Fitness financials: Court denies Bally motion for "poison pill," plus Stride Rite, Under Armour, Big 5, adidas, Forzani, Amer

Court denies Bally motion, feud continues with largest stockholdlers. Sales for Big 5 flat in Q4. adidas reiterates 2006 sales and profit outlook. Forzani holiday season reaps profit. Saucony acquisition results in 4Q loss for Stride Rite. Under Armour establishes European headquarters. Amer Sports stock for staff ready to trade.
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Court denies Bally motion, feud continues with largest stockholders
A Delaware court on Jan. 12 denied a motion by Bally Total Fitness (NYSE: BFT) to speed up the legal process that would trigger its anti-takeover provision or "poison pill." In response, Bally said it has made efforts to address the concerns of Pardus Capital Management, now its largest shareholder, which has launched a proxy battle for a board overhaul of the company.

Triggering the poison pill would dilute the ownership stakes of Pardus and a second large stakeholder, Liberation Investments, another hedge fund that is calling for the ouster of CEO Paul Toback.

In court, Bally's lawyers conceded that Bally did not have evidence showing that the Rights Plan had been triggered, according to a statement from Pardus. It continued: "In fact, Bally's court papers specifically disclaim that its filings 'disclose or (are) intended to disclose information which reveals or is intended to reveal the existence of an Acquiring Person (a condition for triggering the Rights Plan)."

Despite the recent ruling in the Delaware court, Bally said it will continue to pursue appropriate legal action against Pardus and Liberation to protect the rights of its other shareholders. Bally filed a lawsuit against Pardus, two of its principals, and one of its nominees for the company's board.

Pardus parried back in a Jan. 12 statement to shareholders: "Although Pardus is the immediate target, this attack was really aimed at you. Bally's goal in bringing this baseless suit was to interfere with your fundamental right to express yourself at the upcoming annual meeting."Â

And in another development (blink and you'll miss 'em), Proxy advisor firm Institutional Shareholder Services weighed in Jan. 16, saying it has recommended Bally shareholders reject the proposals from Liberation and Pardus that are attempting to bring in new management. Bally's shareholder meeting is Jan. 26.

In its letter to shareholders, Pardus said its proposal included provisions to elect new board members, form a committee to explore the sale of the company, separate the posts of chairman and CEO, and allow shareholders to own up to 17.5 percent of the company's shares, up from its current limit of 15 percent.

Pardus added in the letter: "As its litigation campaign falters, Bally has taken a new approach -- claiming that it tried in good faith to reach a settlement with Pardus, but that talks foundered because we made self-interested, unreasonable demands. Nothing could be further from the truth. So that you can judge for yourself, we have decided to announce publicly our settlement proposal to management. You can decide whether you agree with us that this proposal is in the interests of all stockholders."

Bally said it agreed with most of the terms cited in Pardus' letter and that it has accommodated the hedge fund on most of its demands and met with it twice, but added that the remaining differences were critical issues for all shareholders.

Bally also recently established a special committee of four independent directors to manage the process of evaluating strategic alternatives, including a possible sale or recapitalization of the company. The committee is being led by Ariel Capital Management Chairman and CEO John Rogers, who was appointed lead director of the Bally board.

"We believe shareholders will recognize that Bally's extremely reasonable settlement offer clearly demonstrates the company and its board acted in good faith in responding to issues raised by our largest shareholder," said Rogers in a statement. "The board developed our proposal after our independent directors met with Pardus and listened carefully to their concerns."

Rogers added that Pardus has not shown any willingness to reach a settlement with Bally unless its ultimatums are accepted, and has recently indicated no further interest in discussions. He added that these actions have led the board to conclude that Pardus and Liberation are only interested in advancing their own interests in gaining effective control of the board and its strategic alternatives process.

"It's apparent from the increasingly shrill tone and misleading statements in Pardus' new filing that they are engaging in a futile attempt to portray themselves as something other than self-serving. Their latest attempt to frighten shareholders into believing that triggering Bally's pill could result in the company filing for bankruptcy is a blatant falsehood," Rogers said. "Any triggering of the Rights Plan would be a result of Pardus and Liberation's undisclosed concerted actions to seize control. And while the triggering of the Rights Plan would dilute Pardus and Liberation, it would inure to the financial benefit of every other stockholder and would not adversely affect the company's overall financial position."

The remaining differences between Bally and Pardus are:
>> Board Composition - With regard to board composition, Bally has agreed to three out of 10 members for Pardus. Bally's board is urging shareholders to support the nomination of Eric Langshur, who heads the company's Audit Committee and has played an important role in restoring credibility to Bally's financials.
>> Special Committee - Bally said it has already offered the very committee Pardus' letter seeks, fully empowered and constituted with independent directors, including Pardus' nominees.
>> Equity Compensation - Bally has amended its proposed 2006 Omnibus Equity Compensation Plan to reduce the number of shares available under the Plan by more than 40 percent from 2.5 million shares to 1.75 million shares. Until the conclusion of the strategic process, Bally has agreed to restrict the use of those shares to incentive and inducement awards to retain key middle and lower level employees, not senior management.
>> Separation of Chairman and CEO - Bally said it believes that the creation of the Lead Director position, now held by Rogers, is an effective corporate governance tool that has been successfully used by many companies to strengthen board oversight. Bally's board added that separating the positions of chairman and CEO during this critical juncture -- while the company is in the midst of evaluating strategic alternatives regarding the possible sale, recapitalization or other potential transactions -- would damage, not create, value.
>> Rights Plan -- In exercising its fiduciary responsibilities on behalf of all shareholders, the board said it continues to believe that amending Bally's Shareholder Rights Plan (which will expire on July 15 unless approved by shareholders) to enable a single investor group that already owns nearly 15 percent of the shares -- and whose ultimate agenda remains undisclosed -- to accumulate more stock would be unwise. Allowing Pardus and Liberation to together accumulate 35 percent of Bally's stock would effectively give them a blocking position in Bally's strategic process.

"Despite the many similarities in the two proposals, we continue to urge shareholders to carefully examine the facts as we approach our annual meeting, since the choice is clear," Rogers said. "We ask shareholders to carefully consider the motives of each side, and understand that this board has made a good faith attempt to accommodate Pardus over an extended period of discussions. We strongly encourage shareholders to support this board and management team so that we can continue to pursue a plan that is clearly working to create long-term value for shareholders."

Despite all the feuding, shares of Bally rose $0.06 to close at $7.12 on Jan. 13 on a volume of 144,400, continuing its slow share price climb begun in early fall and continued this year after a drop in late 2005.

Sales for Big 5 flat in Q4
Net sales for Big 5 Sporting Goods (Nasdaq: BGFV) were basically flat for the 2005 fourth quarter -- $217.1 million versus $217.6 million in 2004. Same-store sales increased 1.5 percent, representing Big 5's 40th consecutive quarter of positive same store sales comparisons.

Big 5 said its results were impacted by unfavorable winter weather comparisons in California and the southwest, which were partially offset by favorable winter weather comparisons in the northwest. Sales of non-winter-related products were generally in line with its expectations for the quarter, it added.

For the 2005 year, net sales increased 3.8 percent to $812.1 million from $782.2 million for the corresponding 53-week fiscal year in 2004. On a comparable 52-week basis for both fiscal 2005 and 2004, net sales increased 5.7 percent and same store sales increased 2.4 percent.

Big 5 said the transition to its new distribution center in Riverside, Calif., is costing more than expected and anticipates costs to reduce fourth-quarter earnings per share by $0.06 from its guidance. The facility should be up and running by the end of the 2006 first quarter, but Big 5 said it will be devoting more labor resources than anticipated.

Big 5 added that it now expects earnings per diluted share for the fourth quarter of fiscal 2005 to be in the range of $0.32 to $0.35 versus previous guidance of $0.40 to $0.44 per diluted share.

adidas reiterates 2006 sales and profit outlook
As it rung in the New Year, adidas (ADSG.DE) said it was standing by its 2005 guidance. Now it's saying the same of its sales and profit outlook for 2006. adidas, which is planning a $3.8 billion takeover of Reebok (NYSE: RBK), told an investors' day it expected double-digit percentage growth in net income. Sales would rise at a high single-digit rate this year, when adjusted for currency effects, according to CFO Robin Stalker. Adidas is pinning great hopes on the World Cup to raise brand awareness and increase sales of soccer products, where it is already global marker leader. It is due to report on its fourth quarter and 2005 results at an annual news conference on March 2. Analysts reportedly kept their "buy" rating with a price target of 200 euros (USD $243).

Forzani holiday season reaps profit
The Forzani Group (TSX: FGL), doing business in Canada under the Sport Chek, Coast Mountain Sports, Sport Mart and National Sports retail banners, reported that total retail sales for the holiday season were up 21.1 percent over the prior year. Results were for the 10 weeks ended Jan. 8.

Exclusive of the impact of the current year addition of Nevada Bob's and National Sports, retail system sales were up 12.4 percent. On a comparable store basis, retail system sales were up 9.6 percent. Comparable corporate stores sales increased 11.1 percent, with all banners up sharply, while franchise comparable store sales increased 7.1 percent. The corporate store increases were a combination of an increase of 12.0 percent in Sport Chek/Coast Mountain Sports locations and a 7.8 percent increase in Sport Mart stores.

Forzani said that corporate store margins continued the trend experienced in the third quarter, reflecting the positive results of the various initiatives undertaken in the corporate stores.

Saucony acquisition results in 4Q loss for Stride Rite
Stride Rite Corp. (NYSE: SRR) reported a fourth-quarter loss despite higher sales, hurt by charges related to its acquisition of Saucony. The company also forecast annual earnings would grow about 25 percent in 2006.

Last quarter, Stride Rite's deficit was $3.1 million, or $0.08 per share, compared with net income of $51,000, or nil per share, the year before. Setting aside an acquisition-related inventory charge, the company would have turned a profit of $500,000, or $0.01 per share. Analysts had forecast a loss of $0.02 for the quarter.

Quarterly sales totaled $131.7 million, a 13 percent increase from $116.8 million a year earlier, but missed analysts' average estimate of $146.4 million. Saucony, which includes the Hind brand, contributed $23.2 million to the sales total.

For the year, earnings slipped 4 percent to $24.6 million, or $0.66 per share, from $25.7 million, or $0.66, in 2004. Excluding charges, adjusted profit amounted to $28.6 million, or $0.77 per share.

Annual sales of $588.2 million grew 5 percent from $558.3 million in 2004, but came in below analysts' target for $602.8 million in sales.

Inventories of $116.1 million were up 32 percent compared to the end of 2004. The company said the increase was due primarily to the addition of Saucony and included the inventory write-up as required by GAAP purchase accounting rules. Excluding Saucony, the 2005 year-end inventory balance increased 3 percent compared to last year.

Cash and cash equivalents were $33 million at the end of the fiscal year with $60 million in outstanding debt. The company borrowed $85 million in mid-September 2005 to fund the closing of the acquisition of Saucony.

David Chamberlain, chairman and CEO of Stride Rite, said in a statement: "With the purchase of Saucony, we added a highly-respected $150 million brand in performance running. We see growth opportunities for Saucony in running, international and children's. We expect that 2006 will be a year of transition for Saucony as we set the platform for 2007."

He added that with Saucony, the company will double its international business presence and add significantly to sales in Europe -- "an area of focus for us."

Looking forward, the company estimates this year's earnings at $0.82 to $0.88 per share. That guidance accounts for stock option expenses of $0.05 per share; acquisition and inventory charges are projected at about $0.08 per share.

Under Armour establishes European headquarters
Under Armour (Nasdaq: UARM) said it plans to open European headquarters in Amsterdam and promote of one of the company's partners to president of international, adding that its "international business is a top priority."

As the new president of the international division, Ryan Wood will relocate to Amsterdam and lead Under Armour's operations in Europe, Asia and Canada. He is charged with building local European support to ensure the long-term success of the business internationally.

The company will operate its European sales, marketing and logistics functions from an office located in Amsterdam's Olympic Stadium, originally built to host sports competitions during the 1928 Olympic Games.

Also, the company said Matthew Mirchin, vice president of U.S. sales, who joined Under Armour in May 2005, will continue to lead sales efforts in the United States.

Amer Sports stock for staff ready to trade
Amer Sports released a statement saying that the stock options related to the year 2003 stock option arrangement for its key staff will be subject to trading on the Helsinki Stock Exchange main list as of Jan. 12.

The total number of stock options is 159,999. Each stock option entitles the holder of the stock option to subscribe for three shares of Amer Sports with an accounting par value of Euro 4 (USD $4.86) per share. The subscription price for stock options is Euro 12.63 (USD $15.34) per share. The share subscription period for stock options began on Jan. 1, 2006, and ends on Dec. 31, 2008. As a result of the subscriptions, the number of shares of Amer Sports can increase by a maximum of 479,997 new shares and the share capital can increase by a maximum of Euro 1,919,988 (USD $2,332,382).
 
The other shareholder rights will begin once the increase in the share capital has been entered in the Finnish trade register, it added.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earnings, and is based on the currency rate as of Jan. 11.)

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