Broder Bros. Co. announced its third quarter results for its quarter ended September 29, 2012.
Third Quarter 2012 Results Compared to Third Quarter 2011 Results
Third quarter 2012 net sales were $205.1 million compared to $220.5 million for the third quarter 2011. Income from operations for the third quarter 2012 was $6.5 million compared to $12.7 million for the third quarter 2011. Net income for the third quarter 2012 was $3.1 million, or $0.30 per diluted share, compared to $8.3 million, or $0.80 per diluted share, for the third quarter 2011.
For the third quarter 2012, the Company reported earnings before interest, taxes, depreciation and amortization (EBITDA) of $8.3 million compared to EBITDA of $15.3 million for the third quarter 2011. Results include the impact of certain restructuring and other highlighted charges discussed below.
Excluding these highlighted charges, EBITDA was $10.0 million for the third quarter 2012 compared to $15.2 million for the third quarter 2011. The year-over-year reduction in EBITDA of $5.2 million was driven by lower gross profit. A reconciliation of EBITDA to net income is set forth at the end of this earnings release.
Third quarter 2012 gross profit was $34.7 million compared to $39.8 million for the third quarter 2011. Third quarter 2012 gross margin was 16.9% compared to 18.0% one year prior. The decrease in gross margin was due to lower gross profit per unit. The Company's unit volume declined by 6% compared to the third quarter 2011 on a 2% reduction in average selling prices.
Effective from the month of July 2012, data from CREST reports is no longer available to the Company.
Highlighted Charges
The other highlighted charges in the third quarter 2012 and for the nine months ended September 29, 2012 consisted of employee separation costs combined with certain charges incurred in connection with refinancing the Company's $118 million aggregate principal amount of 12%/15% Senior Payment-In-Kind Toggle Notes due 2013.
The credit to restructuring charges recorded in the third quarter 2011 consisted of a $0.2 million credit resulting from an amendment to a sublease at our former Philadelphia, PA distribution center partially offset by $0.1 million in interest accretion on restructuring charges for closed facilities. The credit to restructuring charges during the nine months ended September 2011 was due to a gain of approximately $2.2 million on the purchase of a leased facility in Wadesboro, NC. The net purchase price of the facility was less than the present value of the remaining lease payments due under the lease, which was set to expire in March 2014.
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 $132.8 million at September 2012 compared to $130.8 million at December 2011 and $141.2 million at September 2011.
The decrease in revolver debt compared to September 2011 was mainly due to lower levels of working capital at September 2012. The Company's Accounts Payable and Revolver balances at September 2012 reflect the payment of certain Fleece payments that were made in September 2012, whereas the fleece payments in the prior year were made in October 2011.
Borrowing base availability at September 2012, December 2011 and September 2011 was $41.4 million, $57.7 million and $67.3 million, respectively.
The face value of the 2013 Notes outstanding was $117.9 million at September 2012, December 2011 and June 2011. Guidance provided by the FASB for troubled debt restructuring, however, requires the 2013 Notes to be recorded on the balance sheets as the total future cash payments for the 2013 Notes, including both principal and interest payments.
The 2013 Notes were recorded on the balance sheets at $139.1 million, $146.1 million and $153.2 million at September 2012, December 2011 and September 2011, respectively. As a result of capitalizing the cash interest payments for the 2013 Notes, the Company does not anticipate recognizing any interest expense on the 2013 Notes through their maturity. The Company paid $7.1 million in semi-annual cash interest due in October 2012 and in April 2012. These payments are treated as reductions in the carrying value of the 2013 Notes.
2012 Outlook
As a result of actions taken during the third quarter and fourth quarter 2012 that are designed to generate higher gross profit, Broder Bros., Co. anticipates improved performance in the final quarter of the year relative to the Adjusted EBITDA declines experienced during the first three quarters of the year. The Company now expects 2012 Adjusted EBITDA between $36 million and $38 million.
Broder Bros., Co. is the nation's leading distributor of imprintable activewear in the country. It operates the largest distribution network in the industry including eight distribution centers and ten "Express" facilities offering pickup room service.
