Broder Bros., Co. Announces First Quarter 2011 Results

TREVOSE, Pa., May 6, 2011 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced results for its first quarter ended March 26, 2011.  

First Quarter 2011 Results Compared to First Quarter 2010 Results

First quarter 2011 net sales were $173.9 million compared to $153.5 million for the first quarter 2010.  Income from operations for the first quarter 2011 was $6.5 million compared to a loss of ($3.3) million for the first quarter 2010.  Net income for the first quarter 2011 was $4.3 million compared to a net loss of ($6.5) million for the first quarter 2010.

For the first quarter 2011, the Company reported earnings before interest, taxes, depreciation and amortization ("EBITDA") of $9.2 million compared to EBITDA of $0.9 million for the first quarter 2010.  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 $9.3 million for the first quarter 2011 compared to $1.4 million for the first quarter 2010.  The improvement in EBITDA was driven by higher gross margins and higher unit volumes.  

First quarter 2011 gross profit was $34.5 million compared to $26.9 million for the first quarter 2010.  First quarter 2011 gross margin was 19.8% compared to 17.5% one year prior.  The increase in gross profit was attributable to an increase in units sold and management's continued focus on improved pricing and purchasing activities.  

The Company's major suppliers announced cost increases in January 2011 and again in late March 2011 or early April 2011 following three cost increases announced from July 2010 through December 2010.  First quarter 2011 gross profit included essentially no benefit resulting from cotton price increases.  The Company increased its selling prices in response to each of the cost increases imposed by manufacturers but the Company did not raise selling prices on a per unit basis as much as the Company's costs have risen due to competitive factors.  

According to data provided by CREST, the U.S. imprintable activewear market grew 7% in units sold during the first quarter 2011.  The Company's units sold also grew by 7% during the period when using the comparable period used by CREST, which was January 1, 2011 through March 31, 2011.  The Company first quarter 2011 began December 26, 2010 and ended March 26, 2011.

Highlighted Charges

During the first quarter 2011, Company recorded restructuring charges of $0.1 million in interest accretion for closed facilities.

Highlighted charges recorded during the first quarter 2010 consisted of $0.1 million in restructuring charges due to interest accretion on restructuring charges for closed facilities and other highlighted charges of $0.4 million consisted 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 $126.1 million at March 2011 compared to $115.3 million at December 2010 and $121.0 million at March 2010.  The increase in revolver debt was mainly due to higher levels of working capital at March 2011.  Borrowing base availability at March 2011, December 2010 and March 2010 was $29.1 million, $40.0 million and $10.8 million, respectively.

At March 2011, December 2010, and March 2010, the 2013 Notes were recorded on the balance sheets at $160.3 million, which represents the total future cash payments under the terms of the 2013 Notes, including both principal and interest payments, as required under the guidance provided by the FASB.  As a result, the Company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity.  The face value of the 2013 Notes outstanding was $117.9 million at March 2011, December 2010 and March 2010.  The Company paid $7.1 million in semi-annual cash interest in April 2011.

The Company's inventory and accounts receivable balances at March 2011 increased by $34.7 million and $12.5 million, respectively, over March 2010 levels.  These increases were driven by improved sales and 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 $215.0 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.

Second Quarter 2011 Events

Following a successful consent solicitation that ended on March 25, 2011, on March 28, 2011, the Company and the Trustee governing the 2013 Notes executed a supplemental indenture to the Indenture governing the 2013 Notes.  Approximately 99.9% of holders of 2013 Notes consented to the indenture amendment. Each consenting holder received a consent fee equal to $5.00 for each $1,000 principal amount of 2013 Notes for which consents were validly delivered and not revoked.  The indenture amendment modified the definition in the Indenture limiting Permitted Debt (as defined in the Indenture) to permit the Company to incur up to an additional $40.0 million of Indebtedness (as defined in the Indenture) under subsection 1 of the definition of Permitted Debt.  On March 29, 2011, the Company announced in a Current Report that it had completed its consent solicitation to amend the Indenture.

Also on March 28, 2011, the Company increased its revolving credit facility commitment from $175.0 million to $215.0 million under its Second Amended and Restated Credit Agreement, dated as of October 13, 2010.  In connection with this increase, the Company entered into the First Amendment to Second Amended and Restated Credit Agreement, which modified the Credit Agreement by (i) acknowledging an increase from $175.0 million to $215.0 million to the aggregate revolving facility and (ii) amending a component of the borrowing base to provide that it shall not exceed the greater of (A) $215.0 million and (B) the amount of the Indenture Borrowing Base (as defined in the Credit Agreement). The Company increased the size of its revolving credit facility to accommodate both continued cotton apparel price increases and continued unit growth.  

On April 29, 2011, the Company purchased its leased facility in Wadesboro, NC.  The facility had been closed since the fourth quarter 2003 and the lease on the facility was set to expire in March 2014.  As a result of the purchase, the Company will reduce its expected future cash outflows related to this facility by more than $2 million.

Selected Balance Sheet Information

Conference Call

Management of the Company will conduct a conference call on Friday, May 6, 2011 at 10:00 a.m. Eastern Time to discuss the Company's first 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 (800) 768-6569. The conference ID is 1527102. 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 May 6, 2011 at 1:00 p.m. Eastern Time until May 16, 2011, at 1:00 p.m. Eastern Time. To access the replay, dial (888) 203-1112. The replay conference ID is 1527102.

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.

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.