Broder Bros., Co. Announces Third Quarter Earnings
TREVOSE, Pa., Nov. 2, 2012 /PRNewswire/ — Broder Bros., Co. (the “Company”) today announced its third quarter results for its quarter ended September 29, 2012.
Third Quarter 2012 Results Compared to Third Quarter 2011 Results
Third quarter 2012 net sales were $205.1 million compared to $220.5 million for the third quarter 2011. Income from operations for the third quarter 2012 was $6.5 million compared to $12.7 million for the third quarter 2011. Net income for the third quarter 2012 was $3.1 million, or $0.30 per diluted share, compared to $8.3 million, or $0.80 per diluted share, for the third quarter 2011.
For the third quarter 2012, the Company reported earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $8.3 million compared to EBITDA of $15.3 million for the third quarter 2011. Results include the impact of certain restructuring and other highlighted charges discussed below. Excluding these highlighted charges, EBITDA was $10.0 million for the third quarter 2012 compared to $15.2 million for the third quarter 2011. The year-over-year reduction in EBITDA of $5.2 million was driven by lower gross profit. A reconciliation of EBITDA to net income is set forth at the end of this earnings release.
Third quarter 2012 gross profit was $34.7 million compared to $39.8 million for the third quarter 2011. Third quarter 2012 gross margin was 16.9% compared to 18.0% one year prior. The decrease in gross margin was due to lower gross profit per unit. The Company’s unit volume declined by 6% compared to the third quarter 2011 on a 2% reduction in average selling prices.
Effective from the month of July 2012, data from CREST reports is no longer available to the Company.
The other highlighted charges in the third quarter 2012 and for the nine months ended September 29, 2012 consisted of employee separation costs combined with certain charges incurred in connection with refinancing the Company’s $118 million aggregate principal amount of 12%/15% Senior Payment-In-Kind Toggle Notes due 2013 (the “Notes”).
The credit to restructuring charges recorded in the third quarter 2011 consisted of a $0.2 million credit resulting from an amendment to a sublease 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.
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 $132.8 million at September 2012 compared to $130.8 million at December 2011 and $141.2 million at September 2011. The decrease in revolver debt compared to September 2011 was mainly due to lower levels of working capital at September 2012. The Company’s Accounts Payable and Revolver balances at September 2012 reflect the payment of certain Fleece payments that were made in September 2012, whereas the fleece payments in the prior year were made in October 2011. Borrowing base availability at September 2012, December 2011 and September 2011 was $41.4 million, $57.7 million and $67.3 million, respectively.
The face value of the 2013 Notes outstanding was $117.9 million at September 2012, December 2011 and June 2011. 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 $139.1 million, $146.1 million and $153.2 million at September 2012, December 2011 and September 2011, respectively. 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 in semi-annual cash interest due in October 2012 and in April 2012. These payments are treated as reductions in the carrying value of the 2013 Notes.
Selected Balance Sheet Information ---------------------------------- (dollars in millions) (Unaudited) September 29, December 31, September 24, 2012 2011 2011 ---- ---- ---- Accounts Receivable, Net $82.4 $73.6 $88.3 Inventory, Net 222.5 221.0 264.7 Accounts Payable, Net (1) (68.3) (66.5) (114.2) Revolving Credit Debt (132.8) (130.8) (141.2) ------ ------ ------ $103.8 $97.3 $97.6 2013 Notes $139.1 $146.1 $153.2 Shareholders' Deficit ($27.7) ($34.4) ($51.4) Memo: In-transit Inventory and Accounts Payable included above $9.1 $12.5 $9.7 (1) December and September 2011 balances reflect reclassifications of cash to accounts payable
As a result of actions taken during the third quarter and fourth quarter 2012 that are designed to generate higher gross profit, Broder Bros., Co. anticipates improved performance in the final quarter of the year relative to the Adjusted EBITDA declines experienced during the first three quarters of the year. The Company now expects 2012 Adjusted EBITDA between $36 million and $38 million.
As noted in the second quarter 2012 earnings release, Broder Bros., Co. will no longer conduct quarterly conference calls to discuss the Company’s quarterly financial results. Until a refinancing of the 2013 Notes has been completed, the Company will continue to comply with the terms of the Indenture governing its 2013 Notes.
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 and refinance the 2013 Notes 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 or any new debt 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.
STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 29, 2012 AND SEPTEMBER 24, 2011 (dollars in millions, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- 2012 2011 2012 2011 ---- ---- ---- ---- Net sales $205.1 $220.5 $610.3 $621.5 Cost of sales (exclusive of depreciation 170.4 180.7 511.8 498.8 and amortization as shown below) 34.7 39.8 98.5 122.7 Gross profit Warehousing, selling and administrative 26.4 24.6 77.0 74.4 expenses Depreciation and amortization 1.8 2.6 5.6 7.9 Restructuring (credits) charges, net 0.0 (0.1) 0.1 (2.2) Stock-based compensation 0.0 0.0 0.1 0.1 28.2 27.1 82.8 80.2 Operating expenses 6.5 12.7 15.7 42.5 Income from operations 1.5 1.7 4.5 5.8 Interest expense 5.0 11.0 11.2 36.7 Income before income taxes Income tax provision 1.9 2.7 4.5 8.1 --- --- --- --- $3.1 $8.3 $6.7 $28.6 Net income Net income per share $0.31 $0.82 $0.65 $2.84 Basic $0.30 $0.80 $0.65 $2.78 Diluted Reconciliation to EBITDA $3.1 $8.3 $6.7 $28.6 Net income 1.5 1.7 4.5 5.8 Interest expense 1.9 2.7 4.5 8.1 Income tax provision 1.8 2.6 5.6 7.9 Depreciation and amortization EBITDA $8.3 $15.3 $21.3 $50.4 ==== ===== ===== ===== Reconciliation to Adjusted EBITDA 0.0 (0.1) 0.1 (2.2) Restructuring (credits) charges, net 0.0 0.0 0.1 0.1 Stock-based compensation 1.7 0.0 3.2 0.0 Other highlighted charges Adjusted EBITDA $10.0 $15.2 $24.7 $48.3 ===== ===== ===== =====
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.