Broder Bros. reported first quarter 2011 sales were $173.9 million compared to $153.5 million for the first quarter 2010.  Income from operations for the first quarter 2011 was $6.5 million compared to a loss of $3.3 million for the first quarter 2010. 

Net income for the first quarter 2011 was $4.3 million compared to a net loss of $6.5 million for the first quarter 2010.

For the first quarter 2011, the company reported earnings before interest, taxes, depreciation and amortization (EBITDA) of $9.2 million compared to EBITDA of $0.9 million for the first quarter 2010.

Results include the impact of certain restructuring and other highlighted charges discussed below.  Excluding these highlighted charges, EBITDA was $9.3 million for the first quarter 2011 compared to $1.4 million for the first quarter 2010.  The improvement in EBITDA was driven by higher gross margins and higher unit volumes.  

First quarter 2011 gross profit was $34.5 million compared to $26.9 million for the first quarter 2010.  First quarter 2011 gross margin was 19.8 percent compared to 17.5 percent one year prior.  The increase in gross profit was attributable to an increase in units sold and management’s continued focus on improved pricing and purchasing activities.  

The company’s major suppliers announced cost increases in January 2011 and again in late March 2011 or early April 2011 following three cost increases announced from July 2010 through December 2010.  First quarter 2011 gross profit included essentially no benefit resulting from cotton price increases.  The company increased its selling prices in response to each of the cost increases imposed by manufacturers but the company did not raise selling prices on a per unit basis as much as the company’s costs have risen due to competitive factors.  

According to data provided by CREST, the U.S. imprintable activewear market grew 7 percent in units sold during the first quarter 2011.  The Company’s units sold also grew by 7% during the period when using the comparable period used by CREST, which was January 1, 2011 through March 31, 2011.  The company first quarter 2011 began December 26, 2010 and ended March 26, 2011.

Highlighted Charges

During the first quarter 2011, company recorded restructuring charges of $0.1 million in interest accretion for closed facilities.

Highlighted charges recorded during the first quarter 2010 consisted of $0.1 million in restructuring charges due to interest accretion on restructuring charges for closed facilities and other highlighted charges of $0.4 million 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 $126.1 million at March 2011 compared to $115.3 million at December 2010 and $121.0 million at March 2010.  The increase in revolver debt was mainly due to higher levels of working capital at March 2011.  Borrowing base availability at March 2011, December 2010 and March 2010 was $29.1 million, $40.0 million and $10.8 million, respectively.

At March 2011, December 2010, and March 2010, the 2013 Notes were recorded on the balance sheets at $160.3 million, which represents the total future cash payments under the terms of the 2013 Notes, including both principal and interest payments, as required under the guidance provided by the FASB.  As a result, the company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity.  The face value of the 2013 Notes outstanding was $117.9 million at March 2011, December 2010 and March 2010.  The Company paid $7.1 million in semi-annual cash interest in April 2011.

The company’s inventory and accounts receivable balances at March 2011 increased by $34.7 million and $12.5 million, respectively, over March 2010 levels.  These increases were driven by improved sales and inflation in apparel prices.  The sales growth and price increases have combined to require the company to maintain a higher inventory level to meet its customers need for product availability, at an increased price per unit, as well as higher accounts receivable to fund customers needs for credit.  

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 payments, and provide funds for working capital, capital expenditures and other needs of the business for at least fiscal 2011.  The company’s current revolving credit facility provides for a $215.0 million revolving credit facility which may be used for working capital and other lawful corporate purposes of the company. 

Management believes it has sufficient liquidity during 2011 to meet the requirements under the revolving credit facility to pay $7.1 million in each semi-annual cash interest payments under the Senior Notes due October 2013.  The company expects to remain in compliance with the fixed charge coverage ratio covenant included in its revolving credit facility during fiscal 2011.

Second Quarter 2011 Events

Following a successful consent solicitation that ended on March 25, 2011, on March 28, 2011, the company and the Trustee governing the 2013 Notes executed a supplemental indenture to the Indenture governing the 2013 Notes.  Approximately 99.9 percent of holders of 2013 Notes consented to the indenture amendment. Each consenting holder received a consent fee equal to $5.00 for each $1,000 principal amount of 2013 Notes for which consents were validly delivered and not revoked.  The indenture amendment modified the definition in the Indenture limiting Permitted Debt (as defined in the Indenture) to permit the company to incur up to an additional $40.0 million of Indebtedness (as defined in the Indenture) under subsection 1 of the definition of Permitted Debt.  On March 29, 2011, the company announced in a Current Report that it had completed its consent solicitation to amend the Indenture.

Also on March 28, 2011, the company increased its revolving credit facility commitment from $175.0 million to $215.0 million under its Second Amended and Restated Credit Agreement, dated as of October 13, 2010.  In connection with this increase, the company entered into the First Amendment to Second Amended and Restated Credit Agreement, which modified the Credit Agreement by (i) acknowledging an increase from $175.0 million to $215.0 million to the aggregate revolving facility and (ii) amending a component of the borrowing base to provide that it shall not exceed the greater of (A) $215.0 million and (B) the amount of the Indenture Borrowing Base (as defined in the Credit Agreement). The company increased the size of its revolving credit facility to accommodate both continued cotton apparel price increases and continued unit growth.  

On April 29, 2011, the company purchased its leased facility in Wadesboro, NC.  The facility had been closed since the fourth quarter 2003 and the lease on the facility was set to expire in March 2014.  As a result of the purchase, the company will reduce its expected future cash outflows related to this facility by more than $2 million.