Broder Bros. reported fourth quarter 2009 net
sales were $182.8 million compared to $219.5 million for the fourth quarter 2008.
Loss from operations was $200,000 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 a year ago.
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($46.9) million for fiscal
2008. Net loss for fiscal 2009 was ($13.2)
million compared to ($68.9) million
for fiscal 2008.
compared to
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$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.
consisted of
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$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. and
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 millionJune 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. during the quarter ended
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.
Broder
Bros., Co. is a distributor of trade, private label,
and retail apparel brands to the imprinting, embroidery and promotional
products industries in the United States.
Via its three divisions, the Company distributes brands such as Anvil, Fruit of the Loom, Gildan, Hanes and
Jerzees as well as retail brands such as Adidas Golf and Champion.
