Fourth Quarter 2009 Results Compared to Prior Year
Broder Bros. Co., Trevose, Pa., announced its fourth quarter 2009 net sales were $182.8 million compared to $219.5 million for the fourth quarter 2008. Loss from operations for the fourth quarter 2009 was $0.2 million 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 for the fourth quarter 2008.
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 percent lower than the fourth quarter 2008. The company’s unit shipments were 15 percent less than the prior year compared to a 9 percent 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 percent 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 compared to ($46.9) million for fiscal 2008. Net loss for fiscal 2009 was ($13.2) million compared to ($68.9) million for fiscal 2008.
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.
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 consisted of $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.
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 and $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.
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 Web site at www.broderbrosco.com.
