Broder Bros. Sees Q3 Sales Increase 10.5% from Acquisition

Broder Bros., Co. announced third quarter 2005 net sales were $255.6 million compared to $231.3 million for the third quarter last year. Third quarter income from operations was $7.8 million compared to income from operations of $9.9 million for third quarter 2004. Third quarter 2005 net loss was $1.7 million compared to net income of $1.7 million for the third quarter 2004.

Third Quarter 2005 Results Compared to Prior Year Pro Forma

Third quarter 2005 net sales were $255.6 million compared to pro forma net sales of $253.8 million for the third quarter 2004. Third quarter 2005 income from operations was $7.8 million compared to pro forma income from operations of $10.2 million for the third quarter 2004. Third quarter 2005 earnings before interest, taxes, depreciation and amortization (EBITDA) was $12.6 million compared to pro forma EBITDA of $15.5 million for the third quarter 2004.

Actual and pro forma results include the impact of certain restructuring, integration and other highlighted charges discussed below. Excluding these highlighted charges, third quarter 2005 EBITDA was $14.0 million, compared to $16.6 million pro forma EBITDA for the third quarter 2004.

Year to Date Results Compared to Prior Year and Pro Forma

For the nine months ended September 2005, net sales of $715.4 million improved over prior year actual revenues of $635.4 million but were lower than pro forma revenues of $725.0 million for the nine months ended September 2004. Income from operations for the nine months ended September 2005 was $18.9 million compared to prior year actual income from operations of $17.5 million and pro forma income from operations of $19.7 million for the nine months ended September 2004. EBITDA of $33.7 million for the nine months ended September 2005 improved over prior year actual EBITDA of $31.4 million but was lower than pro forma EBITDA of $35.9 million for the nine months ended September 2004.

Excluding the highlighted charges denoted herein, EBITDA for the nine months ended September 2005 was $37.0 million compared to $41.3 million on a pro forma basis for the nine months ended September 2004.

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. In addition, during 2005 the company completed integration activities related to the August 2004 acquisition of NES. As a result of the Alpha and NES restructuring and integration activities, the company has realized operating expense synergies related to reduction of certain redundant general and administrative positions, and has successfully closed six distribution centers including three closures in 2003, two in 2004 and one in 2005.

Pro Forma Segment Results

The company has three operating segments. The Broder division generated third quarter 2005 net sales of $100.4 million compared to $104.8 million in the third quarter 2004. The Alpha division generated third quarter 2005 net sales of $121.7 million compared to net sales of $117.3 million in the third quarter 2004. The NES division generated net sales of $33.5 million in the third quarter 2005 compared to pro forma net sales of $31.7 million in the third quarter 2004.

Business Outlook

The trade brand supply constraints which adversely impacted the Company through the first two quarters of 2005 were also a factor during much of the third quarter, but improved to normal levels by the end of the third quarter. The supply constraints unfavorably impacted unit volumes and resulted in lower volume-driven vendor rebates in the trade brand business.

Private label brand revenues continued to grow at over 50% in the third quarter of 2005 compared to the third quarter of 2004. Similarly, the more mature exclusive brand portfolio also continued to grow at a 15% rate. The revenue and gross profit growth in the private label and exclusive brands were sufficient to offset the shortfall in the trade brand performance.

Trade brands contribute over 70% of the company’s revenues, and the disappointing year to date performance in the trade brands have led to the company’s proactive efforts to evaluate its trade brand strategy. As a result, the company has realigned itself with suppliers better positioned to deliver higher service levels and more compelling product costs and rebate programs. These efforts are expected to yield an improved trade brand performance in fiscal year 2006, and are further expected to begin contributing to improved gross profit in the fourth quarter of 2005. Significant resources were committed to the successful launch of the new 2005 private label brands. While the company will continue to improve and grow its private label business, there will be a modest shift in internal resources and focus toward improving the trade brand business.

The company remains committed to its market strategy of three distinct divisions: Alpha, Broder and NES. To further recognize operating synergies while maintaining this divisional distinction, the company is testing a “dual-brand” strategy whereby two divisions will operate within one distribution center. This strategy has potential to provide synergy in the form of both operating cost savings and minimizing working capital invested in inventory. As a first step toward this strategy, the company has committed to a plan to add Alpha division distribution to the Atlanta, Georgia market. The existing Broder division distribution operations in Atlanta will be relocated to a larger nearby facility which will host both the Alpha and Broder distribution operations. The Broder Atlanta operations will move to the new facility in December 2005, and the Alpha operations will be added to the facility in January 2006. If the dual-brand strategy is successful in Atlanta, the company intends to deploy the strategy in numerous other regions covered by its distribution network.

Liquidity

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 flows of the business. Historical borrowing levels have reached peaks during the middle of a given year and low points during the last quarter of the year. During 2005, borrowing levels peaked during June, and are expected to reach a low point for the last half of the year in November. Borrowing levels in 2005 have been impacted by increased investment in private label inventories, which reached a peak level in the second quarter of 2005, stabilized in the third quarter of 2005, and are expected to improve in future periods. During the third quarter of 2005, the company exercised an option to increase its revolving credit facility by $50.0 million to provide for aggregate borrowings up to $225.0 million subject to borrowing base availability. As of September 24, 2005, borrowing base availability was $98.0 million.