisted of 53 weeks, and the years ended December 31, 1998 and 1997 consisted of 52 weeks.

Revenue Recognition

K2 recognizes revenue from product sales upon shipment to its customers.

Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and
assumptions affecting the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual amounts could differ from those
estimates.

Foreign Currency Translation

The functional currency for most foreign operations is the local currency. The financial statements of foreign subsidiaries have been translated into United
States dollars. Asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Revenue and expense accounts have been translated using the average
exchange rate for the year. The gains and losses associated with the translation of the financial statements resulting from the changes in exchange rates from year to year have been reported in the
other comprehensive income or loss account in shareholders' equity. Transaction gains or losses, other than intercompany debt deemed to be of a long-term nature, are included in net income
in the period in which they occur.

Cash Equivalents

Short-term investments (including any debt securities) that are part of K2's cash management portfolio are classified as cash equivalents carried
at amortized cost. These investments are liquid, are of limited credit risk and have original maturities of three months or less when purchased. The carrying amount of cash equivalents approximates
market.

24

---

Accounts Receivable and Allowances

Accounts receivable are the result of K2's worldwide sales activities. Although K2's credit risk is spread across a large number of customers within a wide
geographic area, periodic concentrations within a specific industry occur due to the seasonality of its businesses. At December 31, 2000 and 1999, K2's receivables from sporting goods retailers
who sell skis, skates, scooters, snowboards and bikes amounted to 66% and 71%, respectively of total receivables. K2 generally does not require collateral and performs periodic credit evaluations to
manage its credit risk. Accounts receivable are net of allowances for doubtful accounts of $6,969,000 and $6,572,000 at December 31, 2000 and 1999, respectively.

Inventories

Inventories are stated at the lower of cost or market. Cost was determined on the FIFO method for inventories.

Long-Lived Assets

Long-lived assets, include, among others, goodwill, intangible assets and property, plant and equipment and are reviewed periodically to determine
if the carrying values are impaired. K2 considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of these assets. If indicators of impairment are present,
or if long-lived assets are expected to be disposed of, impairment losses are recorded. Any impairment is charged to expense in the period in which the impairment is incurred.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided on the straight-line method based upon the estimated useful lives of
the assets. In the fourth quarter of 1999, K2 wrote down certain equipment no longer in use in connection with the restructuring of its ski and snowboard operations. In the third quarter of 1998, K2
wrote down certain equipment no longer in use related to its bike product line.

Intangibles

Goodwill arising from acquisitions is amortized on a straight-line basis over a period ranging from 15 to 40 years. Other intangibles are
amortized on a straight-line basis over 3 to 15 years. Accumulated amortization of intangibles as of December 31, 2000 and 1999 amounted to $10,418,000 and $8,867,000,
respectively.

Stock-Based Compensation and Other Equity Instruments

K2 and its subsidiaries account for employee and directors' stock option grants using the intrinsic method. Generally, the exercise price of K2's employee
stock options equals or exceeds the market price of the underlying stock on the date of grant and no compensation expense is recognized. If the option price is less than the fair value, K2 records
compensation expense over the vesting period of the

25

---

option. K2 disclosed the pro forma effects of using the fair value method for its option plans in the accompanying financial statements.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2000, 1999 and 1998 amounted to $25,209,000, $23,680,000
and $21,903,000, respectively.

Research and Development

Research and development costs are charged to expense as incurred.

Other Income

Other income includes interest income, royalties and other miscellaneous income.

Income Taxes

Income taxes are recorded using the liability method.

Earnings Per Share

Basic earnings per share ("EPS") are 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. The dilutive effects of stock options included in the dilutive EPS calculation at December 31, 2000,
1999 and 1998 were 91,000, 3,000 and 83,000, respectively. During 2000, 1999 and 1998, the computation of diluted EPS did not include the options to purchase 966,000, 1,064,000 and 542,000 shares of
common stock, respectively, because their inclusion would have been antidilutive.

Newly Adopted Accounting Standards

During 2000, K2 implemented new criteria set forth by the Security and Exchange Commission regarding revenue recognition. K2 recognizes revenue when persuasive
evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectibility is reasonably assured. Appropriate
accruals for discounts, volume incentives, and other allowances are recorded as reductions against sales. The implementation of this new criterion did not affect net sales, operating income or net
income for 2000 or for prior years.

Effective
October 1, 2000, K2 adopted the new method of accounting for derivatives as required by a new accounting standard becoming effective. As a result, K2 recognizes
financial instruments, such as foreign exchange contracts, at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments
are either recognized periodically through the income statement or through shareholders' equity as a component of comprehensive income or loss. The classification depends on whether the derivative
financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives designated as fair value
hedges are matched in the income statement

26

---

against the respective gain or loss relating to the hedged items. Changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in
other comprehensive income or loss net of deferred taxes. Changes in fair values of derivatives not qualifying as hedges are reported in income.

K2's
adoption of the standard resulted in an increase of comprehensive income, of $472,000, net of taxes. This adjustment recognized the increase in the fair value of derivatives
designated as effective cash-flow hedges. No other change was required.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation as required by the Emerging Issues Task Force Issue
No. 00-10, "Accounting for Shipping and Handling Fees and Costs." As a result, freight billed to customers ("freight recovery") is reported in net sales rather than netted against
freight expense and the related freight costs incurred by K2 are reflected primarily in selling expenses. The amount of freight recovery reclassified to net sales for the years ended
December 31, 2000, 1999 and 1998 was $2,366,000, $2,792,000 and $2,449,000, respectively. The amount of freight expense incurred by K2 reclassified to selling expenses from net sales for the
years ended December 31, 2000, 1999 and 1998 was $8,965,000, $8,093,000 and $7,009,000, respectively. For the years ended December 31, 2000, 1999 and 1998, the amount of outgoing freight
expense reflected in selling expense amounted to $15,233,000, $14,500,000 and $12,375,000, respectively. These reclassifications were not material to previously reported gross profit and had no impact
on yearly or quarterly operating income or net income as previously reported in 2000, 1999 and 1998.

Note 2Charges Against Earnings

In the fourth quarter of 1999, a pre-tax charge of $10.5 million was charged to cost of products sold to cover restructuring costs of
$6.5 million and downsizing costs of $4.0 million. K2's strategic initiative was adopted in 1999 to reduce the cost structure of its ski and snowboard operations by taking advantage of
lower cost manufacturing and sourcing opportunities. In accordance with the initiative, K2's Seattle
manufacturing facility was downsized and approximately half of its ski and all of its snowboard manufacturing were moved to either K2's China or California production facilities or to third party
sourcing operations worldwide. The restructuring charge reflected expenses associated with the write-off of related equipment and inventory, the reduction of approximately 200 production
personnel and the utilization of approximately 200 temporary workers. Approximately $5.3 million of the total amount was a cash charge to earnings.

27

---

The following table summarizes the activity in 1999 and 2000:

|                          |          | Equipment |       | Inventory |   | Severance
and Related |       | Subtotal |     | Downsizing |   | Total
|------------------------- | -------- | --------- | ----- | --------- | - | --------------------- | ----- | -------- | --- | ---------- | - | -----
|
|1999 Charges              |          | $         | 3,355 |           | $ | 2,229                 |       | $        | 923 |            | $ | 6,507
|Utilized:                 |          |           |       |           |   |                       |       |          |     |            |   |      
|                          | Cash     |           |       |          |   |                       | 500   |          |     | 130        |   |      
|                          | Non-cash |           |       | 3,355     |   |                       | 1,132 |          |     |           |   |      
|                          |          |           |       |           |   |                       |       |          |     |            |   |      
|                          |          |           | 3,355 |           |   | 1,632                 |       |          | 130 |            |   | 5,117
|Balance December 31, 1999 |          |           |      |           |   | 597                   |       |          | 793 |            |   | 1,390
|Utilized:                 |          |           |       |           |   |                       |       |          |     |            |   |      
|                          | Cash     |           |       |          |   |                       | 597   |          |     | 793        |   |      
|                          | Non-cash |           |       |          |   |                       |       |          |     |            |   |      
|                          |          |           |       |           |   |                       |       |          |     |            |   |      
|                          |          |           |      |           |   | 597                   |       |          | 793 |            |   | 1,390
|Balance December 31, 2000 |          | $         |      |           | $ |                      |       | $        |    |            | $ |     
|                          |          |           |       |           |   |                       |       |          |     |            |   |      

In
the third quarter of 1998, a pre-tax charge of $14.5 million was included in earnings from continuing operations. Of this amount, $10.5 million was
charged to cost of products sold to write down certain categories of bike and skate inventories as a result of a sudden change in the market demand for those products. The balance of the charge was
recorded in general and administrative expenses for costs associated with the change in the bike business and implementing planned cost reduction programs at the winter sports operations. The charges
primarily related to non-cash items. At December 31, 2000, the 1998 charges had been fully utilized.

Note 3Discontinued Operations

On September 10, 1998, K2 adopted a plan to dispose of its Simplex building products division as part of K2's strategic focus on the core sporting goods
and other recreational businesses. Accordingly, Simplex is shown in the accompanying consolidated financial statements as discontinued operations.

On
June 30, 2000, K2 completed the sale of the assets and business of Simplex. Consideration included $24.4 million in cash and the assumption of certain liabilities by
the buyer. The loss on disposal of Simplex was $1,157,000, net of a tax benefit of $623,000, and included costs of disposal and reserves related to the retention of certain liabilities by K2.

Income
from discontinued operations is net of taxes of $560,000, $718,000 and $525,000 for the years ended December 31, 2000, 1999 and 1998, respectively. At
December 31, 1999, net assets of discontinued operations were segregated in the accompanying consolidated balance sheets and consisted primarily of accounts receivable, inventories and fixed
assets, offset by accounts payable, accrued payroll and related items and other accruals. Net sales of $32,739,000, $72,985,000 and $86,616,000 for the years ended December 31, 2000, 1999 and
1998, respectively, were excluded from consolidated net sales in the accompanying consolidated statements of income.

28

---

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 a stock for stock merger transaction. Under the terms of the merger, each share of Ride common and preferred stock was converted into 1/10 share of common stock of K2.
Based on the number of preferred and common shares outstanding of Ride as of the acquisition date, approximately 1,482,000 shares of K2's common stock were issued to the Ride shareholders and the
purchase price was valued at $12.3 million. This transaction was accounted for using the purchase method of accounting; accordingly, the purchased assets and liabilities have been recorded at
their estimated fair values at the date of the acquisition. The purchase price allocation resulted in an excess of cost over net assets acquired of approximately $21.7 million, to be amortized
on a straight-line basis over 30 years. 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 each period presented. 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)(Thousands, except per share amounts)

For the year ended December 311999

1998Net sales

$
675,797

$
625,747Loss from continuing operations


(11,440
)

(5,008
)Loss per common share


(.63
)

(.28
)


On
March 26, 1999, K2 acquired certain assets relating to the Morrow snowboard business, including the Morrow trademark, from Morrow Snowboards, Inc. The net cash
purchase price was approximately $3.0 million and the acquisition was accounted for using the purchase method of accounting.

Note 5Inventories

Inventories consisted of the following at December 31:

2000

1999(Thousands)Finished goods

$
137,733

$
127,913Work in process


13,164


10,324Raw materials


25,731


33,917Total inventories

$
176,628

$
172,154


29

---

Note 6Borrowings and Other Financial Instruments

At December 31, 2000, although K2 had $56.8 million under foreign short-term lines of credit, under K2's debt covenant restrictions,
$45.4 million was available and $25.8 million was outstanding. The foreign subsidiaries' lines of credit generally have no termination date but are reviewed annually for renewal and are
denominated in the subsidiaries' local currencies. At December 31, 2000, interest rates on short-term lines of credit ranged from 2.0% to 9.0%. The weighted average interest rates
on short-term lines of credit as of December 31, 2000 and 1999 were 5.6% and 6.5%, respectively.

The
principal components of long-term debt at December 31 were:

2000

1999(Thousands)Notes payable due in seven equal annual principal installments through 2009 with annual interest payable at 8.51%

$
50,000

$
50,000Notes payable due in six equal annual principal installments through 2004 with semi-annual interest payable at 8.39%


17,780

$
22,224$75 million five-year unsecured bank revolving credit line due September 30, 2004, interest payments due at LIBOR plus 1.00% to 2.00% and a commitment fee of 0.225% to 0.50% on the unused portion of the line through
September 30, 2004


6,500


39,500Other


15074,430


111,724Less-amounts due within one year


4,594


4,444$
69,836

$
107,280


The
principal amount of long-term debt maturing in each of the five years following 2000 is:

(Thousands)2001

$
4,5942002


4,4442003


11,5872004


18,0912005


7,143Thereafter


28,571$
74,430


Interest
paid on short- and long-term debt for the years ended December 31, 2000, 1999 and 1998 was $14.8 million, $12.7 million and
$12.2 million, respectively.

Under
a domestic accounts receivable arrangement, K2 can sell with limited recourse, undivided participation interests in designated pools of accounts receivable for a period of up to
five years, in an amount not to exceed $75 million. During 2000, K2 increased the capacity of this accounts receivable purchase facility from $50 million to $75 million. Under
this arrangement, $73.1 and $50 million of accounts receivables as of December 31, 2000 and 1999, respectively, were sold. In addition a

30

---

$20 million accounts receivable purchase facility is available in Germany with no receivables sold at December 31, 2000 and 1999. Losses incurred on receivables sold under the facility
totaled $30,000, $27,000 and $28,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The $75 million credit line and the accounts receivable arrangement, among other
things, restrict amounts available for payment of cash dividends and stock repurchases by K2. As of December 31, 2000, $11.9 million of retained earnings were free of such restrictions.
The interest rate on the $75 million credit line at December 31, 2000 was 8.6%.

K2
had $45.7 million of letters of credit outstanding as of December 31, 2000.

The
carrying amounts for the short-term lines of credit and the long-term bank revolving credit line approximate their fair value since floating interest rates
are charged, which approximate market rates. The fair value of the $50.0 million 8.51% notes payable, based on quoted market price, is $46.5 million as compared to a carrying amount of
$50.0 million. The fair value of the $17.8 million 8.39% notes payable, based on quoted market price, is $16.9 million as compared to a carrying amount of $17.8 million.

K2,
including its foreign subsidiaries, enters forward exchange contracts to hedge certain firm and anticipated sales and purchase commitments, which are denominated in U.S. or
foreign currencies. The purpose of the foreign currency hedging activities is to reduce K2's risk of fluctuating exchange rates. K2's forward contracts are accounted for as hedges because the
derivative instruments are designated and effective as hedges and reduce K2's exposure to identified risks. At December 31, 2000, K2 had foreign exchange contracts with maturities of within one
year to exchange various foreign currencies to dollars in the aggregate amount of $28.5 million. At December 31, 2000, the fair value of these contracts was $684,000, which was reflected
net of taxes as an increase to other comprehensive income. The fair value of these contracts will be recognized in earnings when the underlying transaction occurs. Counterparties on foreign exchange
contracts expose K2 to credit losses in the event of non-performance, but K2 does not anticipate non-performance.

Note 7Income Taxes

Pretax income from continuing operations for the years ended December 31 was taxed under the following jurisdictions:

2000

1999

1998(Thousands)Domestic

$
13,598

$
6,365

$
(2,543
)Foreign


10,602


6,151


7,366$
24,200

$
12,516

$
4,823


31

---

Components
of the income tax provision applicable to continuing operations for the three years ended December 31 are:

2000

1999

1998Current

Deferred

Current

Deferred

Current

Deferred(Thousands)Federal

$
2,265

$
2,324

$
9,147

$
(7,317
)
$
1,525

$
(2,825
)State


524


105


705


(25
)

575


70Foreign


1,900


384


2,050


(555
)

2,115


(505
)$
4,689

$
2,813

$
11,902

$
(7,897
)
$
4,215

$
(3,260
)


The
principal elements accounting for the difference between the statutory federal income tax rate and the effective tax rate for the three years ended December 31 are:

2000

1999

1998(Percent)Statutory federal income tax rate

35.0

35.0

35.0State income tax effect, net of federal benefit

1.7

3.5

8.7Valuation allowance and foreign earnings

(5.9
)
(5.5
)
(20.5
)Other

0.2

(1.0
)
(3.4
)31.0

32.0

19.8


No
provision for United States income taxes has been made on undistributed earnings of foreign subsidiaries, since these earnings are considered to be permanently reinvested. At
December 31, 2000, foreign subsidiaries had unused operating loss carryforwards of approximately $3.0 million of which approximately $310,000 expires in 2001 and the remainder begins to
expire in 2009, or carries forward indefinitely. Since the use of these operating loss carryforwards is limited to future taxable earnings of the related foreign subsidiaries, a valuation allowance
has been recognized to offset the deferred tax
assets arising from such carryforwards. The valuation allowance, which is included in the tax effect of foreign earnings above, was reduced by $2.2 million in 2000, $0.3 million in 1999
and $1.6 million in 1998, due to the utilization of the related operating loss carryforwards.

32

---

Deferred tax assets and liabilities are comprised of the following at December 31:

2000

1999(Thousands)Deferred tax liabilities:Depreciation and amortization of property, plant and equipment

$
5,239

$
5,618Trademark amortization


377


390Other


1,979


1,758Deferred tax liabilities


7,595


7,766Deferred tax assets:Insurance accruals


1,994


2,044Tax effect of foreign loss carryforwards


852


3,063Tax effect of domestic loss carryforwards


4,230


3,000Bad debt reserve


1,780


1,167Inventory reserve


1,912


1,106Other


6,054


11,11216,822


21,492Valuation allowance


4,377


6,063Current deferred tax assets


12,445


15,429Deferred tax assets, net

$
4,850

$
7,663


At
the acquisition date, Ride had $30.2 million of federal net operating loss carryovers. The ability of K2 to utilize these losses to reduce future tax due is limited and it
estimates the amount realizable in the carryforward period would be a maximum of $13.1 million. For financial reporting purposes, the realization of these carryovers reduces goodwill recorded
from the acquisition of Ride. During 2000, K2 recorded a reduction of goodwill of $1.1 million for the estimated amount of Ride's operating loss carryover utilizable at December 31,
2000.

Income
taxes paid, net of refunds, in the years ended December 31, 2000, 1999 and 1998 were $9.4 million, $9.0 million and $5.3 million, respectively.

33

---

K2 INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DECEMBER 31, 2000

Note 8Commitments and Contingencies

Future minimum payments under noncancelable operating leases as of December 31, 2000 are as follows:

(Thousands)2001

$
4,2972002


1,7082003


1,0922004


8272005


281Thereafter


634$
8,839


Leases
are primarily for rentals of facilities, and about two-thirds of these contain rights to extend the terms from one to ten years.

Net
rental expense, including those rents payable under noncancelable leases and month-to-month tenancies, amounted to $6,691,000, $4,797,000 and $4,417,000
for the years ended December 31, 2000, 1999 and 1998, respectively.

K2
has not experienced any substantial difficulty in obtaining raw materials, parts or finished goods inventory for its sporting goods and other recreational products businesses.
Certain components and finished products, however, are manufactured or assembled abroad and therefore could be subject to interruption as a result of local unrest, currency exchange fluctuations,
increased tariffs, trade
difficulties and other factors. A single supplier manufactures major portions of K2's in-line skates.  K2 believes alternate sources for these products could be found.

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 an Environmental Protection Agency matter 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 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 a liability has
been incurred and the amount can be reasonably estimated. At December 31, 2000 and 1999, K2 had recorded an estimated liability of approximately $762,000 and $806,000, respectively, for such
liability and made no provision for expected insurance recovery.

34

---

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.

Note 9Pension Plans and Other Benefit Plans

K2 sponsors several trusteed noncontributory defined benefit pension plans covering most of its employees. Benefits are generally based on years of service and
the employee's highest compensation for five consecutive years during the years of credited service. Contributions are intended to provide for benefits attributable to service to date and service
expected to be provided in the future. K2 funds these plans in accordance with the Employee Retirement Income Security Act of 1974.

K2
also sponsors defined contribution pension plans covering most of its domestic employees. Contributions by K2 for the defined contribution plans are determined as a percent of the
amounts contributed by the respective employees. During 2000, 1999 and 1998, K2 expensed contributions of $816,000, $940,000 and $928,000, respectively, related to these plans.

35

---

The following table sets forth the defined benefit plans' funded status and amounts recognized in K2's consolidated balance sheets at December 31:

Pension Plan2000

1999(Thousands)Change in Benefit ObligationBenefit obligation at beginning of year

$
53,163

$
58,411Service cost


1,695


2,089Interest cost


4,221


4,041Actuarial (gain) loss


1,226


(8,294
)Other gains and forfeitures


(1,194
)Benefits paid


(3,771
)

(3,085
)Benefit obligation at end of year

$
55,340

$
53,163Change in Plan AssetsFair value of plan assets at beginning of year

$
57,377

$
50,611Actual return on fair value of plan assets


(1,193
)

9,531Employer contributions


407


319Benefits paid


(3,771
)

(3,085
)Fair value of plan assets at end of year


52,820


57,377Funded status of the plan


(2,519
)

4,214Unrecognized prior service cost


731


1,146Unrecognized net transition asset


145


(65
)Unrecognized actuarial gain


(3,113
)

(10,705
)Accrued benefit cost

$
(4,756
)
$
(5,410
)Weighted Average AssumptionsDiscount rate


7.75
%

7.75
%Expected return on plan assets


9.00
%

9.00
%Rate of compensation increase


5.00
%

5.00
%


The
other gains and forfeitures reflects a change in future benefit obligations in part due to the sale of the discontinued operation during the year 2000. The actuarial gains
included in the benefit obligation for 1999 are the result of the increase in the discount rate assumption made for the year as well as a change in demographic data.

36

---

Net pension cost consisted of the following for the year ended December 31:

Pension Plan2000

1999

1998(Thousands)Net Periodic CostService cost

$
1,695

$
2,089

$
1,749Interest cost


4,221


4,041


3,796Expected return on plan assets


(5,840
)

(4,474
)

(4,280
)Amortization of prior service cost


104


137


139Amortization of transition asset


(220
)

(210
)

(210
)Amortization of loss (gain)


(207
)

20


13Net periodic cost

$
(247
)
$
1,603

$
1,207


Note 10Other Comprehensive Loss

The components of other comprehensive loss are as follows:

Currency Translation Adjustments

Derivative Financial Instruments Gains

Total(Thousands)Balance at December 31, 1998

$
(4,700
)



$
(4,700
)Currency translation adjustment


(3,060
)




(3,060
)Balance at December 31, 1999


(7,760
)




(7,760
)Currency translation adjustment


(8,606
)




(8,606
)Change in fair value of derivatives, net of $212 taxes




$
472

$
472Balance at December 31, 2000

$
(16,366
)
$
472

$
(15,894
)


The
earnings associated with K2's investment in its foreign subsidiaries are considered to be permanently invested and no provision for U.S. federal and state income taxes on those
earnings or translation adjustments has been provided.

37

---

Note 11Quarterly Operating Data (Unaudited)

|                                      |                         | Quarter |       |      |  
|------------------------------------- | ----------------------- | ------- | ----- | ---- | -
|
|
|2000                                  |                         |         |       |      |  
|Net sales from continuing operations  |                         | $       | 185.0 |      | $
|Gross profit                          |                         |         | 54.1  |      |  
|Income from continuing operations     |                         |         | 3.3   |      |  
|Discontinued operations, net of taxes |                         |         | 0.4   |      |  
|                                      |                         |         |       |      |  
|Net income                            |                         | $       | 3.7   |      | $
|                                      |                         |         |       |      |  
|Basic earnings per share              |                         |         |       |      |  
|                                      | Continuing operations   |         | $     | 0.19 |  
|                                      | Discontinued operations |         |       | 0.02 |  
|                                      |                         |         |       |      |  
|                                      | Net income              |         | $     | 0.21 |  
|                                      |                         |         |       |      |  
|Diluted earnings per share            |                         |         |       |      |  
|                                      | Continuing operations   |         | $     | 0.18 |  
|                                      | Discontinued operations |         |       | 0.02 |  
|                                      |                         |         |       |      |  
|                                      | Net income              |         | $     | 0.20 |  
|                                      |                         |         |       |      |  
|Cash dividend per sharenone          |                         |         |       |      |  
|Stock prices:                         |                         |         |       |      |  
|                                      | High                    |         | $     | 8.00 |  
|                                      | Low                     |         | $     | 6.75 |  

---

38

---

|                                         |                         | Quarter |       |      
|---------------------------------------- | ----------------------- | ------- | ----- | -----
|
|
|1999                                     |                         |         |       |      
|Net sales from continuing operations(c)  |                         | $       | 165.4 |      
|Gross profit(c)                          |                         |         | 46.6  |      
|Income (loss) from continuing operations |                         |         | 3.1   |      
|Discontinued operations, net of taxes    |                         |         | 0.1   |      
|                                         |                         |         |       |      
|Net income (loss)                        |                         | $       | 3.2   |      
|                                         |                         |         |       |      
|Basic earnings (loss) per share          |                         |         |       |      
|                                         | Continuing operations   |         | $     | 0.19 
|                                         | Discontinued operations |         |       | 0.01 
|                                         |                         |         |       |      
|                                         | Net income (loss)       |         | $     | 0.20 
|                                         |                         |         |       |      
|Diluted earnings (loss) per share        |                         |         |       |      
|                                         | Continuing operations   |         | $     | 0.19 
|                                         | Discontinued operations |         |       | 0.01 
|                                         |                         |         |       |      
|                                         | Net income (loss)       |         | $     | 0.20 
|                                         |                         |         |       |      
|Cash dividend per share                  |                         | $       | 0.11  |      
|Stock prices:                            |                         |         |       |      
|                                         | High                    |         | $     | 11.63
|                                         | Low                     |         | $     | 8.56 

---

Note 12Stock Options

Under K2's 1999 and 1994 Incentive Stock Option Plans ("1999 Plan" and "1994 Plan", respectively), options may be granted to eligible directors and key
employees of K2 and its subsidiaries at not less than 100% of the market value of the shares on the dates of grant. No further options may be granted under the 1994 Plan.

39

---

The 1999 Plan permits the granting of options for terms not to exceed ten years from date of grant. The options are exercisable on such terms as may be established at the dates of
grant.

K2
is authorized, at the discretion of the Compensation Committee, to provide loans to key employees in connection with the exercise of stock options under the 1999 and 1994 Plans. At
December 31, 2000 and 1999, there was a total of $155,000 and $215,000, respectively, of loans to key employees made to enable the exercise of stock options, and accrued interest outstanding.
The loans are due on various dates through June 2003. The amounts of these loans are shown as a reduction of shareholders' equity. The loans are collateralized by the underlying shares of stock
issued and bear interest at the applicable rates published by the IRS.

Options
granted, exercised and forfeited for the 1999 Plan and 1994 Plan were as follows:

Exercise PriceShares

Low

High

Weighted
AverageOptions outstanding at December 31, 1997

877,791

$
11.11

$
29.88

$
21.43Granted

359,500


11.25


21.50


11.38Exercised

(30,572
)

11.11


22.88


14.15Forfeited

(84,058
)

11.11


29.88


22.41Options outstanding at December 31, 1998

1,122,661


11.11


29.88


18.33Granted

229,500


7.50


10.63


7.55Forfeited

(63,050
)

10.63


29.88


18.42Options outstanding at December 31, 1999

1,289,111


7.50


29.88


16.40Granted

906,000


7.13


8.56


7.22Forfeited

(251,050
)

7.13


29.88


15.07Options outstanding at December 31, 2000

1,944,061


7.13


29.88


12.30


At
December 31, 2000, 1999 and 1998, stock options to purchase 865,661, 695,761 and 500,711 shares were exercisable at weighted average prices of $17.85, $20.21 and $20.02,
respectively. At December 31, 2000, 588,375 shares of common stock were reserved for issuance under the Plans.

K2
uses the intrinsic-value method of accounting for stock-based awards granted to employees. Accordingly, K2 has not recognized compensation expense for its stock-based awards to
employees. Had K2 elected to adopt the fair value approach, net income and basic and diluted earnings per share would have been $14,905,000 $.83 and $.83, respectively, for the year ended
December 31, 2000, $8,525,000, $.51 and $.50, respectively, for the year ended December 31, 1999 and $3,950,000, $.24 and

40

---

$.24, respectively, for the year ended December 31, 1998. The pro forma effect was calculated using Black-Scholes option valuation model, and the following assumptions were utilized.

2000

1999

1998Risk free interest rate

4.75
%
5.5
%
5.0
%Expected life

5 years

5 years

5 yearsExpected volatility

.394

.388

.326Expected dividend yield





3.9
%


The
pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period and additional
options may be granted in future years. Since changes in the subjective assumptions used in the Black-Scholes model can materially affect the fair value estimate, management believes the model does
not provide a reliable measure of the fair value of its options.

Options
are granted at an exercise price equal to the fair market value at the date of grant. Information regarding stock options outstanding as of December 31, 2000 is as
follows:

Options Outstanding

Options ExercisablePrice Range

Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Shares

Weighted Average Exercise Price$7.13 to $8.56

1,038,500

$
7.29

9.03 years

105,500

$
7.29$10.63 to $17.25

493,561


12.67

5.92 years

349,661


13.26$21.50 to $29.88

412,000


24.47

6.12 years

410,500


24.48


Note 13Shareholders' Equity

Preferred Stock

Shares are issuable in one or more series, and the Board of Directors has authority to fix the terms and conditions of each series. No shares were issued or
outstanding during 2000 and 1999.

Employee Stock Ownership Plan

K2 has an Employee Stock Ownership Plan ("ESOP"), which covers substantially all of its domestic non-union employees with at least one year of
service. As of December 31, 2000, the trust was indebted to K2 in the aggregate amount of $319,000 in connection with stock purchases made from 1982 through 1984 of which 67,487 shares with an
aggregate market value of $539,896 as of December 31, 2000 remained unallocated to participants. These loans are repayable over the next two to four years with interest at prime plus
1/2%, not to exceed 18%, and the unallocated shares will be released to participants proportionately as these loans are repaid. Of the total dividends received by the ESOP on its
investment in K2's Common Stock, dividends on allocated and unallocated shares in the amount of $29,000 in 1999 were used to service these loans. Allocated shares as of December 31, 2000
totaled 1,498,260.

41

---

Additionally, the trust was indebted to K2 in the amount of $1,100,000 at December 31, 2000 and 1999, in connection with distributions made to terminees.

Shareholders'
equity has been reduced by the amounts of the loans and any payments made by K2 on behalf of the trust. The payments, made by K2 on behalf of the trust, which at
December 31, 2000 totaled $71,000, are being amortized to expense over the lives of the loans.

The
amount of K2's annual contribution to the ESOP is at the discretion of K2's Board of Directors. For the year ended 1999, contributions were limited to amounts in excess of annual
dividends, net of debt service, of the ESOP necessary to fund obligations arising in each of those years to retired and terminated employees. This amount was $200,000. No contributions were made in
2000. ESOP expense, including amortization of the foregoing payments, was $203,000, $638,000 and $156,000 in 2000, 1999 and 1998, respectively.

Preferred Stock Rights

Rights are outstanding which entitle the holder of each share of Common Stock of K2 to buy one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock at an exercise price of $60.00 per one one-hundredth of a share, subject to adjustment. The rights are not separately tradable or exercisable until
a party either acquires, or makes a tender offer resulting in ownership of, at least 15% of K2's common shares. If a person becomes the owner of at least 15% of K2's outstanding common shares (an
"Acquiring Person"), each holder of a right other than such Acquiring Person and its affiliates is entitled, upon payment of the then-current exercise price per right (the "Exercise
Price"), to receive shares of Common Stock (or Common Stock equivalents) having a market value of twice the Exercise Price. If K2 subsequently engages in a merger, a business combination or an asset
sale with the Acquiring Person, each holder of a right other than the Acquiring Person and its
affiliates is thereafter entitled, upon payment of the Exercise Price, to receive stock of the Acquiring Person having a market value of twice the Exercise Price. At any time after any party becomes
an Acquiring Person, the Board of Directors may exchange the rights (except those held by the Acquiring Person) at an exchange ratio of one common share per right. Prior to a person becoming an
Acquiring Person, the rights may be redeemed at a redemption price of one cent per right, subject to adjustment. The rights are subject to amendment by the Board.

Note 14Segment Data

K2 classifies its business into three segments based on similar product types consisting of sporting goods products, other recreational products and selected
industrial products. The sporting goods segment consists primarily of sports equipment used to participate in individual sports activities sold primarily through sporting goods specialty dealers,
regional and national sporting goods chains and the sporting goods department of mass merchants. The equipment includes in-line skates, scooters, skis, snowboards, bikes, fishing tackle
and flotation vests. The other recreational products segment is primarily active leisure apparel sold principally into the advertising specialty market through distributors, and leisure footwear and
other apparel sold through specialty sporting goods dealers. The industrial products segment includes monofilament line sold to the paper industry, string trimmer line sold to a variety of
distributors, retailers and equipment manufacturers, fiberglass light poles sold to

42

---

contractors, utility companies and municipalities and marine and CB radio antennas sold to marine dealers.

K2
evaluates performance based on operating profit or loss (before interest, corporate expenses and income taxes). The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies in Note 1 of Notes to Consolidated Financial Statements. Intercompany profit or loss is eliminated where applicable.

The
information presented below is as of or for the year ended December 31.

|                                                                    |                    | Net Sales to Unaffiliated Customers |       | Intersegment Sales |   | Operating Profit (Loss) |      
|------------------------------------------------------------------- | ------------------ | ----------------------------------- | ----- | ------------------ | - | ----------------------- | -----
|
|
|Sporting goods                                                      |                    | $                                   | 509.6 |                    | $ | 480.6                   |      
|Other recreational                                                  |                    |                                     | 42.2  |                    |   | 42.8                    |      
|Industrial                                                          |                    |                                     | 119.0 |                    |   | 122.6                   |      
|                                                                    |                    |                                     |       |                    |   |                         |      
|                                                                    | Total segment data |                                     | $     | 670.8              |   | $                       | 646.0
|                                                                    |                    |                                     |       |                    |   |                         |      
|Corporate expenses, net                                             |                    |                                     |       |                    |   |                         |      
|Interest expense                                                    |                    |                                     |       |                    |   |                         |      
|                                                                    |                    |                                     |       |                    |   |                         |      
|Income from continuing operations before provision for income taxes |                    |                                     |       |                    |   |                         |      
|                                                                    |                    |                                     |       |                    |   |                         |      

---

|                        |                             | Identifiable Assets |       | Depreciation and Amortization |   | Capital Expenditures
|----------------------- | --------------------------- | ------------------- | ----- | ----------------------------- | - | --------------------
|
|
|Sporting goods          |                             | $                   | 306.9 |                               | $ | 346.9               
|Other recreational      |                             |                     | 32.3  |                               |   | 32.4                
|Industrial              |                             |                     | 61.7  |                               |   | 63.3                
|                        |                             |                     |       |                               |   |                     
|                        | Total segment data          |                     |       | 400.9                         |   |                     
|Corporate               |                             |                     | 18.4  |                               |   | 20.6                
|                        |                             |                     |       |                               |   |                     
|                        | Total continuing operations |                     |       | 419.3                         |   |                     
|                        |                             |                     |       |                               |   |                     
|Discontinued operations |                             |                     |       |                               |   | 24.7                
|                        |                             |                     |       |                               |   |                     
|                        | Total                       |                     | $     | 419.3                         |   | $                   
|                        |                             |                     |       |                               |   |                     

43

---

2000

1999

1998(Millions)Net sales by locationNorth America

$
438.1

$
417.7

$
389.5Europe


157.3


171.4


154.4Asia


75.4


56.9


40.1Total net sales

$
670.8

$
646.0

$
584.0AssetsNorth America

$
272.0

$
348.0

$
320.9Europe


99.0


94.8


97.3Asia


48.3


45.1


34.8Total assets

$
419.3

$
487.9

$
453.0Long-lived assetsNorth America

$
93.6

$
99.2

$
75.4Europe


8.4


8.3


8.3Asia


6.8


4.0


2.5Total long-lived assets

$
108.8

$
111.5

$
86.2


44

---

K2 INC.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders:

K2 Inc.

We
have audited the accompanying consolidated balance sheets of K2 Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of K2 Inc. and subsidiaries at
December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States.

logo

Los
Angeles, California
February 23, 2001

45

---



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except as noted in the following paragraph the information called for by Items 10, 11, 12 and 13 have been omitted because on or before April 30, 2001,
Registrant will file with the Commission pursuant to Regulation 14A a definitive proxy statement. The information called for by these items set forth in that proxy statement is incorporated
herein by reference.

The
information called for by Item 10 with respect to executive officers of the Registrant appears following Item 4 under Part I of the Report.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The following documents are filed as part of this report.

(a-1)  Financial
Statements (for the three years ended December 31, 2000 unless otherwise stated):

Page Reference
Form 10-KStatements of consolidated income

20Consolidated balance sheets at December 31, 2000 and 1999

21Statements of consolidated shareholders' equity

22Statements of consolidated cash flows

23Notes to consolidated financial statements

24-44Report of Ernst & Young LLP, Independent Auditors

45


(a-2)  Consolidated
financial statement schedule:

IIValuation and qualifying accounts

F-1


All
other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes.

(a-3)  Exhibits

|(3) |  | (a)(i)  |  | Restated Certificate of Incorporation dated May 4, 1989, filed as Exhibit (3)(a) to Form 10-K for the year ended December 31, 1989 and incorporated herein by reference.                               
|--- |  | ------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | (a)(ii) |  | Certificate of Amendment of Restated Certificate of Incorporation dated May 31, 1995, filed as Exhibit 3(a)(ii) to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
|    |  |         |  |                                                                                                                                                                                                        

46

---

|     |  | (a)(iii)           |  | Certificate of Amendment of Restated Certificate of Incorporation, filed as Exhibit (3)(i) to Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference.                                                                                                                                                                                                           
|---- |  | ------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | (b)(i)             |  | By-Laws of K2 Inc., as amended and restated, filed as Exhibit 3 to Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference.                                                                                                                                                                                                                                     
|     |  | (b)(ii)            |  | By-Laws of K2 Inc., as amended, filed as Exhibit 3 to Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference.                                                                                                                                                                                                                                                   
|(4)  |  | (a)                |  | Rights Agreement dated as of July 1, 1999 between K2 Inc. and Harris Trust Company of California, as Rights Agent, which includes thereto the Form of Rights Certificate to be distributed to holders of Rights after the Distribution, filed as
Item 2, Exhibit 1 to Form 8-A filed August 9, 1999 and incorporated herein by reference.                                                   
|(10) |  | Material contracts
|     |  | (a)                |  | Note Agreement Re: $40,000,000 8.39% Senior Notes due November 20, 2004 dated as of October 15, 1992, filed as Exhibit (10)(b) to Form 10-K for the year ended December 31, 1992 and incorporated herein by
reference.                                                                                                                                                                      
|     |  |                    |  | (1)                                                                                                                                                                                                                                                                                                                                                                                         
|     |  |                    |  | (2)                                                                                                                                                                                                                                                                                                                                                                                         
|     |  |                    |  | (3)                                                                                                                                                                                                                                                                                                                                                                                         
|     |  | (b)                |  | Note Agreement Re: $50,000,000 8.41% Series 1999-A Senior Notes due December 1, 2009, dated as of December 1, 1999 filed as exhibit 10(C) to Form 10-K for the year ended December 31, 1999 and incorporated herein by
reference.                                                                                                                                                           
|     |  | (c)                |  | Credit Agreement dated as of December 21, 1999 among K2 Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuing Lender and the Other Financial Institutions Party Hereto filed as exhibit 10(D) to
Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.                                                        
|     |  | (d)                |  | Amended and Restated Transfer and Administration Agreement among Enterprise Funding Corp. 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, filed as Exhibit 10(a) to Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference.
|     |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                             

47

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| |  | (e) |  | Executive compensation plans and arrangements:
| |  | --- |  | ----------------------------------------------
| |  |     |  | (1)(i)                                        
| |  |     |  | (ii)                                          
| |  |     |  | (2)(i)                                        
| |  |     |  | (3)                                           
| |  |     |  | (4)                                           
| |  |     |  | (5)                                           
| |  |     |  | (6)                                           
| |  |     |  | (7)                                           
| |  |     |  | (8)                                           
| |  |     |  | (9)                                           
| |  |     |  | (10)                                          
| |  |     |  |                                               
| |  |     |  | (11)                                          
| |  |     |  |                                               

48

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|     |  | (f)                             |  | (1) |  | Asset Purchase Agreement dated February 16, 1996 among General Aquatics, Inc., KDI Sylvan Pools, Inc. as Buyer, and Anthony Industries, Inc., as Seller, filed as Item 7, Exhibit 99(A) to Form 8-K filed March 21, 1996 and
incorporated herein by reference.                                    
|---- |  | ------------------------------- |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                 |  | (2) |  | Amended and Restated Agreement and Plan of Merger dated as of July 22, 1999 among K2 Inc., Ride, Inc. and KT Acquisition, Inc. included as Appendix A to Form S-4 Registration No. 333-84791, filed August 9, 1999
and incorporated herein by reference.                                          
|     |  |                                 |  | (3) |  | 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, filed as Exhibit 10(b) for the
quarter ended June 30, 2000 and incorporated herein by reference.
|(21) |  | Subsidiaries                   
|(23) |  | Consent of Independent Auditors

(b)  Reports
on Form 8-K filed in the fourth quarter of 2000:



(c)  Refer
to (a-3) above.

(d)  Refer
to (a-2) above.

49

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SIGNATURES

Pursuant to the requirements of Section 13 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.
|-------------------- |  | -------
|Date: March 30, 2001 |  | By:    

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

|Signature                                         |  | Title                                                                         |  | Date          
|------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|                                                  |  |                                                                               |  |               
|/s/RICHARD M. RODSTEINRichard M. Rodstein         |  | Director, President and Chief Executive Officer (Principal Executive Officer) |  | March 30, 2001
|/s/JOHN J. RANGELJohn J. Rangel                   |  | Senior Vice PresidentFinance (Principal Finance and Accounting Officer)      |  | March 30, 2001
|/s/RICHARD J. HECKMANNRichard J. Heckmann         |  | Director, Chairman of the Board                                               |  | March 30, 2001
|/s/JERRY E. GOLDRESSJerry E. Goldress             |  | Director                                                                      |  | March 30, 2001
|/s/WILFORD D. GODBOLD, JR.Wilford D. Godbold, Jr. |  | Director                                                                      |  | March 30, 2001
|/s/ROBIN E. HERNREICHRobin E. Hernreich           |  | Director                                                                      |  | March 30, 2001
|Lou Holtz                                         |  | Director                                                                      |  | March 30, 2001
|/s/STEWART M. KASENStewart M. Kasen               |  | Director                                                                      |  | March 30, 2001
|/s/JOHN H. OFFERMANSJohn H. Offermans             |  | Director                                                                      |  | March 30, 2001
|/s/ALFRED E. OSBORNE, JR.Alfred E. Osborne, Jr.   |  | Director                                                                      |  | March 30, 2001

50

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K2 INC

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

(Thousands)

|                             |                              |   |       | Additions |   |       |       |  
|---------------------------- | ---------------------------- | - | ----- | --------- | - | ----- | ----- | -
|
|
|Year ended December 31, 2000 |                              |   |       |           |   |       |       |  
|                             | Allowance for doubtful items |   | $     | 6,572     |   | $     | 3,314 |  
|                             |                              |   |       |           |   |       |       |  
|                             |                              | $ | 6,572 |           | $ | 3,314 |       | $
|                             |                              |   |       |           |   |       |       |  
|Year ended December 31, 1999 |                              |   |       |           |   |       |       |  
|                             | Allowance for doubtful items |   | $     | 5,798     |   | $     | 2,594 |  
|                             |                              |   |       |           |   |       |       |  
|                             |                              | $ | 5,798 |           | $ | 2,594 |       | $
|                             |                              |   |       |           |   |       |       |  
|Year ended December 31, 1998 |                              |   |       |           |   |       |       |  
|                             | Allowance for doubtful items |   | $     | 6,590     |   | $     | 2,061 |  
|                             |                              |   |       |           |   |       |       |  
|                             |                              | $ | 6,590 |           | $ | 2,061 |       | $
|                             |                              |   |       |           |   |       |       |  

S-1

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