Broder Bros., Co. announced results for its fourth quarter and fiscal year ended December 25, 2004 closing a year which produced strong improvement in revenues and profitability.
The company acquired Alpha Shirt Holdings, Inc., the parent of Alpha Shirt Company, on September 22, 2003 and NES Clothing Company on August 31, 2004. Actual results in this release include the results of Alpha and NES from the respective dates of acquisition. Pro forma results reflect the combined operations of Broder, Alpha, NES and other acquired businesses for all periods presented. On November 23, 2004, the company issued an additional $50.0 million aggregate principal amount of its 11 1/4% Senior Notes due 2010. Pro forma results reflect the interest impact of the Notes and corresponding reduction in borrowings under the company's line of credit as if the issuance of the Notes had occurred on the first day of fiscal year 2003.
Fourth Quarter 2004 Results Compared to Prior Year
Fourth quarter 2004 net sales were $242.0 million compared to $201.9 million for the fourth quarter 2003. Fourth quarter 2004 income from operations was $8.5 million compared to a loss from operations of $(5.6) million for the fourth quarter 2003. Fourth quarter 2004 net income was $0.8 million compared to a net loss of $(7.5) million for the fourth quarter 2003.
Fourth Quarter 2004 Pro Forma Results Compared to Prior Year Pro Forma
Pro forma fourth quarter 2004 net sales of $242.0 million improved over pro forma net sales of $234.6 million for the fourth quarter 2003. Pro forma fourth quarter 2004 income from operations of $8.9 million increased from the pro forma loss from operations of $(4.9) million for the fourth quarter 2003. Pro forma fourth quarter 2004 earnings before interest, taxes, depreciation and amortization (EBITDA) of $14.2 million improved over pro forma EBITDA of $1.7 million for the fourth quarter 2003.
Actual and pro forma results include the impact of certain restructuring, integration and other highlighted charges discussed below. Excluding these highlighted charges, pro forma fourth quarter 2004 EBITDA was $16.9 million, compared to $12.7 million pro forma EBITDA for the fourth quarter 2003.
Full Year 2004 Results Compared to Prior Year
For fiscal year 2004, net sales of $877.4 million exceeded actual net sales of $487.8 million for fiscal year 2003. Fiscal year 2004 income from operations of $26.0 million compared to a $(6.0) million loss from operations for fiscal year 2003. The fiscal year 2004 net loss was $(1.5) million compared to a net loss of $(12.5) million for fiscal year 2003.
Full Year 2004 Pro Forma Results Compared to Prior Year Pro Forma
Fiscal year 2004 pro forma net sales of $967.2 million improved over fiscal year 2003 pro forma net sales of $921.8 million. Fiscal year 2004 pro forma income from operations of $29.5 million improved over the pro forma income from operations of $10.5 million for fiscal year 2003.
Excluding the highlighted charges discussed below, pro forma fiscal year 2004 EBITDA was $58.9 million, compared to $45.3 million for fiscal year 2003.
Restructuring and Integration Activities
Throughout 2004 the company successfully completed various restructuring and integration activities related to the September 2003 combination of the Broder and Alpha businesses. The fourth and final stage of this plan, migration of the order entry system onto a single platform, was completed in October 2004. Since the announcement of the Broder and Alpha merger, the company has successfully closed five distribution centers, three of which were closed in 2003, and two in 2004.
In connection with the acquisition of NES, the company has identified cost saving opportunities of $1.6 million including the closure of a distribution facility in March 2005. With the closure of this distribution facility, and progress to date toward reduction of certain redundant general and administrative positions, the NES restructuring and integration is already generating expected savings, and is expected to be substantially complete by the end of 2005.
Pro Forma Segment Results
The company has three operating segments. The Broder division generated fourth quarter 2004 net sales of $91.3 million compared to $93.6 million in the fourth quarter 2003. The Alpha division generated fourth quarter 2004 net sales of $116.9 million compared to pro forma net sales of $108.3 million in the fourth quarter 2003. The NES division generated pro forma net sales of $33.8 million in the fourth quarter 2004, compared to pro forma net sales of $32.7 million in the fourth quarter 2003.
For fiscal year 2004, the Broder division generated net sales of $380.0 million compared to pro forma net sales of $374.7 million in fiscal year 2003. Fiscal year 2004 net sales for the Alpha division were $454.5 million compared to pro forma net sales of $423.9 million in fiscal year 2003. Fiscal year 2004 pro forma net sales for the NES division were $132.7 million compared to pro forma net sales of $123.2 million in fiscal year 2003.
Business Outlook
“We are very pleased with our completion of the Alpha integration process and the ensuing results we have enjoyed from the combination of the businesses,” said Vince Tyra, Chief Executive Officer. “We now look forward to leveraging our most recent acquisition of NES with equal success. While 2004 was a terrific year, we remain focused on enhancing our position as a market leader while improving the profitability of the business. Our recent launch of four new private label brands and the planned April 2005 opening of our newest distribution center in Seattle are just two of our strategic initiatives designed to meet both objectives.”
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 25, 2004
(dollars in millions)
(Unaudited)
Three Months Ended
Actual Pro Forma (1)
2004 2003 2004 2003
Net sales $242.0 $201.9 $242.0 $234.6
Cost of sales 197.1 167.2 196.7 194.4
Gross profit 44.9 34.7 45.3 40.2
Warehousing, selling and
administrative 29.1 25.7 29.1 29.5
Restructuring and asset impairment
charges 1.1 9.1 1.1 9.1
Management fee 0.9 - 0.9 -
Stock-based compensation 0.2 - 0.2 -
Depreciation and amortization 5.1 5.5 5.1 6.5
Total operating expenses 36.4 40.3 36.4 45.1
Income (loss) from operations 8.5 (5.6) 8.9 (4.9)
Other (income) expense
Interest expense, net of change in
fair value of interest rate swaps 7.6 7.0 8.1 8.0
All other expense (income) (0.2) (0.1) (0.2) (0.1)
Total other expense 7.4 6.9 7.9 7.9
Income (loss) before income taxes 1.1 (12.5) 1.0 (12.8)
Income tax provision (benefit) 0.3 (5.0) 0.3 (5.2)
Net income (loss) $0.8 $(7.5) $0.7 $(7.6)
Reconciliation to EBITDA
Net income (loss) $0.8 $(7.5) $0.7 $(7.6)
Interest expense, net of change in
fair value of interest rate swaps 7.6 7.0 8.1 8.0
Income tax provision (benefit) 0.3 (5.0) 0.3 (5.2)
Depreciation and amortization 5.1 5.5 5.1 6.5
EBITDA $13.8 $0.0 $14.2 $1.7
Twelve Months Ended
Actual Pro Forma (1)
2004 2003 2004 2003
Net sales $877.4 $487.8 $967.2 $921.8
Cost of sales 720.1 411.1 793.5 766.2
Gross profit 157.3 76.7 173.7 155.6
Warehousing, selling and
administrative 106.1 62.7 116.8 112.7
Restructuring and asset impairment
charges 3.5 9.1 3.5 9.1
Management fee 1.9 0.6 1.9 -
Stock-based compensation 0.2 - 0.2 -
Depreciation and amortization 19.6 10.3 21.8 23.3
Total operating expenses 131.3 82.7 144.2 145.1
Income (loss) from operations 26.0 (6.0) 29.5 10.5
Other (income) expense
Interest expense, net of change in
fair value of interest rate swaps 28.5 14.6 32.0 32.0
All other expense (income) 0.4 - 0.4 0.7
Total other expense 28.9 14.6 32.4 32.7
Income (loss) before income taxes (2.9) (20.6) (2.9) (22.2)
Income tax provision (benefit) (1.4) (8.1) (1.4) (8.8)
Net income (loss) $(1.5) $(12.5) $(1.5) $(13.4)
Reconciliation to EBITDA
Net income (loss) $(1.5) $(12.5) $(1.5) $(13.4)
Interest expense, net of change in
fair value of interest rate swaps 28.5 14.6 32.0 32.0
Income tax provision (benefit) (1.4) (8.1) (1.4) (8.8)
Depreciation and amortization 19.6 10.3 21.8 23.3
EBITDA $45.2 $4.3 $50.9 $33.1
(1) Pro forma results give effect to acquisitions and financing
transactions as if they had occurred at the beginning of the periods
presented. Acquisitions and related financing transactions for
which pro forma effect is given, include: (i) acquisition of T-
Shirts & More, Inc. in June 2003; (ii) acquisition of Alpha Shirt
Holdings, Inc. in September 2003; (iii) acquisition of NES Clothing
Company in August 2004; and (iv) financing of $50 million additional
Senior Notes in November 2004. For additional information regarding
these transactions see our Form 10-K for fiscal 2004 on file with
the Securities and Exchange Commission.
