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Outdoor financials: Rocky Brands completes $40 million notes issue, plus Payless/Stride Rite, Wellman, Forzani, Big 5

Rocky Brands completes $40 million notes issue, Payless Q1 profits rise 8 percent, Wellman sells European unit and fiber business, Forzani Group denies rumors about takeover, and Big 5 switches accounting firms.

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Rocky Brands completes $40 million notes issue
Rocky Brands (Nasdaq: RCKY) said it completed a private placement of $40 million in 11.5 percent senior notes due in 2012.

The company said it used the proceeds to repay outstanding amounts under term loans and will use the remaining amount for working capital and general corporate purposes.

It will take a non-cash charge of about $700,000, or $0.08 per share, in the second quarter to write off prepaid financing costs related to the early retirement of the term loans, it added.

Payless Q1 profits rise 8 percent
Payless ShoeSource (NYSE: PSS) said first-quarter profits rose 8 percent on stronger sales. The company recently signed a definitive agreement to buy Stride Rite, parent of Saucony and Hind.

The company reported earning $38.9 million, or $0.59 per share, during the period that ended May 5, compared with $36 million, or $0.53 per share, during the same period a year ago.

Revenue during the quarter increased 4.9 percent, from $694.5 million to $728.6 million. Same-store sales rose 5 percent during the quarter

The Topeka-based company announced last week that it plans to buy Stride Rite Corp. for $800 million and would then change the overall company’s name to Collective Branding Inc.

If approved by shareholders, Payless said it expects strong pro-forma financials:

>> The transaction is expected to be earnings per share accretive in fiscal year 2008.
>> The 2006 to 2009 compound annual growth rate in operating profit is expected to be in excess of 20 percent.
>> The debt leverage ratio for the new company is expected to return to Payless’ pre-transaction level within two to three years of the acquisition’s consummation.

The Payless business unit of Collective Brands should continue to achieve low single-digit positive same-store sales on a consistent basis through successful execution of its merchandising strategies, it said.

Payless also announced Tuesday the departure of William E. May, who was named chief operating officer last month. The company said he was resigning for personal reasons, effective immediately. The company didn’t have any immediate plans to replace May.

Wellman sells European unit and fiber business
Last week, Wellman (NYSE: WLM) sold its European PET Resins and Wellstrand fiber-manufacturing equipment to two separate entities. Financial terms of the deals were not disclosed.

Wellman sold its European PET Resins business to Sun Capital Partners, a U.S. private investment firm focused on leveraged buyouts, equity and debt. The former Wellman unit has the capacity to annually produce about 110 million pounds of PET resin, which is used to manufacture food and beverage containers. Sun European Partners is the European adviser to Sun Capital Partners.

In a separate deal, Wellman sold the equipment used to make its Wellstrand brand of fiber from recycled materials to privately held fiber distributor David C. Poole Co. of Greenville, S.C. Wellman said it wants to focus on its chemicals business. Poole has also agreed to license the Wellstrand brand name.

Wellman said last fall that it would cut costs by consolidating fiber production to its Darlington, S.C., plant and closing another in Johnsonville, S.C. The company said in February it would combine its polyester fiber and plastic resin operations into one chemical-based business segment.

Forzani Group denies rumors about takeover
Forzani Group Ltd. (FGL.TO), Canada’s largest retailer of sporting goods, said it was not in talks with any party about a takeover, though it receives inquiries about acquisitions from time to time.

Forzani said it has received such inquiries more frequently recently, but none has resulted in a firm offer. It said there is no assurance that such talks, if entered, will result in a transaction.

The company made the statement after a newspaper report said U.S. private equity firms Cerberus Capital Management and Apollo Management were interested in the retailer.

Forzani said it does not discuss rumors and would make no further comment on the speculation.

Analysts noted that the timing of a takeover is not ideal because of Forzani’s current high valuation and unstable cash flow history. Typically, private equity firms buy public companies and reorganize or rebuild operations so they can later be sold at a profit.

Forzani, Canada’s largest sporting goods chain, has reported improved financial results as efforts to revamp its stores have paid off with bigger revenue and profit margins.

“There isn’t much that they (private equity) would have to do to come in and clean it up,” Canaccord Adams analyst Benoit Caron told Reuters in an interview. “Forzani is paying down all the debt on the balance sheet, all the big capital expenditure outlays are behind them. So it’s clear seas ahead, for at least two or three years.”

Big 5 switches accounting firms
Big 5 Sporting Goods (Nasdaq: BGFV) said it switched accounting firms, dismissing KPMG LLC and hiring Deloitte & Touche LLP, according to a filing with the SEC. The company said there were no disagreements with KPMG. But the company said KPMG did advise that it lacked staff with adequate technical accounting expertise to ensure the preparation of financial statements. Also, KPMG told the company it did not maintain effective controls in relation to the division of duties and user access to business process applications on the company’s primary information systems.

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