Broder Bros., Co. Announces Fourth Quarter and Fiscal Year 2009 Results
TREVOSE, Pa., March 26 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced results for its fourth quarter and fiscal year ended December 26, 2009.
Fourth Quarter 2009 Results Compared to Prior Year
Fourth quarter 2009 net sales were $182.8 million compared to $219.5 million for the fourth quarter 2008. Loss from operations for the fourth quarter 2009 was ($0.2) million compared to income from operations of $3.2 million for the fourth quarter 2008, excluding the goodwill and trade name impairment charges. Net loss for the fourth quarter 2009 was ($2.9) million compared to net income of $8.5 million for the fourth quarter 2008.
For the fourth quarter 2009, the Company reported earnings before interest expense, income taxes, other financing costs, goodwill and trade name impairment charges, the gain on troubled debt restructuring, depreciation and amortization (EBITDA) of $3.7 million compared to EBITDA of $7.3 million for the fourth quarter 2008. A reconciliation of EBITDA to net 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 charges, EBITDA was $5.5 million for the fourth quarter 2009 and $7.5 million for the fourth quarter 2008.
Fourth quarter 2009 revenue was 16.7% lower than the fourth quarter 2008. The Company's unit shipments were 15% less than the prior year compared to a 9% decline in overall industry unit shipments as reports by STARS, meaning that more than half of the Company's revenue decline was due to market share loss. Based on market information received after year-end, management believes that the Company has halted market share loss. The timing of halting market share loss was in line with management's expectations.
Fourth quarter 2009 gross profit was $30.9 million compared to $41.4 million for the fourth quarter 2008. Gross profit was 25% less than the prior year primarily due to lower unit volume as noted above.
Operating expenses during the fourth quarter 2009, excluding the highlighted charges noted below, were $25.4 million compared to $33.9 million during the fourth quarter 2008. The reduction in operating expenses was primarily due to a $4.1 million reduction in bad debt expense; a $2.6 million reduction in fixed personnel costs resulting from headcount reductions in the fourth quarter 2008 and first quarter 2009; a $1.0 million reduction in variable operating expenses due to lower volumes; and other reductions in fixed operating expenses.
Full Year 2009 Results Compared to Prior Year
Fiscal 2009 net sales were $705.2 million compared to $926.1 million for fiscal 2008. Loss from operations for fiscal 2009 was ($4.4) million compared to ($46.9) million for fiscal 2008. Net loss for fiscal 2009 was ($13.2) million compared to ($68.9) million for fiscal 2008.
EBITDA for fiscal 2009 was $12.8 million compared to $33.6 million for fiscal 2008. Results include the impact of certain restructuring and other highlighted charges discussed below. Excluding these highlighted charges, EBITDA was $17.1 million for fiscal 2009 and $36.9 million for fiscal 2008.
Highlighted Charges
Results for the three and twelve months ended December 26, 2009 and December 27, 2008 include certain charges as follows:
(dollars in millions)
(Unaudited)
Three Twelve
Months Months
Ended Ended
------- -------
2009 2008 2009 2008
---- ---- ---- ----
Restructuring charges, net $1.5 $1.6 $2.3 $2.7
Stock-based compensation 0.0 0.1 0.3 0.4
Management fees 0.0 (1.6) 0.0 0.0
Facilities consolidation-related
charges 0.0 0.1 0.0 0.2
Other highlighted charges 0.3 0.0 1.7 0.0
--- --- --- ---
Total highlighted charges $1.8 $0.2 $4.3 $3.3
==== ==== ==== ====
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.
Restructuring charges recorded during the twelve months ended December 2009 consisted of a $1.4 million increase in rent described above, approximately $0.5 million in interest accretion, and $0.4 million in severance costs due to headcount reductions in March 2009. Other highlighted charges recorded during the twelve months ended December 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 and $0.3 million in inventory management consulting charges.
Restructuring charges recorded during the fourth quarter of 2008 consisted of severance charges of $1.0 million related to a workforce reduction announced in December 2008, $1.0 million resulting from changes in sublease assumptions partially offset by a reduction to restructuring charges of approximately $0.5 million as the Company executed a buyout agreement for its Stafford, TX distribution center, and interest accretion of $0.1 million.
Restructuring charges during the twelve months ended December 2008 consisted of $1.1 million in severance charges, $1.4 million resulting from changes in sublease assumptions partially offset by a reduction to the restructuring charge of approximately $0.5 million, and $0.7 million in interest accretion.
Business Outlook
Expanding on an observation earlier in this press release, management believes that the Company has begun to regain lost market share. Regaining lost market share began approximately at year-end in line with management's guidance following the end of the third quarter.
During Fiscal 2010, management will be focused on regaining lost market share and building the liquidity required both to retire the 2010 Notes and to pay cash interest in on the 2013 Notes in October 2010.
Management believes that the Company halted the share loss of 2009 by securing its position as the "ultra-reliable distributor." This positioning exploits the Company's ability to remain strongly in stock in the most popular products and rebuild its inventory in proprietary brands. It also exploits the Company's superior fulfillment functions in its distribution centers, call centers, and websites. In addition, it relies on a commitment not to be undersold by competition which does not enjoy the Company's strong margins and low variable operating costs.
Following the exchange offer, management determined that its strong operations were necessary but insufficient for long-term success. To that end, the Company successfully recruited a senior sales and marketing executive into a newly created position of Executive Vice President of Sales and Marketing. This position has the responsibility for and the authority to, among other things, strengthen the Company's selling effort to meet the needs of customers, rationalize the Company's product assortment to increase its competitiveness, and offer pricing to attract customers from all segments of the imprintable sportswear market.
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 $100.8 million at December 26, 2009 compared to $122.9 million at September 26, 2009 and $150.0 million at December 27, 2008. The reduction in revolver debt was mainly due to a reduction in inventory (net of a smaller decrease in accounts payable) partially offset by payment of transaction costs in connection with the exchange offer. Borrowing base availability at December 26, 2009, September 26, 2009 and December 27, 2008 was $31.5 million, $33.9 million and $35.9 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 2009 Annual Report which will be posted on the Company's corporate website at www.broderbrosco.com.
Selected Balance Sheet Information
(dollars in millions)
(Unaudited)
December 26, September 26, December 27,
2009 2009 2008
---- ---- ----
Accounts Receivable, Net $63.7 $77.5 $72.4
Inventory (1) 168.2 178.7 235.5
Accounts Payable (1) 74.1 78.0 87.6
Revolving Credit Debt 100.8 122.9 150.0
----- ----- -----
57.0 55.3 70.3
2010 Notes $11.5 $11.5 $225.0
2013 Notes $160.3 $162.4 $0.0
Shareholders' Deficit ($97.1) ($94.2) ($126.9)
(1) Inventory and accounts payable at December 2009, September 2009
and December 2008 include accruals for inventory in-transit between
suppliers and Company distribution centers of $7.4 million, 3.0
million and $12.8 million, respectively.
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 generally accepted accounting principles. As a result of this transaction, the Company recorded a net non-cash gain of $10.5 million during the quarter ended June 30, 2009. This gain is 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. Generally accepted accounting principles require that the Company offset the 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 is recorded in other income on the Company's statement of operations.
As of December 2009, the 2013 Notes are recorded on the balance sheet at $160.3 million which represents the total future cash payments under the terms of the Notes, including both principal and interest payments. As a result, the Company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity. Generally accepted accounting principles require an assumption that all interest payments will be Payable in Kind ("PIK") at the PIK interest rate of 15% regardless of the probability of a cash interest payment.
About Broder Bros., Co.
Broder Bros., Co. is the leading distributor of trade, private label, and retail apparel brands to the imprinting, embroidery and promotional products industries in the United States. 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 such as 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.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 26, 2009
AND DECEMBER 27, 2008
(dollars in millions)
(Unaudited)
Three Months Twelve Months
Ended Ended
------------ -------------
2009 2008 2009 2008
---- ---- ---- ----
Net sales $182.8 $219.5 $705.2 $926.1
Cost of sales (exclusive of depreciation
and amortization as shown below) 151.9 178.1 588.1 762.1
----- ----- ----- -----
Gross profit 30.9 41.4 117.1 164.0
Warehousing, selling and administrative
expenses 25.7 34.0 101.7 127.3
Restructuring charges, net 1.5 1.6 2.3 2.7
Goodwill and trade name impairment
charges 0.0 62.5 0.0 62.5
Management fee 0.0 (1.6) 0.0 0.0
Stock-based compensation 0.0 0.1 0.3 0.4
Depreciation and amortization 3.9 4.1 17.2 18.0
--- --- ---- ----
Operating expenses 31.1 100.7 121.5 210.9
---- ----- ----- -----
Loss from operations (0.2) (59.3) (4.4) (46.9)
Other (income) expense
Interest expense, net of change in fair
value of interest rate swaps 2.8 8.6 17.8 35.7
Other financing costs 0.0 0.0 1.5 0.0
Gain on troubled debt restructuring 0.0 0.0 (10.5) 0.0
--- --- ----- ---
Total other expense 2.8 8.6 8.8 35.7
--- --- --- ----
Loss before income taxes (3.0) (67.9) (13.2) (82.6)
Income tax provision (0.1) (13.9) 0.0 (13.7)
---- ----- --- -----
Net loss ($2.9) ($54.0) ($13.2) ($68.9)
===== ====== ====== ======
Reconciliation to EBITDA
Goodwill and trade name impairment
charges 0.0 62.5 0.0 62.5
Interest expense, net of change in
fair value of interest rate swaps 2.8 8.6 17.8 35.7
Other financing costs 0.0 0.0 1.5 0.0
Income tax provision (0.1) (13.9) 0.0 (13.7)
Depreciation and amortization 3.9 4.1 17.2 18.0
Gain on troubled debt restructuring 0.0 0.0 (10.5) 0.0
--- --- ----- ---
EBITDA $3.7 $7.3 $12.8 $33.6
==== ==== ===== =====
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, goodwill and trade name impairment charges, the gain on troubled debt restructuring, depreciation, and amortization. EBITDA is a measure commonly used in the distribution industry and is 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 should not be considered as an alternative to, or more meaningful than, amounts determined in accordance with generally accepted accounting principles. EBITDA is 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.
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