RBI Sport Supply Grp. Del (MM)

Sport Supply Group, Inc. (NASDAQ:RBI) today reported results for its second fiscal quarter ended December 31, 2009. Financial highlights for the quarter include:

• Net Sales increase 4.4% to $55.5 million vs. $53.1 million in prior year period
• Gross Margins increase 90 basis points to 36.1% vs. 35.2% in prior year period
• Operating Profit increases 26.3% to $1.8 million vs. $1.4 million in prior year period
• Net Income decreases 12.4% to $0.9 million vs. $1.1 million in prior year period, principally due to the one-time gain from the early retirement of 5.75% notes that occurred in Fiscal 2009
• Fully Diluted EPS increases 75% to $0.07 vs. $0.04 in prior year period
• Adjusted EBITDA increases 30.8% to $3.2 million vs. $2.4 million for the three months ended December 31, 2009 as compared to the comparable period in 2008

Financial Highlights for the six months ended December 31, 2009 include:

• Net Sales increase 4.9% to $133.0 million vs. $126.8 million in prior year period
• Gross Margins remain consistent with prior year period at 36.0%
• Operating Profit increases 4.7% to $10.6 million vs. $10.1 million in prior year period
• Net Income decreases 2.2% to $6.0 million vs. $6.1 million in prior year period, principally due to the one-time gain from the early retirement of 5.75% notes that occurred in Fiscal 2009
• Fully Diluted EPS increases 12% to $0.46 vs. $0.41 in prior year period
• Adjusted EBITDA increases 5.7% to $26.2 million vs. $24.7 million for the trailing twelve months ended December 31, 2009 as compared to the comparable period in 2008
• Free Cash Flow from Operations of $13.6 million versus negative Free Cash Flow from Operations of $3.0 million for the six months ended December 31, 2008
• Net Cash Provided by Operating Activities of $13.9 million versus Net Cash Used in Operating Activities of $2.7 million for the six months ended December 31, 2008

Balance sheet highlights as of December 31, 2009 include:

• Net debt reduced to $4.9 million

“We are pleased to report solid results in the second fiscal quarter ended December 31, 2009,” stated Adam Blumenfeld, Chairman and Chief Executive Officer. “It was another strong performance, led by 10.5% top line growth from our Road Sales Group, which was slightly offset by a 1.8% decrease in our Catalog Group; gross margin expansion across the operating platform, and a continued focus on managing working capital and preserving cash. Importantly, in light of the broader market uncertainties, Sport Supply Group continues to demonstrate its ability to grow market share and profitability. We attribute this success to the commitment and efforts of the entire SSG team and our best-of-breed direct distribution model.”

Mr. Blumenfeld continued: “We are particularly proud of our ability to produce these positive operating results while, at the same time, strengthening our financial position. On December 1, 2009, we re-paid all outstanding 5.75% convertible debentures. As of December 31, 2009, we had net debt of $4.9 million. This significant reduction in debt can be attributed to higher sales, well-managed inventories and faster cash collections. Over the last three years, the Company has reduced net debt by more than $80.0 million largely through operating cash flows, which we view as a phenomenal achievement.”

Mr. Blumenfeld concluded: “While we acknowledge the ongoing economic headwinds facing the marketplace, we continue to believe Sport Supply Group is best positioned to weather any short-term volatility as well as capitalize on longer term emerging opportunities.”

Conference Call Information

The Company will host a conference call today at 3:30 CT / 4:30 ET to discuss these results and future plans. Interested parties may participate by dialing 866 356 4279 and using pass code 40618283. The call will also be webcast live and can be accessed online by clicking the following link: http://www.sportsupplygroup.com/webcast.

About Sport Supply Group

Sport Supply Group, Inc. is the nation's leading marketer, manufacturer and distributor of sporting goods and branded team uniforms to the institutional and team sports market. The Company markets via 3 million direct catalogs, a 40 person telesales team, more than 200 direct sales professionals, 60 Platinum Resellers and a family of company-controlled websites.

Safe Harbor Statement

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 Sport Supply Group’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 which changes may negatively impact school and other government supported budgets as well as the cost of doing business, actions and initiatives by current and potential competitors, and certain other additional factors described in Sport Supply Group’s filings with the Securities and Exchange Commission. Other unknown or unpredictable factors also could have material adverse effects on Sport Supply Group’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. Sport Supply Group 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.

  SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts)     Three Months Ended   Six Months Ended December 31, December 31,   2009       2008     2009       2008     Net sales $ 55,529 $ 53,175 $ 132,999 $ 126,752 Cost of sales   35,499     34,443     85,065     81,101     Gross profit 20,030 18,732 47,934 45,651   Selling, general and administrative expenses   18,187     17,273     37,337     35,527  

Operating profit

 

1,843

   

1,459

   

10,597

   

10,124

    Other income (expense): Interest income 25 40 42 117 Interest expense (366 ) (926 ) (893 ) (1,914 ) Gain on early retirement of Notes – 1,192 – 1,443 Other income (expense)   –     (21 )   1     –     Total other income (expense), net   (341 )   285     (850 )   (354 )   Income before income taxes 1,502 1,744 9,747 9,770   Income tax provision   580     692     3,766     3,657     Net income $ 922   $ 1,052   $ 5,981   $ 6,113     Weighted average number of shares outstanding: Basic   12,483,542     12,444,198     12,469,516     12,436,224   Diluted   12,720,985     12,912,607     14,276,549     15,315,960     Net income per share common share – basic $ 0.07   $ 0.08   $ 0.48   $ 0.49   Net income per share common share – diluted $ 0.07   $ 0.04   $ 0.46   $ 0.41  

Dividends declared per share common share

$

0.025

 

$

0.00

 

$

0.05

 

$

0.025

    SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands)     December 31,   June 30,   2009     2009     ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,015 $ 10,743 Accounts receivable, net 32,452 32,276 Inventories, net 28,900 33,872 Current portion of deferred income taxes 4,040 4,040 Prepaid expenses and other current assets   3,590     3,649   Total current assets 70,997 84,580 PROPERTY AND EQUIPMENT, net 7,855 8,504 DEFERRED DEBT ISSUANCE COSTS, net 111 291 INTANGIBLE ASSETS, net 5,872 6,226 GOODWILL 53,525 53,426 OTHER ASSETS, net   76     76   Total assets $ 138,436   $ 153,103     LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 19,448 $ 20,132 Accrued liabilities 8,551 7,602 Dividends payable 313 311 Current portion of long-term debt   24     28,892   Total current liabilities 28,336 56,937 DEFERRED INCOME TAX LIABILITY 4,257 4,331 NOTES PAYABLE AND OTHER LONG-TERM DEBT   6,900     –   Total liabilities 39,493 61,268 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Preferred stock – – Common stock 126 125 Additional paid-in capital 68,276 66,526 Retained earnings 31,344 25,987 Treasury stock at cost   (803 )   (803 ) Total stockholders' equity   98,943     91,835     Total liabilities and stockholders' equity $ 138,436   $ 153,103     SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)     For the six months ended December 31,   2009       2008   CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,981 $ 6,113

Adjustments to reconcile net income to cash provided by (used in) operating activities:

Provision for uncollectible accounts receivable 500 498 Depreciation and amortization 1,323 1,420 Amortization of deferred debt issuance costs 190 686 Gain on early retirement of long term debt – (1,443 ) Deferred taxes (74 ) 78 Stock-based compensation expense 1,389 569 Changes in operating assets and liabilities: Accounts receivable (677 ) (1,076 ) Inventories 5,085 (1,666 ) Prepaid expenses and other current assets (549 ) (705 ) Other assets, net – 22 Accounts payable (681 ) (4,224 ) Income taxes payable / prepaid income taxes 607 (1,389 ) Accrued liabilities and accrued interest   807     (1,544 )   Net cash provided by (used in) operating activities:   13,901     (2,661 )   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (322 ) (330 ) Proceeds from disposals of property and equipment 52 – Cash used in business acquisitions   (121 )   –   Net cash used in investing activities:   (391 )   (330 )   CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of long term debt (28,856 ) (19,701 ) Deferred debt issuance cost (10 ) – Proceeds from bank line of credit 13,100 15,213 Payments on notes payable and line of credit (6,212 ) (9,829 ) Payment of dividends (622 ) (620 ) Tax benefit related to the exercise of stock options 74 249 Proceeds from issuance of common stock   288     230   Net cash used in financing activities:   (22,238 )   (14,458 )   Net change in cash and cash equivalents (8,728 ) (17,449 ) Cash and cash equivalents, beginning of period   10,743     20,531   Cash and cash equivalents, end of period $ 2,015   $ 3,082     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 838   $ 1,345   Cash paid for income taxes $ 3,197   $ 4,807     SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA AND ADJUSTED EBITDA (Unaudited, in thousands)     Three Months Ended   Trailing Twelve Months December 31, Ended December 31, 2009   2008 2009   2008   Net Income $ 922 $ 1,052 $ 11,783 $ 11,299 Provision for income taxes 580 692 7,454 7,145 Interest expense, net of interest income 341 886 2,245 3,588 Depreciation and amortization   653   716     2,703   3,306   EBITDA (a) 2,496 3,346 24,185 25,338 Other items: Gain on early retirement of Notes – (1,192 ) – (1,443 ) Stock-based compensation expense   694   284     1,976   844   Adjusted EBITDA (a) $ 3,190 $ 2,438   $ 26,161 $ 24,739    

(a) EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as net income before interest expense (net of interest income), income taxes, depreciation and amortization. Adjusted EBITDA is defined as net income before interest expense (net of interest income), income taxes, depreciation, amortization, and other items included in the caption above labeled "Other items" which do not directly relate to the ongoing operations. SSG management relies on EBITDA and adjusted EBITDA as primary measures to review and assess operating performance. SSG believes it is useful to investors to provide disclosures of its operating results on the same basis that is used by management. Management and investors also review EBITDA and adjusted EBITDA to evaluate SSG's overall performance and to compare SSG's current operating results with corresponding periods and with other companies. You should not consider EBITDA and adjusted EBITDA in isolation or as a substitute for net income, operating cash flows or other cash flow statement data determined in accordance with accounting principles generally accepted in the United States of America. Because EBITDA and Adjusted EBITDA are not measures of financial performance under accounting principles generally accepted in the United States of America and are susceptible to varying calculations, they may not be comparable to similarly titled measures of other companies.

  SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF CASH FLOW PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW FROM OPERATIONS (Unaudited, in thousands)     Six Months Ended December 31,   2009       2008     Net cash provided by (used in) operating activities $ 13,901 $ (2,661 )  

Adjustments to reconcile net cash provided by (used in) operating activities to free cash flow from operations:

  Capital expenditures   (322 )   (330 )   Free cash flow from operations (b) $ 13,579   $ (2,991 )  

(b) Free cash flow from operations is a non-GAAP financial measure. Free cash flow from operations is defined as net cash provided by (used in) operating activities less capital expenditures. SSG management relies on free cash flow from operations as a primary measure to review and assess liquidity. SSG believes it is useful to investors to provide disclosures of its operating results on the same basis that is used by management. Management and investors also review free cash flow from operations to evaluate SSG’s overall performance and to compare SSG’s current results with corresponding periods and with other companies. You should not consider free cash flow from operations in isolation or as a substitute for net cash provided by (used in) operating activities or other cash flow statement data determined in accordance with accounting principles generally accepted in the United States of America. In addition, free cash flow from operations does not necessarily represent funds available for discretionary use and is not necessarily a measure of SSG’s ability to fund its cash needs. Because free cash flow from operations is not a measure of financial performance under accounting principles generally accepted in the United States of America and is susceptible to varying calculations, it may not be comparable to similarly titled measures of other companies.