Broder Bros., Co. Announces Fourth Quarter and Fiscal Year 2010 Results

Mar 25, 2011, 08:15 ET from Broder Bros., Co.

TREVOSE, Pa., March 25, 2011 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced results for its fourth quarter and fiscal year ended December 25, 2010.  The results included in this earnings release are consistent with the preliminary results included in the Company's Current Report issued on March 8, 2011.

Fourth Quarter 2010 Results Compared to Fourth Quarter 2009 Results

Fourth quarter 2010 net sales were $215.7 million compared to $182.8 million for the fourth quarter 2009.  Income from operations for the fourth quarter 2010 was $12.5 million compared to a loss of ($0.2) million for the fourth quarter 2009.  Net income for the fourth quarter 2010 was $10.1 million compared to a net loss of ($2.9) million for the fourth quarter 2009.

For the fourth quarter 2010, the Company reported earnings before interest, taxes, depreciation and amortization ("EBITDA") of $16.0 million compared to EBITDA of $3.7 million for the fourth quarter 2009.  A reconciliation of EBITDA to net income (loss) is set forth at the end of this earnings release.

Results include the impact of certain restructuring and other highlighted charges discussed below.  Excluding these highlighted charges, EBITDA was $15.8 million for the fourth quarter 2010 compared to $5.5 million for the fourth quarter 2009.  The improvement in EBITDA was driven by higher gross margins and higher unit volumes.  

Fourth quarter 2010 gross profit was $40.9 million compared to $30.9 million for the fourth quarter 2009.  Fourth quarter 2010 gross margin was 19.0% compared to 16.9% in the fourth quarter 2009.  The increase in gross profit was attributable to an increase in units sold, sales of products in the fourth quarter 2010 which the Company had purchased when their costs were lower, and management's continued focus on improved pricing and purchasing activities, net of an increase in inventory reserves.  

The Company regained lost market share during the fourth quarter 2010.  S.T.A.R.S. reported that the U.S. imprintable activewear market grew 7% in units sold during the fourth quarter 2010.  The Company's units sold grew by approximately 14% during the period.

Fourth quarter 2010 gross profit included an $8.0 million benefit resulting from cotton prices increases.  The Company's major suppliers announced three cost increases during 2010.  The Company increased its selling prices in response to each of the cost increases imposed by manufacturers and achieved higher gross margins during the fourth quarter 2010 relative to the fourth quarter 2009 as the Company sold through inventory with pre-price increase costs.  

During the fourth quarter 2010, the Company increased its inventory reserves by $6.5 million due to the anticipated reduction in selling prices for some of the Company's private label products that were discontinued as of December 2010 and in prior years. The selling price reductions will permit the Company to increase the rate of sales on these slower-moving, discontinued styles during 2011.  

Fiscal 2010 Results Compared to Fiscal 2009 Results

Fiscal 2010 net sales were $791.3 million compared to $705.2 million for fiscal 2009.  Income from operations was $31.2 million compared to a loss of ($4.4) million for fiscal 2009.  Net income for fiscal 2010 was $16.7 million compared to a net loss of ($13.2) million for fiscal 2009.

EBITDA for fiscal 2010 was $45.8 million compared to $12.8 million for fiscal 2009.  EBITDA for fiscal 2009 excludes other financing costs and the gain on troubled debt restructuring.  Excluding the impact of highlighted charges discussed below, Adjusted EBITDA for fiscal 2010 was $46.1 million compared to $17.1 million for fiscal 2009.  

Fiscal 2010 gross profit was $147.1 million compared to $117.1 million for fiscal 2009.  Fiscal 2010 gross margin was 18.6% compared to 16.6% for fiscal 2009.  The increase in gross profit was attributable to an increase in units sold, sales of products during the third and fourth quarters 2010 which the Company had purchased when their costs were lower, and management's continued focus on improved pricing and purchasing activities, net of the $6.5 million increase in inventory reserves.  

The Company regained lost market share during fiscal 2010.  S.T.A.R.S. reported that the U.S. imprintable activewear market grew 6% in units sold during fiscal 2010.  The Company's units sold grew by 12% during the period.

Highlighted Charges

During the fourth quarter 2010, Company recorded a reduction to restructuring charges of $0.2 million, which consisted of a $0.3 million reduction to expense due to change in the estimate of future real estate taxes payable at one of its closed facilities, net of $0.1 million in interest accretion.

During fiscal 2010, the Company recorded a reduction to restructuring charges of $0.3 million, which consisted of a $0.5 million reduction of expense due to a new sublease agreement for space at one of its closed facilities, plus a $0.3 million reduction of expense due to a change in the estimate of future real estate taxes payable at one of its closed facilities, net of $0.5 million in interest accretion. Other highlighted charges recorded during fiscal 2010 consisted of severance.

Restructuring charges recorded during the fourth quarter 2009 consisted of a $1.4 million increase in rent at one of the Company's closed facilities due to a change in the counterparty to the Company's lease agreement and $0.1 million in interest accretion. Other highlighted charges recorded during the fourth quarter 2009 consisted of $0.3 million in executive bonus expense related to a bonus award program for certain key executives which recognized the executives' commitment to and success in restructuring the Company's finances in 2009.

Restructuring charges recorded during fiscal 2009 consisted of $1.4 million increase in rent described above, $0.5 million in interest accretion, and $0.4 million in severance due to headcount reductions in March 2009. Other highlighted charges recorded during fiscal 2009 consisted of $0.9 million in executive bonus expense related to the program described above, $0.5 million in consulting and professional fees related to the exchange offer completed in May 2009, and $0.3 million in inventory management consulting charges.

Liquidity Position

The Company relies primarily upon cash flow from operations and borrowings under its revolving credit facility to finance operations, capital expenditures and debt service requirements.  Borrowings and availability under the revolving credit facility fluctuate due to seasonal demands.  Historical borrowing levels have reached peaks during the middle of a given year and low points during the last quarter of the year.  Borrowings under the revolving credit facility were $115.3 million at December 2010 compared to $100.8 million at December 2009.  The increase in revolver debt was mainly due to higher levels of working capital at December 2010.  Borrowing base availability at December 2010 and December 2009 was $40.0 million and $31.5 million, respectively.  The availability at December 2010 included $10.0 million from the first-in, last-out ("FILO") facility that was part of the amendment to the Company's revolving credit facility executed in October.  The FILO facility matured on January 31, 2011 and was repaid using funds from the Company's revolving credit facility.

The Company's inventory and accounts receivable balances at December 2010 increased by $5.2 million and $12.6 million, respectively, over December 2009 levels.  These increases were driven by improved sales as the Company gained market share and due to the inflation in apparel prices.  The sales growth and price increases have combined to require the Company to maintain a higher inventory level to meet its customers' need for product availability, at an increased price per unit, as well as higher accounts receivable to fund customers' needs for credit.  

Management believes that it has the ability to manage cash flow and working capital levels, particularly inventory and accounts payable, to allow the Company to meet its current and future obligations, pay scheduled principal and interest payments, and provide funds for working capital, capital expenditures and other needs of the business for at least fiscal 2011.  The Company's current revolving credit facility provides for a $175.0 million revolving credit facility which may be used for working capital and other lawful corporate purposes of the Company.  Management believes it has sufficient liquidity during 2011 to meet the requirements under the revolving credit facility to pay $7.1 million in each semi-annual cash interest payments under the Senior Notes due October 2013.  The Company expects to remain in compliance with the fixed charge coverage ratio covenant included in its revolving credit facility during fiscal 2011.

The Company is considering increasing the size of its $175 million revolving credit facility to accommodate both continued cotton apparel price increases and continued unit growth.  Management believes that considering increasing the size of the Company's revolving credit facility is prudent to finance both higher replacement costs and higher market share.  The Company launched a consent solicitation to holders of its Senior Notes due October 2013 to amend the indenture governing the Senior Notes to permit the Company to increase the borrowing capacity under the revolving credit facility from $175.0 million to $215.0 million, subject to a borrowing base.  Concurrent with the consent solicitation, the Company launched a syndication process with the existing lenders under its revolving credit facility to exercise its accordion feature under the existing revolving credit agreement.  The consent solicitation period expires on 5 p.m., New York City time, on March 25, 2011.

Selected Balance Sheet Information

(dollars in millions)

(Unaudited)








December 25,


September 25,


December 26,


2010


2010


2009







Accounts Receivable, Net

$76.3


$87.1


$63.7

Inventory, Net

173.4


194.6


168.2

Accounts Payable, Net

(61.4)


(97.7)


(74.1)

Revolving Credit Debt

(115.3)


(112.1)


(100.8)


$73.0


$71.9


$57.0







2010 Notes

$0.0


$11.5


$11.5

2013 Notes

$160.3


$160.3


$160.3







Shareholders' Deficit

($80.3)


($90.9)


($97.1)







Memo:  In-transit Inventory and






Accounts Payable included above

$7.8


$8.0


$7.4



Conference Call

Management of the Company will conduct a conference call on Friday, March 25, 2011 at 10:00 a.m. Eastern Time to discuss the Company's fourth quarter and fiscal year 2010 results. Thomas Myers, Chief Executive Officer, and Martin Matthews, Chief Financial Officer, will participate in the call.

The domestic dial-in number for the call is (888) 471-3842. The conference ID is 3626020. To help ensure that the conference begins in a timely manner, please dial in ten minutes prior to the start of the call.

For those unable to participate in the conference call, a replay will be available beginning March 25, 2011 at 1:00 p.m. Eastern Time until April 4, 2011, at 1:00 p.m. Eastern Time. To access the replay, dial (888) 203-1112. The replay conference ID is 3626020.

About Broder Bros., Co.

Broder Bros., Co. is one of the nation's largest distributors of trade, private label and retail apparel brands to the imprinting, embroidery and promotional product industries. It currently has eight distribution centers across the U.S. and has the capability to deliver to more than 84% of the U.S. population in one day and 98% of the continental U.S. population within two business days. Via its three divisions, the Company distributes industry-leading brands Gildan, Jerzees, Hanes, Fruit of the Loom and Anvil as well as retail brands such as Adidas Golf, Alternative Apparel, Ashworth, Bella, Canvas, alo and Champion, and our private label brands such as Devon & Jones, Chestnut Hill, Authentic Pigment, Harriton, Hyp, Apples & Oranges and Harvard Square.  

Cautionary Information Regarding Forward-Looking Statements

This earnings release contains "forward-looking statements" and other forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements generally can be identified as such because the context of the statement includes words such as "believe," "expect," "anticipate," "will," "should" or other words of similar import.  These statements and projections also include, but are not limited to, the Company's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of Broder Bros., Co. and are subject to significant risks and uncertainties.  

Forward-looking statements and projections are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause the Company's actual results to differ materially from those expressed in these forward-looking statements and projections.  The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: failure to abide by the terms of the Senior Notes or the Company's credit facility would make it difficult for the Company to operate its business in the ordinary course, and may force the Company to seek further financial restructuring; if the Company's cash provided by operating and financing activities is insufficient to fund its cash requirements, the Company may face substantial liquidity problems; slowdowns in general economic activity have detrimentally impacted the Company's customers in the fourth quarter 2008 and during 2009 and have had an adverse effect on the Company's sales and profitability; the Company's ability to access the credit and capital markets may be adversely affected by factors beyond its control, including turmoil in the financial services industry, volatility in financial markets and general economic downturns; the Company's industry is highly competitive and if it is unable to compete successfully it could lose customers and sales may decline; disruption in the Company's distribution centers could adversely affect its results of operations; the Company obtains a significant portion of its products from a limited group of suppliers, and any disruption in their ability to deliver products to the Company or a decrease in demand for their products could have an adverse effect on the Company's results of operations and damage its customer relationships; the Company's relationships with most of its suppliers are terminable at will and the loss of any of these suppliers could have an adverse effect on its sales and profitability; the loss of customers could adversely affect its sales and profitability; the Company must successfully predict customer demand for its private label and retail products to succeed; the Company relies significantly on one shipper to distribute its products to its customers and any service disruption could have an adverse effect on its sales; if any of the Company's distribution facilities were to unionize, the Company would incur increased risk of work stoppages and possibly higher labor costs; loss of key personnel or inability to attract and retain new qualified personnel could hurt the Company's business and inhibit its ability to operate and grow successfully; the Company may incur restructuring or impairment charges that would reduce its earnings; the Company may not successfully identify or complete future acquisitions or establish new distribution facilities, which could adversely affect its business; a change in our Board composition could lead to a loss of talent and insight, which could adversely effect our results of operations; the Company's substantial level of indebtedness could adversely affect its financial condition and prevent it from fulfilling its obligations; the Company's failure to comply with restrictive covenants contained in its revolving credit facility or the Indenture governing the Senior Notes could lead to an event of default under such instruments; despite current anticipated indebtedness levels and restrictive covenants, the Company may incur additional indebtedness in the future; and other factors, risks and uncertainties detailed in its reports posted from time to time on its website pursuant to the terms of the Indenture.  The Company assumes no obligation to update these forward-looking statements or projections.

STATEMENTS OF OPERATIONS

FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 25, 2010 AND DECEMBER 26, 2009

(dollars in millions)

(Unaudited)














Three Months Ended


Twelve Months Ended




2010


2009


2010


2009











Net sales

$215.7


$182.8


$791.3


$705.2

Cost of sales (exclusive of depreciation









and amortization as shown below)

174.8


151.9


644.2


588.1



Gross profit

40.9


30.9


147.1


117.1











Warehousing, selling and administrative









expenses

25.1


25.7


101.5


101.7

Restructuring charges, net

(0.2)


1.5


(0.3)


2.3

Stock-based compensation

0.0


0.0


0.1


0.3

Depreciation and amortization

3.5


3.9


14.6


17.2



Operating expenses

28.4


31.1


115.9


121.5













Income (loss) from operations

12.5


(0.2)


31.2


(4.4)











Other (income) expense









Interest expense

2.5


2.8


11.2


17.8


Other financing costs

0.0


0.0


0.0


1.5


Gain on troubled debt restructuring

0.0


0.0


0.0


(10.5)


Total other expense

2.5


2.8


11.2


8.8













Income (loss) before income taxes

10.0


(3.0)


20.0


(13.2)











Income tax provision (benefit)

(0.1)


(0.1)


3.3


0.0













Net income (loss)

$10.1


($2.9)


$16.7


($13.2)





















Reconciliation to EBITDA









Interest expense

2.5


2.8


11.2


17.8


Income tax provision (benefit)

(0.1)


(0.1)


3.3


0.0


Other financing costs

0.0


0.0


0.0


1.5


Gain on troubled debt restructuring

0.0


0.0


0.0


(10.5)


Depreciation and amortization

3.5


3.9


14.6


17.2











EBITDA

$16.0


$3.7


$45.8


$12.8











Reconciliation to Adjusted EBITDA










Restructuring charges, net

(0.2)


1.5


(0.3)


2.3



Stock-based compensation

0.0


0.0


0.1


0.3



Other highlighted charges

0.0


0.3


0.5


1.7











Adjusted EBITDA

$15.8


$5.5


$46.1


$17.1



EBITDA includes the effects of certain charges more fully described in this release.  EBITDA is defined as income before interest expense, income taxes, other financing costs, the gain on troubled debt restructuring, depreciation, and amortization.  Adjusted EBITDA is defined as EBITDA adjusted for certain charges deemed by management to be non-recurring and which are disclosed as "highlighted charges" in the Company's earnings releases.  EBITDA and Adjusted EBITDA are measures commonly used in the distribution industry and are presented to aid in developing an understanding of the ability of the Company's operations to generate cash for debt service and taxes, as well as cash for investments in working capital, capital expenditures and other liquidity needs.  EBITDA and Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, amounts determined in accordance with generally accepted accounting principles.  EBITDA and Adjusted EBITDA are not calculated identically by all companies, and therefore, the presentation herein may not be comparable to similarly titled measures of other companies.

SOURCE Broder Bros., Co.



RELATED LINKS

http://www.broderbros.com