Broder Bros., Co. Announces Third Quarter 2009 Results

TREVOSE, Pa., Nov. 5 /PRNewswire/ -- Broder Bros., Co. (the "Company") today announced results for its third quarter ended September 26, 2009.

Third Quarter 2009 Results Compared to Third Quarter 2008

Third quarter 2009 net sales were $193.0 million compared to $252.3 million for the third quarter 2008. Income from operations for the third quarter 2009 was $1.7 million compared to $7.8 million for the third quarter 2008. Net loss for the third quarter 2009 was $1.4 million compared to $0.9 million for the third quarter 2008. For the third quarter 2009, the Company reported earnings before interest, other financing costs, taxes, depreciation, amortization and the extraordinary item (EBITDA) of $6.0 million compared to $12.3 million for the third quarter 2008. A reconciliation of EBITDA to net income (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 highlighted charges, Adjusted EBITDA was $7.0 million for the third quarter 2009 and $13.3 million for the third quarter 2008.

Third quarter 2009 revenue was 23.5% lower than third quarter 2008. The Company's unit shipments were 22% less than the prior year compared to a 12% decline in overall industry unit shipments as reported by STARS, meaning more than half of the Company's revenue decline was due to market contraction as a result of the recession in the U.S. and less than half of the revenue decline was due to market share loss.

Third quarter 2009 gross profit was $31.0 million compared to $43.9 million for the third quarter 2008. Gross profit was 29% less than the prior year primarily due to lower unit volume as noted above.

Operating expenses during the third quarter 2009, excluding the highlighted charges noted below, were $24.0 million compared to $30.6 million during the third quarter 2008. The reduction in operating expenses was mainly due to a $3.9 million reduction in fixed personnel costs resulting from headcount reductions in the fourth quarter 2008 and first quarter 2009; a $2.0 million reduction in variable operating expenses primarily due to lower unit volumes; and a $0.5 million reduction in non-personnel-related distribution center expenses.

Highlighted Charges

Results for the three and nine months ended September 26, 2009 and September 27, 2008 include certain charges as follows:

(dollars in millions) (Unaudited) Three Nine Months Months Ended Ended ------- ------- 2009 2008 2009 2008 ---- ---- ---- ----

Restructuring charges, net $0.1 $0.2 $0.8 $1.1 Stock-based compensation 0.0 0.1 0.3 0.3 Management fees 0.0 0.7 0.0 1.6 Facilities consolidation-related charges 0.0 0.0 0.0 0.1 Other highlighted charges 0.9 0.0 1.4 0.0 --- --- --- ---

Total highlighted charges $1.0 $1.0 $2.5 $3.1 ==== ==== ==== ==== Restructuring charges recorded during the second and third quarters 2009 consisted of interest accretion on restructuring charges for closed facilities. Restructuring charges recorded during the first quarter 2009 consisted mainly of severance costs due to headcount reductions in March 2009. Other highlighted charges recorded during the third quarter 2009 consisted of $0.6 million in executive bonus expense related to a bonus award program for certain key executives which recognized the executive's value in the financial restructuring effort and commitment to stabilize and grow the Company's business, plus $0.3 million in professional fees related to the exchange offer. Other highlighted charges recorded during the nine months ended September 26, 2009 consisted of $0.6 million in executive bonus expense, $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 third quarter of 2008 consisted of interest accretion on restructuring charges. Restructuring charges during the nine months ended September 27, 2008 consisted of $0.5 million of interest accretion on restructuring charges, $0.4 million resulting from changes in sublease assumptions for distribution centers which were previously closed and $0.1 million in severance charges.

Business Outlook

As stated in the Company's second quarter 2009 earnings release, management has refocused its attention on marketing and selling initiatives. Management believes that the Company can return to outgrowing its competition by having high inventory availability, high quality fulfillment, and competitive pricing.

As soon as inventory availability permitted, Broder demonstrated its in-stock performance through a series of promotions. Since then, Broder has codified its value proposition to its customers with "three promises." The first of the three promises is that Broder will be in-stock in the most popular products. The second is that Broder will fulfill the customer's order accurately. The third is that Broder will not be undersold. Since late July 2009 when Broder restated its value proposition, the Company's strong product availability, high-quality fulfillment, and competitive pricing have resulted in few service failures, minimal claims expense, and an improvement in sales performance relative to second quarter 2009 performance.

In addition, management continues to focus on strengthening operations. Distribution centers and call centers continue to increase both productivity and quality. Fixed costs which were eliminated in the fourth quarter 2008 and first quarter 2009 resulted in $8 million of savings in the second and third quarters of 2009. Excess inventory is being depleted through routine sales at normal margins.

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. 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 $122.9 million at September 26, 2009 compared to $150.0 million at December 27, 2008 and $131.4 million at September 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 September 26, 2009, December 27, 2008 and September 27, 2008 was $33.9 million, $35.9 million and $74.5 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 2009. Additional information regarding the Company's liquidity position can be found in the Company's 2009 Quarterly Reports and Annual Report on its Form 10-K which are posted on the Company's corporate website at www.broderbrosco.com .

Selected Balance Sheet Information

(dollars in millions) (Unaudited)

September 26, December 27, September 27, 2009 2008 2008 ---- ---- ----

Accounts Receivable, Net $77.5 $72.4 $102.9 Inventory (1) 178.7 235.5 252.7 Accounts Payable (1) 78.0 87.6 141.7 Revolving Credit Debt 122.9 150.0 131.4 ----- ----- ----- 55.3 70.3 82.5

2010 Notes $11.5 $225.0 $225.0 2013 Notes $153.1 $0.0 $0.0

Shareholders' Deficit ($84.9) ($126.9) ($73.0)

(1) Inventory and accounts payable at September 2009, December 2008 and September 2008 include accruals for inventory in-transit between suppliers and Company distribution centers of $3.0 million, $12.8 million and $15.0 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 the guidance provided by the Financial Accounting Standards Board. As a result of this transaction, the Company recorded a net non-cash gain of $19.9 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. The authoritative guidance requires that the Company offset any 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 as an extraordinary item on the Company's statement of operations.

As of September 26, 2009, the 2013 Notes are recorded on the balance sheet at $153.1 million which represents the total future cash payments under the terms of the Notes, including both principal and interest payments, as required under the authoritative accounting guidance. As a result, the Company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity. The calculation of the value of the total future cash payments includes the assumption that the interest payments on the 2013 Notes which are due in 2010 are paid in cash rather than additional notes. The calculation of the total future cash payments also includes the second consent fee of $2.1 million which was paid in October 2009, the payment of the interest due in October 2009 in additional notes, as required under the indenture governing the 2013 Notes, and the payment of all additional interest payments due on the 2013 Notes in cash, also as required under the indenture governing the 2013 Notes.

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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, serving customers since 1919. 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 will likely continue to have 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 may purchase more inventory than the Company can sell through in a reasonable period of time causing it to incur increased inventory carrying costs; 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 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 improve inventory levels; 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 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; 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; 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 SEC filings and the 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 NINE MONTHS ENDED SEPTEMBER 26, 2009 AND SEPTEMBER 27, 2008 (dollars in millions) (Unaudited)

Three Months Nine Months Ended Ended ------------ ----------- 2009 2008 2009 2008 ---- ---- ---- ----

Net sales $193.0 $252.3 $522.5 $706.6 Cost of sales (exclusive of depreciation and amortization as shown below) 162.0 208.4 436.3 584.0 ----- ----- ----- ----- Gross profit 31.0 43.9 86.2 122.6

Warehousing, selling and administrative expenses 24.9 30.6 76.0 93.3 Restructuring and asset impairment charges, net 0.1 0.2 0.8 1.1 Management fee 0.0 0.7 0.0 1.6 Stock-based compensation 0.0 0.1 0.3 0.3 Depreciation and amortization 4.3 4.5 13.3 13.9 --- --- ---- ---- Operating expenses 29.3 36.1 90.4 110.2 ---- ---- ---- -----

Income (loss) from operations 1.7 7.8 (4.2) 12.4

Other expense Interest expense, net of change in fair value of interest rate swaps 3.0 8.6 15.0 27.1 Other financing costs 0.0 0.0 1.5 0.0 --- --- --- --- Total other expense 3.0 8.6 16.5 27.1 --- --- ---- ----

Loss before income taxes (1.3) (0.8) (20.7) (14.7)

Income tax provision 0.1 0.1 0.2 0.2 --- --- --- ---

Net loss before extraordinary items (1.4) (0.9) (20.9) (14.9)

Extraordinary item - Gain on troubled debt restructuring 0.0 0.0 19.9 0.0

----- ----- ----- ------ Net loss ($1.4) ($0.9) ($1.0) ($14.9) ===== ===== ===== ======

Reconciliation to EBITDA Interest expense, net of change in fair value of interest rate swaps 3.0 8.6 15.0 27.1 Other financing costs 0.0 0.0 1.5 0.0 Income tax provision 0.1 0.1 0.2 0.2 Depreciation and amortization 4.3 4.5 13.3 13.9 Extraordinary item - Gain on troubled debt restructuring 0.0 0.0 (19.9) 0.0 --- --- ----- ---

EBITDA $6.0 $12.3 $9.1 $26.3 ==== ===== ==== =====

EBITDA includes the effects of certain charges more fully described in this release. EBITDA is defined as income before income taxes, other financing costs, interest expense, depreciation, amortization and the extraordinary item. 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.