Collegiate Pacific Inc. (AMEX:BOO): -- FY05 EPS of $.40 Before
($.03) in Acquisition Charges - $.37 After Charges -- FY Revenue
$106.3M up 169%; FY Operating Profits up 137% -- Company Discusses
Guidance; Sees $.75 - $1.00 FY07 Fully Diluted EPS Collegiate
Pacific Inc. (AMEX:BOO) today announced its year end results for
FY05 and also announced it has executed a definitive merger
agreement to acquire the remaining outstanding shares of Sport
Supply Group, Inc. (SSPY) for $6.74 per share through the exchange
of .56 shares of BOO common stock for each outstanding share of
SSPY common stock. The exchange ratio was negotiated based on
recent average trading prices for BOO common stock and a price of
$6.74 per SSPY common share, the same price Collegiate Pacific paid
in cash for its purchase of 53% of Sport Supply Group on July 1.
The merger agreement has been approved by a special committee of
the Sport Supply Group board after receipt of an independent
fairness opinion that the transaction is fair to the minority SSPY
shareholders from a financial point of view. While still under
review, it is currently contemplated that holders of outstanding
in-the-money SSPY stock options would be able to exercise their
options prior to closing or exchange the net spread in their
options for BOO shares on the same basis as the SSPY shareholders.
Michael J. Blumenfeld, Chairman and CEO of Collegiate Pacific,
stated: "We are pleased to have finished FY05 with sales, gross
margins and operating income (excluding non-cash acquisition
charges) at or above the high end of our anticipated range, and
have set the stage for an exciting FY06 commencing with the planned
purchase of the remaining shares of SSPY. During FY05, Sales,
General and Administrative Expenses ran slightly ahead of plan as
we worked to ready the operating platform. We acquired 45 industry
salesmen during their seasonal slow period (January - June),
resulting in expenses that preceded their selling season (July -
December). This seasonal cycle should reverse itself in the coming
six-month period. As well, the Company incurred approximately
$470,000 in non-cash FAS-141 intangibles charges in connection with
recent acquisitions -- or approximately $.03 per share in FY05, a
substantial majority of which amortization was charged against the
earnings in the fourth fiscal quarter. These non-cash
acquisition-related charges do not diminish our enthusiasm for what
has been accomplished in FY05. Our acquired sales forces and
organic catalog divisions performed exceptionally well during the
year, setting the stage for exciting times to come. Please note
that our FY05 results do not reflect any contribution from SSPY
since we did not acquire our 53% interest in SSPY until after the
end of our fiscal year." Commenting on the definitive merger
agreement with Sport Supply Group, Michael J. Blumenfeld stated:
"It gives us great pleasure to have reached agreement to acquire
the remaining shares of SSPY. Under the terms of the merger
agreement, SSPY shareholders will receive an exchange ratio of .56
shares of BOO common stock for each share owned of SSPY common
stock. For purposes of this calculation, Collegiate Pacific's
common stock was valued at its 30 day average trading price prior
to the date of this announcement, equaling $12.03 per share. Sport
Supply Group shares were valued at $6.74, resulting in a
transaction value of approximately $28 Million not including in the
money stock options. The Company anticipates the transaction will
close, subject to the approval of both SSPY and BOO shareholders
and certain other conditions, towards the end of calendar 2005. We
expect to file a registration statement and proxy statement with
respect to the proposed merger with the SEC around the end of
September. We look forward to the SSPY shareholders joining the BOO
family and expect this transaction to provide a significant
increase in the liquidity of their holdings. "In keeping with
previous expectations and the management succession program the
Board of Directors is reviewing, I anticipate the senior management
structure of the Company post-closing to consist of myself as
Chairman of the Board, Adam Blumenfeld as CEO, and Terrence Babilla
as President of the Company. William Estill will retain his
position as CFO. These changes are consistent with my intention to
fully retire from day to day operations by the end of FY06." Adam
Blumenfeld, President of Collegiate Pacific, stated: "This Sport
Supply Group transaction will further cement Collegiate Pacific's
position as the premiere marketing and distribution company in the
United States for team sporting goods equipment and uniforms. By
fully combining the ownership of the two companies now, we should
be able to accelerate our efforts to combine the marketing,
manufacturing and distribution assets of the two companies for the
benefit of both groups of shareholders. Collegiate Pacific's core
competencies of marketing, sales and product design are a strong
complement to SSPY's expertise in distribution, technology, and
fiscal discipline. We have filed a Power Point presentation as an
8-K exhibit which speaks to many of the benefits of this
transaction. We encourage our investors to review this document,
which is available at Edgar-online and on our corporate website at
www.cpacsports.com. Some anticipated future benefits for the fully
integrated companies over time include: -- Inventory Reductions
increase Cash Flow: elimination of 750+ like-SKUs -- Combination of
Manufacturing Facilities: overhead absorption and profit potential
-- Combination of Distribution Facilities: operating efficiencies
and rent reduction in future periods -- Combination of
International Sourcing Efforts: extra volume yields profit
potential -- Combined Marketing Efforts: optimized target
marketing; product penetration -- Combination of Office Space:
potential rent reduction in future periods -- Leveraging SSPY's IT
and Web Infrastructure: industry-leading solution -- Leveraging
BOO's Sales and Marketing Expertise: 750+ yrs of industry
experience -- General and Administrative Savings: Re-negotiated
costs based on combined size -- Availability of SSPY product to
BOO's 200 salesmen and 1.5M catalogs -- Availability of BOO product
to SSPY's Web sites, distributors, and 1.7M catalogs -- General
Operating Efficiencies: adoption of best practices across the
platform Regarding go-forward guidance, Adam Blumenfeld commented:
"We are now prepared to discuss forward-looking earnings
projections for FY06 and FY07. For FY06, assuming closing of the
transaction towards the end of calendar 2005, we are comfortable
with current analyst projections of $220 - $230 Million in
consolidated net sales and fully diluted EPS of $.60 - $.70 per
share -- excluding acquisition related intangible amortization
charges and Sarbanes Oxley first-year 404 compliance costs
connected with bringing both Collegiate Pacific and Sport Supply
Group into compliance by June 30, 2006. We intend to expense these
charges as they occur, and will be breaking out SOX and transaction
related expenses in our quarterly earnings announcements to provide
the investment community with full visibility to non-cash
intangibles and SOX related expenses. We are budgeting
approximately $1.4 Million (pre-tax) for our first-year SOX
404-related expense and $1.3 Million (pre-tax) for FAS-141 non-cash
intangibles-related charges in connection with our acquisitions,
the majority of which is directly attributable to Sport Supply
Group, Inc. We see FY06 EBITDA greater than $15 Million after these
charges. These projections assume a fully diluted share count of
10.4 Million shares in the first two quarters of FY06 and 12.95
Million shares in the final two quarters of FY06, and a blended
FY06 count of 11.7M shares. "For FY07, assuming closing of the
transaction towards the end of calendar 2005, the Company sees
fully diluted EPS in a range of $.75 - $1.00 on consolidated net
sales of approximately $250 Million, assuming no further
acquisitions. The Company sees FY07 EBITDA greater than $20
Million. We intend to update FY07 guidance as conditions merit, and
certainly towards the end of FY06 as the fiscal year unfolds.
"Investors should be mindful of the significant seasonality shift
SSPY brings to our business. The first fiscal quarter of 2006
stands to be the Company's strongest quarter with consolidated net
sales, including SSPY, of greater than $60 Million. SSPY will
weaken our second quarter due to fewer school days in the holiday
season, but strengthen the third and fourth quarters as both
Collegiate Pacific and Sport Supply Group catalogs enjoy strong
Spring sports seasons. Our efforts in the coming quarters and years
will be directed towards driving top line sales growth, combining
the operations to extract operating leverage, and bringing SSPY's
gross margin more in line with that of Collegiate Pacific. We
believe each additional point in company-wide gross margins has a
$.10 - $.12 positive impact to fully diluted EPS of the combined
entity -- thus our particular focus on margin improvement." Adam
Blumenfeld concluded: "The combination of Collegiate Pacific's core
organic growth rate, recently acquired sales forces, and future
full ownership of Sport Supply Group puts BOO in a unique position
to lead the team sporting goods industry. While no business grows
from $40 Million to an estimated $250 Million in FY07 without
challenges, we remain confident and committed to our 3-year plan of
building both the financial and franchise value of the company for
the benefit of all shareholders." Today, the Company will host a
previously announced 7:30 a.m. CDT/8:30 a.m. EDT conference call
which may be accessed by dialing 888-286-8010 and using password
81097777. A replay of the call will be available for 30 days and
may be accessed by dialing 888-286-8010 and using passcode
66085387. -0- *T COLLEGIATE PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS As of June 30, 2005 and 2004 2005 2004
------------- ------------- ASSETS CURRENT ASSETS: Cash and cash
equivalents $40,325,716 $7,473,145 Accounts receivable, net of
allowance for doubtful accounts of $1,042,496 and $635,531,
respectively 18,131,753 10,683,860 Inventories 17,446,556 9,214,063
Current portion of deferred taxes 741,209 149,414 Prepaid income
taxes 498,336 -- Prepaid expenses and other current assets 601,439
496,912 ------------- ------------- Total current assets 77,745,009
28,017,394 PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $1,367,281 and $870,394, respectively 1,501,096 831,205 DEFERRED
DEBT ISSUANCE COSTS, net of accumulated amortization of $392,932
and $0, respectively 3,017,427 -- INTANGIBLE ASSETS, net of
accumulated amortization of $823,312 and $346,238, respectively
2,198,417 429,833 GOODWILL 24,192,455 17,308,487 DEFERRED INCOME
TAXES -- 100,812 OTHER ASSETS 409,068 259,012 -------------
------------- Total assets $109,063,472 $46,946,743 =============
============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT
LIABILTIES: Accounts payable $9,782,479 $4,983,603 Accrued
liabilities 1,724,783 1,283,553 Dividends payable 255,144 247,128
Accrued interest 250,000 -- Current portion of long-term debt
329,867 124,800 Income taxes payable -- 700,850 -------------
------------- Total current liabilities 12,342,273 7,339,934
REDEEMABLE COMMON STOCK -- 7,250,000 DEFERRED TAX LIABILITY 779,529
-- LONG-TERM DEBT 50,448,153 73,200 COMMITMENTS AND CONTINGENCIES
-- -- STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value,
1,000,000 shares authorized; no shares issued -- -- Common stock,
$0.01 par value, 50,000,000 shares authorized; 10,205,780 and
9,884,142 shares issued and 10,119,754 and 9,798,116 shares
outstanding, respectively 102,058 98,842 Additional paid-in capital
41,911,008 31,469,423 Retained earnings 4,137,902 1,372,795
Treasury stock at cost, 86,026 shares, respectively (657,451)
(657,451) ------------- ------------- Total stockholders' equity
45,493,517 32,283,609 ------------- ------------- Total liabilities
and stockholders' equity $109,063,472 $46,946,743 =============
============= COLLEGIATE PACIFIC INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME For the years ended June 30, 2005 and 2004
2005 2004 ------------- ------------- Net sales $106,339,351
$39,561,521 Cost of sales 70,001,153 25,372,325 -------------
------------- Gross profit 36,338,198 14,189,196 Selling, general
and administrative expenses 28,275,165 10,866,254 Amortization
expense 469,260 119,232 ------------- ------------- Operating
profit 7,593,773 3,203,710 ------------- ------------- Other income
(expense): Interest income 580,862 22,388 Interest expense
(2,160,281) (52,415) Other 174,644 18,376 -------------
------------- Total other expense (1,404,775) (11,651)
------------- ------------- Income before income taxes 6,188,998
3,192,059 Income tax provision 2,410,394 1,308,367 -------------
------------- Net income $3,778,604 $1,883,692 =============
============= Weighted average number of shares outstanding: Basic
10,031,314 6,324,950 ============= ============= Diluted 10,279,185
7,571,910 ============= ============= Net income per share common
stock - basic $0.38 $0.30 ============= ============= Net income
per share common stock - diluted $0.37 $0.25 =============
============= *T EBITDA means earnings before interest, taxes,
depreciation and amortization, and calculated as net income plus
(i) interest expense net of interest income, (ii) income tax
provision, and (iii) depreciation, depletion and amortization.
EBITDA should not be considered as an alternative to net income or
operating income as an indication of our operating performance.
EBITDA is not necessarily comparable to similarly titled measures
of other companies. EBITDA is presented here because it is a widely
used financial indicator used by investors and analysts to measure
performance. Collegiate Pacific is the nation's fastest growing
manufacturer and supplier of sports equipment primarily to the
institutional and team dealer markets. The Company offers more than
4,500 products to 300,000 prospective and existing customers. The
Company distributes approximately 1.5 million catalogs annually and
employs approximately 170 professional road salesmen. Sport Supply
Group is a leading direct marketer and B2B e-commerce supplier of
sporting goods and physical education equipment to the
institutional and youth sports market place. Athletes, coaches and
instructors in schools, colleges, universities, governmental
agencies, camps and youth organizations across the country use our
products. Collegiate Pacific (AMEX:BOO) owns approximately 53% of
Sport Supply Group's issued and outstanding common stock. This
press release contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include statements relating to
Collegiate Pacific's anticipated financial performance, business
prospects, new developments and similar matters, and/or statements
preceded by, followed by or that include the words "believes,"
"could," "expects," "anticipates," "estimates," "intends," "plans,"
or similar expressions. These forward-looking statements are based
on management's current expectations and assumptions, which are
inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. Actual results may
differ materially from those suggested by the forward-looking
statements due to a variety of factors, including changes in
business, political, and economic conditions, actions and
initiatives by current and potential competitors, the future
performance of Sport Supply Group as a subsidiary of Collegiate
Pacific and the ability of Collegiate Pacific to realize benefits
from its purchase of a majority interest in Sport Supply Group, the
satisfaction of the closing conditions to the merger with Sport
Supply Group and the ability of Collegiate Pacific to realize
additional benefits from full ownership of Sport Supply Group as
well as the costs and timing associated with the integration
process, the impact of costs related to FAS-141 on the accounting
for Collegiate Pacific's acquisitions, and certain other additional
factors described in Collegiate Pacific's filings made from time to
time with the Securities and Exchange Commission. Other unknown or
unpredictable factors also could have material adverse effects on
Collegiate Pacific's future results, performance or achievements.
In light of these risks, uncertainties, assumptions and factors,
the forward-looking events discussed in this press release may not
occur. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date stated,
or if no date is stated, as of the date of this press release.
Collegiate Pacific is not under any obligation and does not intend
to make publicly available any update or other revisions to any of
the forward-looking statements contained in this press release to
reflect circumstances existing after the date of this press release
or to reflect the occurrence of future events even if experience or
future events make it clear that any expected results expressed or
implied by those forward-looking statements will not be realized.
In connection with the proposed merger with Sport Supply Group,
Collegiate Pacific will file a registration statement with the
Securities and Exchange Commission containing a proxy
statement/prospectus. The proxy statement/prospectus will be mailed
to the stockholders of Collegiate Pacific and Sport Supply Group to
consider and vote upon the proposed merger. Investors and
stockholders are urged to carefully read the proxy
statement/prospectus and other relevant materials filed with the
Securities and Exchange Commission when they become available
because they will contain important information about Collegiate
Pacific, Sport Supply Group, the merger and other related matters.
Investors and stockholders may obtain free copies of these
documents (when they are available) and other documents filed by
Collegiate Pacific at the Securities and Exchange Commission's Web
site at www.sec.gov. These documents can also be obtained for free
from Collegiate Pacific by directing such request to the Company's
Investor Relations at 972-243 8100. Collegiate Pacific and its
directors, executive officers and other members of its management
and employees may be deemed to be participants in the solicitation
of proxies from its stockholders in connection with the proposed
merger. Information concerning the interests of Collegiate
Pacific's participants in the solicitation is set forth in
Collegiate Pacific's proxy statements and Annual Reports on Form
10-KSB, previously filed with the Securities and Exchange
Commission, and in the proxy statement/prospectus relating to the
merger when it becomes available.
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