Broder Bros., Co. Announces Third Quarter Earnings

TREVOSE, Pa., Nov. 4, 2011 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced its third quarter results for its quarter ended September 24, 2011.  The Company also reaffirmed its Fiscal 2011 EBITDA guidance of $62 million to $65 million.  

Third Quarter 2011 Results Compared to Third Quarter 2010 Results

Third quarter 2011 net sales were $220.5 million compared to $210.7 million for the third quarter 2010.  Income from operations for the third quarter 2011 was $12.7 million compared to $13.0 million for the third quarter 2010.  Net income for the third quarter 2011 was $8.3 million, or $0.80 per diluted share, compared to $6.6 million, or $0.66 per diluted share, for the third quarter 2010.  

For the third quarter 2011, the Company reported earnings before interest, taxes, depreciation and amortization ("EBITDA") of $15.3 million compared to EBITDA of $16.3 million for the third quarter 2010.  Third quarter 2010 earnings included $6.3 million in inventory gains associated with higher cotton apparel prices. These inventory gains increased gross profit by $6.3 million.  A reconciliation of EBITDA to net income 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 $15.2 million for the third quarter 2011 compared to $16.5 million for the third quarter 2010.  Excluding the $6.3 million inventory gain recorded in the third quarter 2010, third quarter 2010 Adjusted EBITDA was $10.2 million.  The year-over-year improvement in EBITDA of $5.0 million, or 48%, was driven by higher gross margins.

Third quarter 2011 gross profit was $39.8 million compared to $41.1 million for the third quarter 2010.  Third quarter 2011 gross margin was 18.0% compared to 19.5% one year prior.  Excluding the $6.3 million in inventory gains, third quarter 2010 gross margin was 16.5%.  The increase in gross margin exclusive of the inventory gain recorded in the third quarter 2011 was due to management's continued focus on improved pricing and purchasing activities.

The Company's major suppliers announced price increases in January 2011 and again in late March 2011 or early April 2011 following three price increases announced from July 2010 through December 2010.  Third quarter 2011 gross profit included no benefit resulting from apparel price increases.  The Company increased its selling prices in response to each of the price increases from manufacturers. However, due to competitive factors, the Company did not raise selling prices on a per unit basis more than the Company's costs rose.

According to data provided by CREST, the U.S. imprintable activewear market shrank 6% in units sold during the third quarter 2011.  The Company's units sold shrank by 8% during the period when using the comparable period used by CREST, which was July 1, 2011 through September 30, 2011.  The Company's third quarter 2011 began June 26, 2011 and ended September 24, 2011.

Highlighted Charges

The credit to restructuring charges recorded in the third quarter 2011 consisted of a $0.2 million credit resulting from an amendment to a subleases at our former Philadelphia, PA distribution center partially offset by $0.1 million in interest accretion on restructuring charges for closed facilities.  The credit to restructuring charges during the nine months ended September 2011 was due to a gain of approximately $2.2 million on the purchase of a leased facility in Wadesboro, NC.  The net purchase price of the facility was less than the present value of the remaining lease payments due under the lease, which was set to expire in March 2014.  

Restructuring charges recorded during the third quarter 2010 consisted of interest accretion. Restructuring charges recorded for during nine months ended September 25, 2010 consisted of interest accretion on restructuring charges for closed facilities net of a reversal of restructuring charges due to the Company entering into a sublease at its former Philadelphia, PA distribution center. Other highlighted charges consisted mainly of severance.

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.  Historically, borrowing levels have reached peaks during the middle of a given fiscal year and low points during the last quarter of the fiscal year.  Borrowings under the revolving credit facility were $141.2 million at September 2011 compared to $115.3 million at December 2010 and $112.1 million at September 2010.  The increase in revolver debt was mainly due to higher levels of working capital at September 2011.  Borrowing base availability at September 2011, December 2010 and September 2010 was $67.3 million, $40.0 million and $36.2 million, respectively.

The Company's inventory and accounts receivable balances at September 2011 increased by $70.1 million and $1.2 million, respectively, over September 2010 levels.  The increase in inventory was driven by higher cotton apparel prices and timing of fleece receipts.  The price increases resulted in a higher inventory investment to meet the Company's customers' need for product availability, at an increased price per unit, as well as higher accounts receivable to fund customers' needs for credit.  

The face value of the 2013 Notes outstanding was $117.9 million at September 2011 and December 2010 and $109.6 million at September 2010.  Guidance provided by the FASB for troubled debt restructuring, however, requires the 2013 Notes to be recorded on the balance sheets as the total future cash payments for the 2013 Notes, including both principal and interest payments.   The 2013 Notes were recorded on the balance sheets at $153.2 million at September 2011 and $160.3 million at December 2010 and June 2010.  As a result of capitalizing the cash interest payments for the 2013 Notes, the Company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity.  The Company paid $7.1 million for each semi-annual cash interest payment due in October 2011 and April 2011.

In September 2011, the Company sold its Wadesboro, NC facility which the Company had purchased during the second quarter 2011.  With the purchase and subsequent sale of the property, the Company reduced its expected future cash outflows related to this facility by more than $2.5 million.  The sale of the building resulted in $0.5 million in proceeds and a loss on the sale of the property and related closing cost of approximately $0.2 million.

Fiscal 2011 Guidance Reaffirmed

The Company announced today that it is reaffirming its Fiscal 2011 guidance of $62 million to $65 million in Adjusted EBITDA that was announced in its second quarter 2011 earnings release.  

Stockholder Consent Update

On September 27, 2011, the Company filed with the Securities and Exchange Commission ("SEC") a request to withdraw its registration statement on Form 10, which was filed with the SEC on August 2, 2011.  Management has stopped the Company's efforts to register the Company's equity securities with the SEC and to actively introduce the Company to funds and institutions with the goal of increasing awareness of the Company, its strong competitive position and unusually low value relative to earnings.

Conference Call

Management of the Company will conduct a conference call today at 10:00 a.m. Eastern Time to discuss the Company's third quarter 2011 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) 572-7034. The conference ID is 3483159. 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 today, November 4, 2011, at 1:00 p.m. Eastern Time until November 14, 2011, at 1:00 p.m. Eastern Time. To access the replay, dial (888) 203-1112. The replay conference ID is 383159.

About Broder Bros., Co.

Broder Bros., Co. is the nation's leading distributor of imprintable activewear in the country.  It operates the largest distribution network in the industry including eight distribution centers and ten "Express" facilities offering pickup room service. The Company offers next-day delivery to over 92% of the U. S. imprintable activewear customers and second-day service to over 98% of the market.  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.

Cautionary Information Regarding Forward-Looking Statements

This earnings release contains "forward-looking statements" and other forward-looking information.  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 Company may purchase more inventory than it can sell through in a reasonable period of time causing it to incur increased inventory carrying costs; the loss of customers could adversely affect its sales and profitability; the Company relies on vendor financing, and if vendors do not provide financing or require cash in advance or cash on delivery, the Company may be unable to hold satisfactory inventory levels; 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.

EBITDA includes the effects of certain charges more fully described in this release.  EBITDA is defined as income before interest expense, income taxes, 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.