Broder Bros., Co. Announces Second Quarter 2010 Results

TREVOSE, Pa., Aug. 6 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced results for its second quarter ended June 26, 2010.

Second Quarter 2010 Results Compared to Prior Year

Second quarter 2010 net sales were $211.6 million compared to $177.7 million for the second quarter 2009.  Income from operations for the second quarter 2010 was $9.1 million compared to $1.0 million for the second quarter 2009.  Net income for the second quarter 2010 was $6.0 million compared to $5.8 million for the second quarter 2009, which included the gain on troubled debt restructuring.

For the second quarter 2010, the Company reported earnings before interest, taxes, depreciation and amortization ("EBITDA") of $12.7 million compared to EBITDA of $5.4 million for the second quarter 2009.  A reconciliation of EBITDA to net income (loss) is set forth at the end of this press release.

Results include the impact of certain restructuring and other highlighted charges discussed below.  Excluding these highlighted charges, EBITDA was $12.4 million for the second quarter 2010 compared to EBITDA of $5.8 million for the second quarter 2009.  The improvement in EBITDA was driven by higher unit volumes and higher gross margins.  

Second quarter 2010 gross profit was $38.3 million compared to $30.2 million for the second quarter 2009.  The increase in gross profit was due to a 21.6% growth in unit volumes combined with a 4% increase in gross profit per unit.  Second quarter 2010 gross margin was 18.1% compared to 17.0% in the second quarter 2009.  

The Company regained lost market share during the second quarter 2010.  As reported by STARS, the market grew 11% in units sold.  Approximately half of the increase in the Company's unit volume for the second quarter 2010 was due to the growth in the market. The remainder of the increase in the Company's unit volume was due to the Company's three-part guarantee instituted in July 2009 as well as sales and marketing efforts to grow revenues and gross profit.  The three-part guarantee consists of promises that the Company would be in stock in key styles and colors, that it would fulfill orders accurately and that the Company would not be undersold.

Highlighted Charges

Results for the three and six months ended June 26, 2010 and June 27, 2009 include certain charges as follows:

The reversal of restructuring charges during the second quarter 2010 was the result of the Company entering into a sublease at its former Philadelphia, PA distribution center, net of $0.1 million of interest accretion on restructuring charges for closed facilities.  Restructuring charges recorded during the first quarter 2010 consisted of interest accretion on restructuring charges for closed facilities and other highlighted charges consisted of severance.

Restructuring charges recorded during the second quarter 2009 consisted of interest accretion on restructuring charges for closed facilities. Restructuring charges recorded during the first quarter 2009 consisted mainly of severance costs due to the March 2009 headcount reductions. Other highlighted charges recorded during the first quarter 2009 consisted of $0.4 million in inventory management consulting charges and $0.1 million in consulting fees related to the exchange offer.

Business Outlook

As noted earlier in this earnings release, the STARS data confirmed that the Company regained lost market share.  Inventory quality was strong and fulfillment remained exceptional during the first and second quarters 2010.  The Company's three-part guarantee has been instrumental in regaining confidence among the Company's customers.  In addition, management's initiatives to rationalize pricing, improve selling effectiveness and improve marketing communications appear to be contributing to the Company's gross profit growth.

Third quarter 2010 results will include the impact of an approximate 5% price increase in cost and selling prices, primarily in commodity products, which took effect July 5, 2010.  The price increases were announced in the second quarter 2010 and likely had some favorable impact on the units sold by shifting demand from the third quarter 2010 to the second quarter 2010.  The increased demand during the second quarter 2010 also led to T-shirt shortages during the period. Insufficient T-shirt supply to meet market demand continued into the third quarter 2010.  Yarn shortages at suppliers and T-shirt shortages during the second half of 2010 will likely result in market growth less than the 11% experienced in the second quarter 2010.

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 $129.4 million at June 26, 2010 compared to $100.8 million at December 26, 2009 and $127.7 million at June 27, 2009.  The increase in revolver debt from December 2009 was mainly due to increases in inventory and accounts receivable.  Borrowing base availability at June 26, 2010, December 26, 2009 and June 27, 2009 was $21.9 million, $31.5 million and $26.6 million, respectively.  

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, and provide funds for working capital, capital expenditures and other needs of the business for at least fiscal 2010.  Additional information regarding the Company's liquidity position can be found in the Company's Quarterly Report for the period ended March 27, 2010 and in its 2009 Annual Report which are posted on the Company's corporate website at www.broderbrosco.com.  More information regarding liquidity may be found in the Company's Quarterly Report for the period ended June 26, 2010, which will be posted on the corporate website on August 6, 2010.

Debt Restructuring

In May 2009, the Company completed the exchange offer for its outstanding 2010 Notes.  An aggregate of $213.5 million in principal amount of 2010 Notes were exchanged for $94.9 million aggregate principal amount of newly issued 2013 Notes and a pro rata share of 96% of the outstanding newly issued common stock of the Company.  This transaction qualified as a Troubled Debt Restructuring under the authoritative guidance.  As a result of this transaction, the Company recorded a net gain of $10.5 million during the quarter ended June 30, 2009.  This gain was calculated as the difference between the carrying amount of the liabilities settled (reduced for the fair value of the equity issued) and the total future cash payments under the terms of the 2013 Notes.  The authoritative guidance requires that the Company offset any gain by the costs directly attributable to the debt restructuring.  The Company reduced the gain by $5.7 million relating to legal and financing fees incurred in connection with the debt restructuring.  The net gain was recorded as a component of other income on the Company's statement of operations.    

As of June 30, 2010, the 2013 Notes were recorded on the balance sheet at $160.3 million which represented the total future cash payments under the terms of the Notes, including both principal and interest payments, as required under the authoritative guidance.   As a result, the Company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity.  The calculation of the value of the total future cash payments includes the assumption that the interest payments on the 2013 Notes which are due in 2010 are paid in additional notes at the PIK interest rate of 15% rather than in cash at the cash rate of 12%. The calculation of the total future cash payments includes the face value of the notes of $94.9 million, the additional notes issued in October 2009 at the PIK interest rate of 15%, as required under the Indenture, and the payment of all additional interest payments after 2010 due on the 2013 Notes in cash, at the cash interest rate of 12%, as required under the Indenture. The interest payment due April 15, 2010 was paid in the form of additional notes in the amount of $7.6 million.  As of June 30, 2009, the 2013 Notes were recorded on the balance sheet at $162.4 million, which included the second consent fee of $2.1 million paid in October 2009.

Conference Call

The Company will conduct a conference call on Friday, August 6, 2010 at 10:00 a.m. Eastern Time to discuss the second quarter 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 (877) 741-4248.  The conference ID is 4927397.  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 August 6, 2010 at 1:00 p.m. Eastern Time until August 16, 2010, at 1:00 p.m. Eastern Time. To access the replay, dial (888) 203-1112. The replay conference ID is 4927397.

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, serving customers since 1919. It currently has eight distribution centers across the U.S. and has the capability to deliver to approximately 80 percent of the U.S. population in one day. Via its three divisions, the Company distributes industryleading brands Anvil, Fruit of the Loom, Gildan, Hanes and Jerzees as well as retail brands Adidas Golf and Champion.

Cautionary Information Regarding ForwardLooking Statements

This press release contains "forward-looking statements" 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 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 are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these forward-looking statements.  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 and have had an adverse effect on its 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 Company does not have any long term contracts with its customers and 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; as a result of the Exchange Offer, board members serve three year terms; the Company's substantial level of indebtedness could adversely affect its financial condition and prevent it from fulfilling its obligations; the Company has ceased filing reports with the SEC; the Company's failure to comply with restrictive covenants contained in its revolving credit facility or the Indenture governing the New 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.

SOURCE Broder Bros., Co.