Broder Bros., Co. Announces Fourth Quarter 2011 and Fiscal 2011 Earnings

TREVOSE, Pa., March 23, 2012 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced results for its fourth quarter and fiscal year ended December 31, 2011.  Results were in line with the Company's Fiscal 2011 guidance.

Fourth Quarter 2011 Results Compared to Fourth Quarter 2010 Results

Fourth quarter 2011 net sales were $226.7 million compared to $215.7 million for the fourth quarter 2010.  Income from operations was $12.8 million for the fourth quarter 2011 compared to $12.5 million for the fourth quarter 2010.  Net income for the fourth quarter 2011 was $17.0 million, or $1.65 per diluted share, compared to $10.1 million, or $0.99 per diluted share, for the fourth quarter 2010.  

For the fourth quarter 2011, the Company reported earnings before interest, taxes, depreciation and amortization ("EBITDA") of $14.9 million compared to EBITDA of $16.0 million for the fourth quarter 2010.  Results include the impact of certain restructuring and other highlighted charges discussed below.  Excluding these highlighted charges, EBITDA was $15.0 million for the fourth quarter 2011 compared to $15.8 million for the fourth quarter 2010.  A reconciliation of EBITDA to net income is set forth at the end of this earnings release.

Fourth quarter 2011 gross profit was $37.9 million compared to $40.9 million for the fourth quarter 2010.  Fourth quarter 2011 gross margin was 16.7% compared to 19.0% for the fourth quarter 2010.  The decline in gross profit was due to lower unit volume and a reduction in gross profit per unit.  Higher average selling prices weakened demand.  The Company's unit volume decreased 2 relative to the fourth quarter 2010 on a 7% increase in average selling prices.  The decline in gross profit per unit was due to the Company's inability to increase selling prices on a per unit basis as much as its cost of goods rose.  In addition, promotional activity offered by major suppliers was high during the fourth quarter 2011, which reduced the Company's gross profit per unit.  Fourth quarter 2010 gross profit included the recognition of a $6.5 million inventory gain resulting from the increase in cotton apparel prices and a $6.5 million increase to inventory reserves.  The inventory charge was recorded due to an 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 on these products increased the rate of sales for these products during 2011.  

According to data provided by CREST, the U.S. imprintable activewear market shrank 4% in units sold during the fourth quarter 2011.  The Company's units sold also declined by 4% during the period when using the comparable period used by CREST, which was October 1, 2011 through December 31, 2011.  The Company's fourth quarter 2011 began September 25, 2011 and ended December 31, 2011.

Fiscal 2011 Results Compared to Fiscal 2010 Results

Fiscal 2011 net sales were $848.2 million compared to $791.3 million for fiscal 2010.  Income from operations was $55.7 million compared to $31.2 million for fiscal 2010.  Fiscal 2011 net income was $45.7 million compared to $16.7 million for fiscal 2010.

EBITDA for fiscal 2011 was $65.4 million compared to $45.8 million for fiscal 2010.  Excluding the impact of highlighted charges discussed below, Adjusted EBITDA for fiscal 2011 was $63.5 million compared to $46.1 million for fiscal 2010.  Adjusted EBITDA for fiscal 2011 was in line with the Company's guidance of $62 million to $65 million.

Fiscal 2011 gross profit was $160.6 million compared to $147.1 million for fiscal 2010.  Fiscal 2011 gross margin was 18.9% compared to 18.6% for fiscal 2010.  The increase in gross profit was due to higher gross profit per unit and 5% fewer units sold.  The increase in gross profit per unit is attributable to management's continued focus on improved pricing and purchasing activities which led to a 15% increase in gross profit per unit compared to fiscal 2010.  Fiscal 2010 gross profit included the recognition of approximately $13.0 million for inventory gains resulting from the rising cotton apparel prices partially offset by the $6.5 million increase to inventory reserves previously noted.

According to data provided by CREST, the U.S. imprintable activewear market shrank 5% in units sold during 2011.  The Company's units sold also declined by 5% during the period when using the comparable period used by CREST, which was January 1, 2011 through December 31, 2011.  The Company's fiscal 2011 began December 26, 2011 and ended December 31, 2011.

Highlighted Charges

There were no credits to restructuring charges recorded in the fourth quarter 2011.  The credit to restructuring charges during fiscal 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.  Other expense consisted of the loss on sale of the facility, which the Company had acquired in July 2011 and sold in August 2011.

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 a 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.

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 $130.8 million at December 2011 compared to $115.3 million at December 2010.  Borrowing base availability at December 2011 and December 2010 was $57.7 million and $40.0 million, respectively.

The Company's December 2011 inventory was $47.6 million higher than the prior year. The increase in inventory was due to an increase in cost of sales per day at December 2011 compared to the prior year combined with fewer inventory turns at December 2011 compared to the prior year.  At December 31, 2010, the Company did not have the financial wherewithal to buy all the inventory that the Company's proprietary supply chain practices indicated would maximize return on investment.  At December 31, 2011, the Company purchased goods to the level that would maximize return on investment.  

The face value of the 2013 Notes outstanding was $117.9 million at December 2011 and December 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 $146.1 million and $160.3 million for December 2011 and December 2010, respectively.  As a result of capitalizing the cash interest payments for the 2013 Notes, the Company will not recognize any interest expense on the 2013 Notes.  The Company paid $7.1 million for each semi-annual cash interest payment due in April 2011 and October 2011.  These payments were treated as reductions in the carrying value of the 2013 Notes.

Selected Balance Sheet Information

Conference Call

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

A live internet webcast will be available in a listen only mode at the Company's website, www.broderbrosco.com, in the "Investor Relations" section. The webcast will be in a listen only mode. If you would like to participate in the question and answer portion of the presentation, please dial (866) 362-4820 and use conference ID 43580818.  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 webcast, a replay will be available beginning March 23, 2012 at 1:00 p.m. Eastern Time until April 2, 2012, at 1:00 p.m. Eastern Time. To access the replay you can listen via webcast at the Company's website, www.broderbrosco.com, in the "Investor Relations" section or dial (888) 286-8010, conference ID 22568327.

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.