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Nasdaq Adds Extra Letter to Its Spelling of Petco

Petco Animal Supplies Inc. has gained a great deal of name recognition thanks to its naming rights package at the San Diego Padres’ Downtown ballpark, but the Nasdaq-traded stock was recently banished to the doghouse last month after the company failed to file its annual 10-K report when it promised.

Late last month, the San Diego pet-supplies company’s shares were officially branded with an “E” after its ticker symbol PETC, designating some extraordinary event is taking place. The company disclosed it is not in compliance with Nasdaq rules, and its stock could be delisted.

Petco first disclosed it wouldn’t meet the filing deadline in April because it needed additional time to complete an internal review involving the discovery of errors contained in the fourth-quarter results. Those errors involved under-accrual of expenses in its distribution operations.

Petco said April 29 that it was close to finishing the review and expected to file the revised annual 2004 10-K “within the next few weeks.”

When that deadline came and went without the report being filed, Nasdaq on May 23 slapped an “E” on the stock.

Chief Financial Officer Rodney Carter said based on the most recent information from auditors, the final annual report should be filed this month.

In earlier securities filings, Petco said the corrections on the fourth-quarter report would reduce its net income between $3 million and $4.5 million, or 5 to 7 cents per share. In its original fourth quarter filing, Petco reported net income of $27.6 million, or 47 cents per share.

To offset the negative news, Petco came out May 25 with a good first-quarter financial performance, reporting $17.2 million in profits, up 9 percent from the 2004 first quarter. Revenues were $479.6 million, an increase of 12.6 percent.

Yet even this was dampened when the firm lowered an earlier earnings and revenue forecast to $1.66 to $1.72 per share from an earlier estimate between $1.80 and $1.81.

In Petco’s first-quarter press release, Carter stated that among the factors that caused the company to reduce its earnings outlook were increased costs associated with its distribution operation; investments in its marketing program; and a generally sluggish economy.

On May 26, Petco shares declined $3.49 from the prior day’s close to $28.81. As of June 1, PETCE rebounded to $29.99.

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Memec Deal Moves Forward:

An acquisition that may be the largest this year involving a locally based public firm is so big it triggered government antitrust reviews from two nations.

Phoenix-based Avnet’s purchase of Memec, announced April 26, would result in a company with combined revenues of more than $12 billion.

Last week, Memec said regulators from the U.S. and Canadian federal governments approved the deal, paving the way for its completion in the next 30 to 60 days.

Memec, a distributor of semiconductors that moved its headquarters from London to San Diego two years ago, said a 30-day waiting period required under the Hart-Scott-Rodino Antitrust Improvement Act expired May 31. It also received regulatory approval on the deal from the Canadian Competition Bureau.

Probably even better news to Memec shareholders is how the value of the deal has increased, as the stock of Avnet has risen in recent weeks. Since late April, shares of Avnet, traded on the New York Stock Exchange under AVT, had risen by $3.71 as of May 31. That boosts the total price for Memec to about $765 million, or $89 million above the original estimate.

Avnet agreed to pay about 24 million shares of stock, assuming $194 million of Memec debt, and $64 million in cash for Memec, which has about 2,400 employees and had revenues of more than $2.3 billion last year.

Memec’s local presence, consisting of 240 employees in Carmel Valley, will likely be diminished, said spokeswoman Gwen Rosenberg.

“We don’t know what our overall structure will be, but we expect the headquarters will be merged into Avnet’s Phoenix headquarters office,” Rosenberg said.

The company’s Carmel Valley office should retain some employees at least through the end of the year; the overall administrative operation is being transferred to Phoenix, she said.

Avnet has nearly 10,000 employees in 68 countries, and had $10.24 billion in revenues in 2004.

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Captiva Completes Deal:

Captiva Software Corp., a San Diego-based maker of document transfer software, has completed its acquisition of SWT, a French software company that has a small office in San Diego with about 12 employees.

Captiva said it paid $17.6 million in cash and 179,000 shares of its stock for a total value of about $20 million for the company that did about $9 million in revenues in 2004.

As part of the agreement, Captiva granted 200,000 shares to three SWT managers. Captiva said it expects the deal to be accretive to its earnings this year, excluding the charges associated with the purchase, by the fourth quarter.

Traded on Nasdaq under CPTV, shares closed at $13.70 on June 1 and have ranged from $7.11 to $14.10 in the last 52 weeks.

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Delayed Restatement:

Phoenix Footwear Group, the Carlsbad-based maker of men’s and women’s shoes and apparel, restated financial results affecting two fiscal years in 2003 and 2004 because of accounting issues related to the booking of purchased intangibles from earlier company acquisitions.

The restatement, which was advised by external auditor Grant Thornton LLP, caused an increase to the firm’s balance for the year ended Dec. 27, 2003, of $1.5 million, and an additional increase of $5.6 million to the consolidated balance sheet dated Jan. 1, 2005.

The firm’s restatement did not affect Phoenix’s historical net sales, net income, net assets or stockholders’ equity.

Phoenix acquired two companies in its 2003 fiscal year, H.M. Trask & Co. and Royal Robbins Inc. Last year, it acquired Altama Delta Corp., and in April, it entered into an agreement to buy Chambers Belt Co.

For its first quarter ended April 2, Phoenix reported net income of $1.2 million on revenues of $26.4 million compared with net income of $1.2 million on revenues of $18.6 million in the prior year first quarter.

Traded on the American Stock Exchange under PXG, shares closed at $5.21 on May 31, down 29 cents, giving it a market cap of $41.6 million.

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Accredited Securitizes $1 Billion:

Accredited Home Lenders Holding Co., a San Diego based non-prime mortgage lender, closed a securitization on a series of bundled mortgages that totaled more than $1 billion May 26.

The loan securitizations were on first and second mortgages issued through its real estate investment trust subsidiary.

As of the end of the first quarter, Accredited originated more than $3.2 billion in mortgages and held more than $7.3 billion in mortgage loans on its books. That was up 81 percent from the prior year’s first-quarter balance.

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Ashworth Lowers Guidance:

Carlsbad-based Ashworth Inc., a maker of golf sportswear, lowered fiscal year income and revenue forecast. Sales were projected to come in between $207 million to $212 million, compared with an earlier sales forecast that maxed out at $215 million. The company said earnings per share were expected to range between 72 and 76 cents, down from earlier estimates between 76 and 82 cents.

For its second quarter ended April 30, Ashworth reported net income of $4.8 million on revenues of $64.7 million, compared with net income of $5.7 million on revenues of $54.7 million.

For the six months, Ashworth had net income of $4.9 million on revenues of $101.2 million, compared with net income of $5.8 million on revenues of $82 million.

The company blamed its decline in sales to bad weather and higher expenses related to the sale of a distribution center.

Traded on Nasdaq under ASHW, shares closed at $9.60 May 31, and have ranged from $7.65 to $12.38 in the last 52 weeks.


Send any news of San Diego-based public companies to Mike Allen at mallen@sdbj.com. He can be reached at (858) 277-6359.

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