BOO Collegiate Pacific

Collegiate Pacific Inc. (AMEX:BOO): -- Solid Organic Sales Growth of 15% for the Quarter -- Company sees balance of FY06 Fully Diluted GAAP EPS of $0.20 - $0.26, which is generally in line with the range of analyst consensus estimates -- Company Sees FY07 Fully-Diluted GAAP EPS of $0.62-$0.78 Collegiate Pacific Inc. (AMEX:BOO) today announced its results of operations for the second fiscal quarter ended December 31, 2005, and that it will host a conference call today at 3:30 PM, Central Standard Time, to discuss the second fiscal quarter and future plans. The call may be accessed by dialing 866-510-0708 and using participant code 27597908. A replay of the call will be available for 30 days by calling 888-286-8010 and entering passcode 54869893. Certain points of Interest for the Quarter Include: -- Q206 Net Loss of $971 thousand, or ($0.10) fully-diluted GAAP EPS, which includes an approximately $555 thousand, or ($0.05) fully-diluted GAAP EPS net of taxes, seasonal loss at SSPY, and also includes $1.57M in non-cash and cash charges, or ($0.10) fully-diluted GAAP EPS net of taxes, for the items described below; and -- Company completes Financial Restatements for Q1 of FY06 and FY04 and FY05, which results in a pre-tax increase of approximately $90 thousand in Q1 of FY06 and a pre-tax decrease of approximately $357 thousand and $291 thousand for FY04 and FY05, respectively, as indicated in the table below. -0- *T Restatement Adjustment Summary ( Increase) / Decrease ------------------------------------------------ Three month period Twelve month period ended ended --------------------------- -------------------- June 30, 2004 June 30, 2005 September 30, 2005 ------------- ------------- -------------------- Cost of sales adjustments $(233,400) $(384,250) $284,140 Intangible amortization adjustments (123,334) 93,313 (194,134) ------------- ------------- -------------------- Gross adjustments $(356,734) $(290,937) $90,006 Effect of taxes 146,260 113,405 (35,538) ------------- ------------- -------------------- Net adjustments $(210,474) $(177,532) $54,468 ------------- ------------- -------------------- Weighted average shares outstanding --------------------- Basic 6,324,950 10,031,314 10,124,387 ============= ============= ==================== Fully diluted 7,571,910 10,279,185 14,068,662 ============= ============= ==================== Earnings per share as previously reported --------------------- Basic $0.30 $0.38 $0.25 ============= ============= ==================== Fully diluted $0.25 $0.37 $0.22 ============= ============= ==================== Earnings per share as adjusted --------------------- Basic $0.26 $0.36 $0.25 ============= ============= ==================== Fully diluted $0.22 $0.35 $0.22 ============= ============= ==================== *T Commenting on the quarter and the first six-months of fiscal 2006, which ended December 31, 2005, Michael J. Blumenfeld, Chairman and CEO stated: "While the second fiscal quarter is the seasonal low-point for our business, we are pleased to report robust sales growth and gross margin performance consistent with our expectations. Moreover, we are particularly pleased to have completed a restatement of our financial statements for the fiscal years ended June 30, 2004 and 2005, as well as our first quarter of fiscal 2006, for changes related to our purchase accounting for the valuation and amortization expenses associated with acquired intangibles and inventories from Collegiate Pacific's acquisition activities since January 2004. As discussed below, these adjustments increased our reported net income for the fiscal quarter ended September 30, 2005, by approximately $54 thousand, which did not impact EPS, and decreased our reported net income by approximately $210 thousand, or ($0.03) per share, and approximately $178 thousand, or ($0.02) per share, respectively, for our fiscal years ended June 30, 2004 and June 30, 2005." "The Company produced a net loss of $971 thousand for the quarter ended December 31, 2005, or ($0.10) per fully diluted share, including a seasonal net loss of approximately $555 thousand for our 73% owned affiliate Sport Supply Group, Inc. Additionally, results for the quarter included the following cash and non-cash charges in the total amount of approximately $1.57 million, or $0.10 per diluted earnings per share, net of taxes: -- non-cash amortization charges in the amount of approximately $420 thousand for acquired intangibles, including our acquisition of a majority interest in Sport Supply Group, Inc.; -- a one-time cash charge in the amount of approximately $430 thousand related to the termination of the Merger Agreement with Sport Supply Group Inc.; -- a cash charge in the amount of approximately $544 thousand for Sarbanes-Oxley related compliance costs; and -- a cash charge in the amount of approximately $176 thousand for professional fees incurred in connection with the preparation and filing of a Registration Statement on Form S-3, which was filed by the company pursuant to the terms of a registration rights agreement the company entered into with the purchasers of its convertible senior subordinated notes due 2009. We are pleased to put these charges behind us." Adam Blumenfeld, President of Collegiate Pacific stated: "Operationally, we were pleased with consolidated sales growth for the quarter and with gross margin performance in the quarter and year-to-date six month period ended December 31, 2005. Organic sales growth for businesses owned at least twelve months was approximately 15% for the quarter and approximately 20% for the six month period ended December 31, 2005, well within our expectations. Regarding gross margins, investors should be mindful that Sport Supply Group carries a historically lower gross margin than that of Collegiate Pacific. Notwithstanding, the consolidated gross margins were 32.6% for the quarter, and 32.6% year-to-date. Certain adjustments outlined above were in connection with inventory market adjustments at Sport Supply Group, which negatively affect reported gross margins. Without these adjustments, the gross margins would have been approximately 33.3% and 33.7% for the three and six month periods, respectively, ended December 31, 2005, which exceeds our internal expectations. This is reflective of progress being made in our catalog selling efforts; Dixie, OTS, Kesslers and Salkeld's ("DOKS") road sales platform and by our Sport Supply Group affiliate in enhancing gross margins and reducing the cost of goods sold. Our attempts to improve gross margins are a long-term, multi business cycle process, but we are pleased with initial results, particularly in light of the significant increase in the cost of certain raw materials." "Regarding our 73% investment in Sport Supply Group, Inc., we are pleased with the progress Sport Supply Group has made to date and remain well focused on optimizing this investment for the benefit of all shareholders." Adam Blumenfeld continued; "We are excited to have added talented personnel in the Finance, Sales and Marketing divisions of the Company. We are pleased to welcome Sue Myers as our new corporate controller and Kurt Hagen as our new executive vice president of sales and marketing. With 12 years experience in the fast-growing Fossil Corporation (Nasdaq:FOSL), we look forward to Kurt being instrumental in the acceleration of our catalog and on-line sales efforts. The addition of Mr. Hagen rounds out the Executive Management Team for our major operating platforms and solidifies, we believe, the necessary foundation for future profitable growth." Regarding our outlook and guidance for future periods, Michael Blumenfeld stated: "At this time, we are currently projecting GAAP diluted earnings per share between $0.20 and $0.26 for the balance of fiscal 2006, which assumes no excess expenses to budget with respect to our Sarbanes-Oxley compliance costs in Q3 and Q4, and is generally in line with the range of current analyst consensus projections. We continue to see EBITDA for fiscal 2006 of $15 million or more. The Company is also introducing preliminary guidance for FY07 (which begins July 1, 2006) of $0.62 - $0.78 per fully diluted GAAP share. This guidance assumes no material acquisitions or dispositions during FY07 and will likely be refined as the year unfolds. We see FY07 EBITDA of approximately $20 Million." Restatement of Financial Statements As previously disclosed by the company in its most recent annual report on form 10-KSB and previous quarterly reports on Form 10-Q, since February 2005, the company has received and responded to several comment letters from the Staff of the Securities and Exchange Commission's Division of Corporation Finance. The SEC comments were initiated in conjunction with the SEC's review of the company's Registration Statement on Form S-3, which was filed by the company on January 24, 2005, as required by the terms of a registration rights agreement the company entered into with the purchasers of its convertible senior subordinated notes due 2009. Based on the SEC comments, management and the audit committee of our board of directors reassessed the company's purchase accounting for the intangible assets and inventories the company acquired in connection with acquisitions since January 2004. As a result, Collegiate Pacific will restate its financial statements for the fiscal year ended June 30, 2004 and June 30, 2005, by filing an amendment to its Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005. In addition, the company will restate its financial results for the fiscal quarter ended September 30, 2005, by filing an amendment to its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005. The amendments will reflect the following purchase accounting adjustments to amounts previously allocated to the following acquired intangible assets and inventories: -- increase the value of the customer relationships acquired in connection with its acquisitions of Kesslers Team Sports, Dixie Sporting Goods, Orlando Team Sports and Salkeld & Sons by approximately $1.9 million, which was originally allocated to goodwill; -- increase the value the inventories acquired in connection with its acquisitions of Kesslers Team Sports, Dixie Sporting Goods, Orlando Team Sports and Salkeld & Sons by approximately $650 thousand, which was originally allocated to goodwill; and -- increase the value of contractual backlog the company acquired in connection with its acquisitions of Kesslers Team Sports, Dixie Sporting Goods, Orlando Team Sports and Salkeld & Sons by approximately $200 thousand, which was originally allocated to goodwill. As a result of these restatements, amortization expense and cost of goods sold for the fiscal years ended June 30, 2004 and 2005 were increased by approximately $210 thousand, or ($0.03) per share, and by approximately $178 thousand, or ($0.02) per share, respectively. In addition, the restatement increased the company's reported net income for the fiscal quarter ended September 30, 2005, by approximately $54 thousand, which did not impact EPS. These are non-cash adjustments that do not affect Collegiate Pacific's cash flow or debt balances for these periods. "Given the cumulative effect of this change in reported non-cash amortization expense, we have determined that the most appropriate action is to restate the affected periods. We have discussed this issue with our auditors," said Michael J. Blumenfeld. Quarterly Report on Form 10-Q Due to, among other things, delays caused by the company's decision to restate its consolidated financial statements set forth in its Annual Report on Form 10-KSB for the fiscal years ended June 30, 2004 and 2005, as well as its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2005, to correct all purchase accounting issues related to the company's acquisition activity since January 2004, all in connection with the company's recent resolution of all outstanding comments the company received from the Securities and Exchange Commission's Division of Corporation Finance regarding the company's purchase accounting for those acquisitions, Collegiate Pacific will be delaying the filing of its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2005, as permitted by the rules of the Exchange Act. Collegiate Pacific's Quarterly Report on Form 10-Q will be filed within five calendar days of this press release. The amendment to the Company's 10-KSB for fiscal 2005 and its 10-Q for the quarter ended September 30, 2005, must be filed prior to the company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2005. About Collegiate Pacific 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 175 professional road salesmen. -0- *T COLLEGIATE PACIFIC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, June 30, 2005 2005 ------------- ------------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $9,038,788 $40,325,716 Accounts receivable, net of allowance for doubtful accounts of $ 1,539,634 and $1,042,496, respectively 32,232,306 18,131,753 Inventories 38,379,939 17,478,805 Current portion of deferred taxes 803,278 775,231 Prepaid income taxes 366,265 644,596 Prepaid expenses and other current assets 3,310,791 601,439 ------------- ------------- Total current assets 84,131,367 77,957,540 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $ 1,845,597 and $1,294,135, respectively 10,154,315 1,501,096 DEFERRED DEBT ISSUANCE COSTS, net of accumulated amortization of $734,527 and $392,932, respectively 2,675,831 3,017,427 INTANGIBLE ASSETS, net of accumulated amortization of $ 1,689,213 and $ 853,333, respectively 9,512,310 1,862,606 GOODWILL 47,455,472 23,848,345 DEFERRED INCOME TAXES 124,143 OTHER ASSETS, net 604,129 409,068 ------------- ------------- Total assets $154,657,567 $108,596,082 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $19,442,010 $9,782,479 Accrued liabilities 5,035,848 1,724,783 Dividends payable 254,777 255,144 Accrued interest 267,708 250,000 Current portion of long-term debt 12,463,043 329,867 ------------- -------------- Total current liabilities 37,463,386 12,342,273 DEFERRED TAX LIABILITY 621,548 700,146 LONG-TERM DEBT 56,007,842 50,448,153 MINORITY INTEREST IN SUBSIDIARY 13,594,147 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; 10,215,480 and 10,205,780 shares issued and 10,129,454 and 10,119,754 shares outstanding, respectively 102,687 102,058 Additional paid-in capital 42,681,022 41,911,008 Retained earnings 4,844,386 3,749,895 Treasury stock at cost, 86,026 shares (657,451) (657,451) ------------- -------------- Total stockholders' equity 46,970,644 45,105,510 ------------- -------------- Total liabilities and stockholders' equity $154,657,567 $108,596,082 ============= ============== COLLEGIATE PACIFIC INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended December 31, December 31, ------------------------- -------------------------- 2005 2004 2005 2004 ------------ ------------ ------------- ------------ Net sales $46,401,280 $23,794,598 $111,676,176 $51,504,886 Cost of sales 31,258,686 15,884,544 75,219,087 34,468,131 ------------ ------------ ------------- ------------ Gross profit 15,142,594 7,910,054 36,457,089 17,036,755 Selling, general and administrative expenses 16,192,395 6,710,482 31,928,121 12,664,887 ------------ ------------ ------------- ------------ Operating profit (loss) (1,049,801) 1,199,572 4,528,968 4,371,868 ------------ ------------ ------------- ------------ Other income (expense): Interest income 28,116 42,999 74,338 58,444 Interest expense (1,119,045) (334,663) (2,117,906) (341,519) Other income 63,824 71,184 88,473 120,563 ------------ ------------ ------------- ------------ Total other income (expense) (1,027,105) (220,480) (1,955,095) (162,512) ------------ ------------ ------------- ------------ Income (loss) before minority interest in net income of consolidated subsidiary and income taxes (2,076,906) 979,092 2,573,873 4,209,356 Minority interest in net income (loss) of consolidated subsidiary (481,833) -- (56,191) -- ------------ ------------ ------------- ------------ Income (loss) before income taxes (1,595,073) 979,092 2,630,064 4,209,356 Income tax provision (624,198) 397,945 1,026,052 1,751,654 ------------ ------------ ------------- ------------ Net income (loss) $(970,875) $581,147 $1,604,012 $2,457,702 ============ ============ ============= ============ Weighted average number of shares outstanding: Basic 10,129,351 10,004,947 10,126,869 9,956,587 ============ ============ ============= ============ Diluted 10,129,351 10,320,184 10,599,918 10,211,489 ============ ============ ============= ============ Net income (loss) per share common stock -- basic $(0.10) $0.06 $0.16 $0.25 ============ ============ ============= ============ Net income (loss) per share common stock -- diluted $(0.10) $0.06 $0.15 $0.24 ============ ============ ============= ============ *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 in our discussion of guidance for future periods because it is a widely used financial indicator used by investors and analysts to measure performance. Safe Harbor Statement This news release includes forward-looking statements. Collegiate Pacific cautions that these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including but not limited to Collegiate Pacific's ability to successfully execute its acquisition plans and growth strategy, integration of acquired businesses, weather conditions, global economic conditions, product demand, financial market performance, and other risks described in Collegiate Pacific's most recent annual report on form 10-KSB, previous quarterly reports on Form 10-Q, and current reports on Form 8-K, each as filed with the Securities and Exchange Commission. Collegiate Pacific cautions that the foregoing list of important factors is not exclusive, any forward-looking statements included in this news release is made as of the date of this news release, and Collegiate Pacific does not undertake to update any forward-looking statement.