Collegiate Pacific Inc. has executed a definitive merger agreement to acquire the remaining outstanding shares of Sport Supply Group, Inc. 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.”

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.” 

               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
                                           ============= =============


Net income per share common stock - basic         $0.38         $0.30
                                           ============= =============
Net income per share common stock -
 diluted                                          $0.37         $0.25