Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 26, 2003
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-----------------
Commission File Number 0-25246
--------
Brown Jordan International, Inc.
(Exact name of registrant as specified in its charter)
FLORIDA 63-1127982
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1801 NORTH ANDREWS AVENUE, POMPANO BEACH, FLORIDA 33069
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 960-1100
--------------
(Registrant's telephone number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Shares Outstanding at October 31, 2003
- ---------------- -----------------------------------
$ .01 par value 1,000
Brown Jordan International, Inc.
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 26, 2003
(unaudited) and December 31, 2002 3
Consolidated Statements of Operations for the three
and nine months ended September 26, 2003 and
September 27, 2002 (unaudited) 4
Consolidated Statements of Cash Flows for the
nine months ended September 26, 2003 and
September 27, 2002 (unaudited) 5-6
Notes to Consolidated Financial Statements (unaudited) 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-25
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 25
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 26
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Brown Jordan International, Inc. and
SubsidiariesConsolidated Balance Sheets
($000's) except share data
September 26, December 31,
2003 2002
------------------- ------------------
(unaudited)
Assets
Cash and cash equivalents $649 $7,927
Accounts receivable, net 41,886 76,379
Refundable income taxes - 4,012
Inventories, net 34,430 28,238
Prepaid and other current assets 13,086 10,856
------------------- ------------------
Total current assets 90,051 127,412
Property, plant and equipment, net 25,627 28,682
Customer relationships, net 19,087 20,504
Trademarks 25,335 25,335
Goodwill 91,253 91,253
Other assets, net 7,978 8,907
------------------- ------------------
Total assets $259,331 $302,093
=================== ==================
Liabilities and Stockholder's Deficit
Current portion of long-term debt $10,950 $9,700
Accounts payable 9,714 18,153
Accrued interest 2,833 4,917
Other accrued liabilities 17,198 21,223
------------------- ------------------
Total current liabilities 40,695 53,993
Long-term debt, net of current portion 244,485 273,329
Other non-current liabilities 4,805 6,381
Deferred income taxes 4,351 4,016
------------------- ------------------
Total liabilities 294,336 337,719
Commitments and contingencies
Stockholder's Deficit
Common stock -- par value $.01 per share
1,000 shares authorized, issued and outstanding
at September 26, 2003 and December 31, 2002 - -
Additional paid in capital 162,041 162,041
Accumulated deficit (195,409) (194,638)
Accumulated other comprehensive loss (1,637) (3,029)
------------------- ------------------
Total stockholder's deficit (35,005) (35,626)
------------------- ------------------
Total liabilities and stockholder's deficit $259,331 $302,093
=================== ==================
The accompanying notes are an integral part of these financial statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
($000's) 2003 2002 2003 2002
------------------ ------------------ ------------------ ------------------
Net sales $ 54,810 $ 52,461 $ 247,485 $ 251,734
Cost of sales 35,801 34,535 183,302 180,898
------------------ ------------------ ------------------ ------------------
Gross profit 19,009 17,926 64,183 70,836
Selling, general and
administrative expense 11,631 13,451 37,407 40,767
Amortization 686 697 2,162 2,092
------------------ ------------------ ------------------ ------------------
Operating income 6,692 3,778 24,614 27,977
Interest expense 8,027 7,876 25,592 24,404
------------------ ------------------ ------------------ ------------------
(Loss) income before provision for income taxes and cumulative effect of
change in accounting principle (1,335) (4,098) (978) 3,573
(Benefit) provision for income taxes (354) (1,613) (207) 1,406
------------------ ------------------ ------------------ ------------------
(Loss) income before cumulative effect
of change in accounting principle (981) (2,485) (771) 2,167
Cumulative effect of change in
accounting principle, net of tax - - - (201,247)
------------------ ------------------ ------------------ ------------------
Net loss $ (981) $ (2,485) $ (771) $ (199,080)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 26, 2003 September 27, 2002
Cash flows from operating activities:
Net loss $ (771) $ (199,080)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Cumulative effect of change in accounting principle, net of tax
- 201,247
Depreciation and amortization 6,665 6,862
Reduction of allowance
for doubtful accounts (952) (537)
Provision for (recovery of) excess
and obsolete inventory 442 (1,666)
Loss on sale of assets 283 733
Changes in operating assets and liabilities
Accounts receivable 35,445 47,326
Refundable income taxes 4,012 -
Inventories (6,634) 1,524
Prepaid expenses and other current assets (2,230) 861
Other assets (1,168) (1,171)
Accounts payable (8,439) (23,641)
Accrued interest (2,084) 575
Other accrued liabilities (3,284) (149)
Deferred income taxes (590) -
--------------------- --------------------
Net cash provided by operating activities 20,695 32,884
Cash flows from investing activities:
Capital expenditures (1,200) (1,447)
Cash proceeds from the sale of property, plant and equipment, net 1,191 4,949
--------------------- --------------------
Net cash (used in) provided by investing activities (9) 3,502
Cash flows from financing activities:
Net payments under revolving credit agreements (19,989) (28,373)
Payments on long-term debt (7,975) (9,950)
--------------------- --------------------
Net cash used in financing activities (27,964) (38,323)
Net decrease in cash and cash equivalents (7,278) (1,937)
Cash and cash equivalents at beginning of year 7,927 5,107
--------------------- --------------------
Cash and cash equivalents at end of year $ 649 $ 3,170
===================== ====================
Nine Months Ended
September 26, 2003 September 27, 2002
Supplemental disclosures:
Cash paid for interest $ 24,421 $ 21,645
Cash (refunded from) paid for income taxes $ (3,965) $ 2,975
The accompanying notes are an integral part of these financial statements.
BROWN JORDAN INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 26, 2003
1. ORGANIZATION AND BUSINESS
ORGANIZATION
On April 23, 2002, the Board of Directors voted to change the name of WinsLoew
Furniture, Inc. ("WinsLoew") to Brown Jordan International, Inc. ("BJI" or the
"Company").
BJI is a wholly-owned subsidiary of a holding company called WLFI Holdings, Inc.
("Holdings"), a Florida corporation.
Affiliates of Trivest Partners, L. P. ("Trivest") are majority shareholders of
Holdings. Trivest, Holdings and the Company have certain common shareholders,
officers and directors.
BUSINESS
BJI is comprised of companies engaged in the design, manufacture and
distribution of casual, contract and hospitality and ready-to-assemble ("RTA")
furniture to the retail and contract channels. BJI's furniture products are
constructed of extruded and tubular aluminum, wrought iron, cast aluminum, woven
materials and teak and are distributed through fine patio stores, department
stores, national accounts and full line furniture stores nationwide. Our site
amenity products are constructed of expanded mesh and sheet steel and marketed
through representatives and catalog distribution. BJI's contract and hospitality
seating products are distributed through the contract channel to a customer
base, which includes architectural design firms and restaurant and hospitality
chains. BJI's RTA products include promotionally priced coffee and end tables,
wall units and rolling carts. Distribution of RTA furniture products is through
the retail channel to national accounts, catalog wholesalers and specialty
retailers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of BJI and
subsidiaries are for interim periods and do not include all disclosures provided
in the annual consolidated financial statements. These unaudited consolidated
financial statements should be read in conjunction with the annual consolidated
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002, as filed with the Securities
and Exchange Commission.
All material intercompany balances and transactions have been eliminated.
The preparation of the consolidated financial statements requires the use of
estimates in the amounts reported. Actual results may differ from those
estimates.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the results for the interim
periods. The results of operations are presented for the Company's three and
nine months ended September 26, 2003 and September 27, 2002. The results of
operations for these periods are not necessarily indicative of the results to be
expected for the full year.
GOODWILL
Under the purchase method of accounting for acquisitions, goodwill represents
the excess of the purchase price over the fair value of the net assets
acquired. Goodwill is capitalized and through December 31, 2001 was amortized
on a straight-line basis over its estimated useful life which was 40 years.
Effective with the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets,"
("SFAS No. 142"), on January 1, 2002, goodwill is no longer subject to
amortization. Instead, goodwill is subject to an annual assessment for
impairment in value by applying a fair-value based test.
Any impairment loss for goodwill arising from the initial adoption of SFAS No.
142 is reported as a change in accounting principle. During the fourth quarter
of 2002, the Company completed its Step 2 assessment of goodwill and recorded a
transition impairment adjustment of $201.2 million, net of tax. The impairment
has been accounted for as a cumulative effect of a change in accounting
principle and has been recorded effective January 1, 2002.
RECLASSIFICATION
Certain prior period balances have been reclassified to conform with the current
period presentation.
STOCK OPTIONS
The Company accounts for stock compensation arrangements in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and related interpretations and accordingly, recognizes no
compensation expense for the stock compensation arrangements with employees or
directors since the stock options are granted at exercise prices at or greater
than the fair market value of the shares at the date of grant and follows the
new disclosure requirements of SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure."
Pro forma information regarding net loss and loss per share is required by
SFAS No. 123, "Accounting for Stock Based Compensation," as amended by SFAS No.
148, as if the Company had accounted for its granted employee stock options
under the fair value method of SFAS No. 123. The Company granted no options for
the three months ended March 31, 2003 and 2002. Had compensation cost for all
options granted been determined based on the fair value at the grant date
consistent with SFAS No. 123, the Company's net loss and loss per share would
have been as follows:
Three Months Ended Nine Months Ended
----------------------------------- ------------------------------------
September 26, September 27, September 26, September 27,
--------------- --------------- --------------- ----------------
($000's) 2003 2002 2003 2002
--------------- --------------- --------------- ----------------
Net loss as reported ($981) ($2,485) ($771) ($199,080)
Pro forma stock based compensation
expense, net of tax 37 37 111 111
--------------- --------------- --------------- ----------------
Pro forma net loss ($1,018) ($2,522) ($882) ($199,191)
=============== =============== =============== ================
Expected dividend yield zero zero zero zero
Expected stock price volatility 25% 25% 25% 25%
Risk-free interest rate 5.00% 4.68% 5.00% 4.68%
Expected life of options in
years 10 10 10 10
3. Inventories
Inventories consisted of the following:
September 26, December 31,
------------------ -------------------
($000's) 2003 2002
------------------ -------------------
Raw materials $26,233 $21,497
Work in progress 1,813 2,667
Finished goods 6,384 4,074
------------------ -------------------
$34,430 $28,238
================== ===================
4. Operating Segments
The Company has two segments organized and managed based on the market channel
into which the Company's products are sold.
The Company evaluates performance and allocates resources based on gross profit.
The accounting policies for each segment are consistent with those set forth in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
There are no intersegment sales or transfers. The Company has no significant
export revenues. The following table presents information related to the
Company's two reportable segments:
Three Months Ended Nine Months Ended
-------------------------------------------- --------------------------------------------
September 26, September 27, September 26, September 27,
($000's) 2003 2002 2003 2002
-------------------- -------------------- -------------------- --------------------
Net sales:
Retail channel $ 26,859 $ 19,923 $ 160,782 $ 164,503
Contract channel 27,951 32,538 86,703 87,231
-------------------- -------------------- -------------------- --------------------
Total net sales $ 54,810 $ 52,461 $ 247,485 $ 251,734
==================== ==================== ==================== ====================
Gross profit:
Retail channel $ 9,615 $ 6,359 $ 36,384 $ 41,121
Contract channel 9,394 11,567 27,799 29,715
-------------------- -------------------- -------------------- --------------------
Total gross profit $ 19,009 $ 17,926 $ 64,183 $ 70,836
==================== ==================== ==================== ====================
Depreciation and amortization:
Retail channel $ 124 $ 138 $ 374 $ 412
Contract channel 287 290 853 865
Shared 431 693 3,769 4,116
-------------------- -------------------- -------------------- --------------------
Total depreciation and
amortization $ 842 $ 1,121 $ 4,996 $ 5,393
==================== ==================== ==================== ====================
Expenditures for long lived assets:
Retail channel $ 54 $ 1 $ 93 $ 55
Contract channel 61 53 140 86
Shared 130 276 967 1,306
-------------------- -------------------- -------------------- --------------------
Total expenditures for long
lived assets $ 245 $ 330 $ 1,200 $ 1,447
==================== ==================== ==================== ====================
As of
Segment assets September 26, December 31,
2003 2002
-------------------- --------------------
Retail channel $ 17,789 $ 44,286
Contract channel 37,302 36,702
Shared 204,240 221,105
-------------------- --------------------
Total Assets $ 259,331 $ 302,093
==================== ====================
The Company has no reconciling items between net income of the operating
segments and consolidated net income.
5. INTEREST RATE SWAP
On August 6, 2001 the Company entered into an interest rate swap agreement to
fix the interest rate on $100 million principal amount of variable rate debt
outstanding under the Senior Credit Facility. The interest rate swap is designed
to fix the adjusted LIBOR interest rate on $100 million at 5.09% through March
31, 2004 and on $80 million from March 31, 2004 to March 31, 2005.
As of September 26, 2003 and December 31, 2002, the fair value of the swap
was recorded as a liability of $4.8 million and $6.4 million, respectively. The
portion of the change in fair value attributable to the ineffectiveness of the
swap is recorded in the accompanying statement of operations as "interest
expense" and was $0.7 million and $0.9 million for the nine months ended
September 26, 2003 and September 27, 2002, respectively. The balance of the
change in fair value of $0.9 million is recorded in other comprehensive loss,
net of tax.
From the period of December 31, 2002 through September 26, 2003 the 3-month
LIBOR interest rate declined approximately 17 basis points, resulting in the
fair value decline of the interest rate swap. Future movements in interest
rates, particularly the 3-month LIBOR rate, will correspondingly impact the
Company's cash interest expense and the fair value of the swap.
6. Long-Term Debt
Long-term debt consisted of the following at September 26, 2003 and December 31,
2002:
As of
($000's) September 26, 2002 December 31, 2003
--------------- ----------------
Revolving line of credit $ 13,000 $ 32,647
Term loan 136,443 144,435
Senior subordinated notes 103,067 102,697
IDB bonds 2,925 3,250
--------------- ----------------
255,435 283,029
Less current portion (10,950) (9,700)
--------------- ----------------
$244,485 $273,329
=============== ================
SENIOR CREDIT FACILITY
The senior credit facility contains customary covenants and restrictions on
the Company's and its subsidiaries' ability to issue additional debt or engage
in certain activities and includes customary events of default. In addition, the
facility specifies that the Company must meet or exceed defined fixed charge and
interest coverage ratios and must not exceed defined leverage ratios. As of
December 31, 2002 the Company was not in compliance with the Maximum
Consolidated Total and Senior Leverage Ratios and the Interest Coverage Ratio as
defined in the Senior Credit Facility. The lender's agent and the requisite
lenders waived these violations of covenants pursuant to the terms contained in
the Second Amendment to the Credit Agreement and Limited Waiver ("Second
Amendment"). The Second Amendment, dated March 19, 2003, changed certain
covenant requirements, established the applicable LIBOR margin at 5.0% for the
term debt and 4.5% for the revolver debt, until the later of March 31, 2004 or
the delivery of the audited 2003 financials statements. The revolving credit
portion of the facility was also reduced from $60 million to $50 million. The
Company was in compliance with all financial covenants set forth in the second
amendment as of September 26, 2003. On November 3, 2003 the Company was however
notified that it was in technical default of certain non-financial covenants set
forth in the second amendment for which it received a limited waiver on November
14, 2003 (See Note 9). Under a Guaranty between the senior bank group and
Trivest, Trivest agreed to guarantee up to $13.4 million of the Company's
obligations to pay interest on the subordinated indebtedness. The Reimbursement
Agreement obligates the Company to reimburse Trivest for any funds paid by it
pursuant to the Guaranty.
SENIOR SUBORDINATED NOTES AND WARRANTS
The Indenture under which the senior subordinated notes are issued includes
provisions generally common in such indentures including restrictions on
dividends, additional indebtedness and asset sales. At September 26, 2003, the
Company was in compliance with such covenants. The Company failed to timely make
the $6.7 million scheduled semi-annual interest payment in February 2003 and
August 2003. The Company subsequently made the interest payments within the
grace period provided under the Indenture governing the senior subordinated
notes.
The Indenture was amended in March of 2003 to allow for indebtedness of the
Company that is structurally senior to the Notes to be issued to Trivest should
the Guaranty be called upon by the senior bank group or voluntarily called by
Trivest to avoid a financial covenant default under the Senior Credit Facility.
7. Statement of Comprehensive Income (Loss)
The components of other comprehensive income (loss) and total comprehensive
income (loss) for the three and nine months ended September 26, 2003 and
September 27, 2002 are as follows:
Three Months Ended Nine Months Ended
---------------------------------------- -----------------------------------------
September 26, September 27, September 26, September 27,
($000's) 2003 2002 2003 2002
------------------ ------------------ ------------------- ------------------
Net loss $ (981) $ (2,485) $ (771) $(199,080)
Change in fair value of interest rate
swap, net of taxes 591 (485) 1,392 (1,320)
------------------ ------------------ ------------------- ------------------
Comprehensive (loss) income $ (390) $ (2,970) $ 621 $(200,400)
================== ================== =================== ==================
8. Warranty Costs
The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in product quality
programs and processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company's warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in
correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from the Company's estimates, revisions
to the estimated warranty liability would be required. The Company accrues for
warranties based on historical experience and sales. Changes in the product
warranty accrual during the nine months ended September 26, 2003 were as
follows:
Product
Warranty
Liability
($000's)
Balance at December 31, 2002 $ 2,135
Accrual for warranties issued 2,008
Settlements made (in cash or in kind) (2,135)
----------------
Balance at September 26, 2003 $ 2,008
================
9. Subsequent Events
On November 3, 2003 the Company received notification from its Senior Bank
Group that it was in technical default of its Senior Credit facility in
connection with the Company's delivery of certain documentation as specified by
the Second Amendment of Senior Credit Facility executed in March 2003. On
November 14, 2003 the Company executed a limited waiver with its Senior Bank
Group allowing the Company until December 13, 2003 to submit the remaining
documentation. The Company believes that it will be in compliance with the
Second Amendment of Senior Credit Facility executed in March 2003 before the
expiration of the limited waiver. At this time the Company feels that this
technical default will not have a significant impact on future operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On April 23, 2002, the Board of Directors voted to change the name of WinsLoew
Furniture, Inc. ("WinsLoew") to Brown Jordan International, Inc. ("BJI" or the
"Company").
GENERAL
BJI is comprised of companies engaged in the design, manufacture and
distribution of casual, contract and hospitality and ready-to-assemble ("RTA")
furniture to the retail and contract channels. Our furniture products are
distributed primarily through independent manufacturer's representatives, and
are constructed of extruded and tubular aluminum, wrought iron, cast aluminum,
woven materials and teak. These products are distributed through fine patio
stores, department stores, national accounts and full line furniture stores
nationwide. Our site amenity products are constructed of expanded mesh and sheet
steel and marketed through representatives and catalog distribution. Our
contract and hospitality seating products are distributed through the contract
channel to a customer base, which includes architectural design firms and
restaurant and hospitality chains. Our RTA products include promotionally priced
coffee and end tables, wall units and rolling carts. Distribution of RTA
furniture products is through the retail channel to national accounts, catalog
wholesalers and specialty retailers.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross margin as a
percent of net sales for the three and nine months ended September 26, 2003 and
September 27, 2002 for each of the our market channels:
Three Months Ended
September 26, 2003 September 27, 2002
---------- -- ---------- -- --------- -- --------- --- --------- -- ---------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
---------- -- ---------- -- --------- -- --------- --- --------- -- ---------
Retail Channel $ 26,859 $ 9,615 35.8% $ 19,923 $ 6,359 31.9%
Contract Channel 27,951 9,394 33.6% 32,538 11,567 35.5%
---------- ---------- --------- --------- --------- ---------
$ 54,810 $19,009 34.7% $ 52,461 $ 17,926 34.2%
========== ========== ========= ========= ========= =========
Nine Months Ended
September 26, 2003 September 27, 2002
---------- -- ---------- -- --------- -- --------- --- --------- -- ---------
Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin
---------- -- ---------- -- --------- -- --------- --- --------- -- ---------
Retail Channel $160,782 $ 36,384 22.6% $ 164,503 $ 41,121 25.0%
Contract Channel 86,703 27,799 32.1% 87,231 29,715 34.1%
---------- ---------- --------- --------- --------- ---------
$247,485 $ 64,183 25.9% $251,734 $ 70,836 28.1%
========== ========== ========= ========= ========= =========
See Note 4 to Consolidated Financial Statements for more information concerning
our operating segments.
The following table sets forth certain information relating to our operations
expressed as a percentage of the Company's net sales.
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 26, September 27, September 26, September 27,
2003 2002 2003 2002
------------------ ------------------ ------------------ ------------------
Gross profit 34.7% 34.2% 25.9% 28.1%
Selling, general
and
administrative
expense 21.2% 25.6% 15.1% 16.2%
Amortization 1.3% 1.3% 0.9% 0.8%
Operating income 12.2% 7.2% 9.9% 11.1%
Interest expense 14.6% 15.0% 10.3% 9.7%
(Benefit) provision for
income taxes (0.6%) (3.1%) (0.1%) 0.6%
Cumulative effect
of change in
accounting
principle 0.0% 0.0% 0.0% (79.9%)
Net loss (1.8%) (4.7%) (0.3%) (79.1%)
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 26, 2003 AND SEPTEMBER 27, 2002
Net Sales. Consolidated net sales increased $2.3 million or 4.5% in the
third quarter of 2003, to $54.8 million compared to $52.5 million for the same
period of 2002. Net sales in the retail channel increased $6.9 million or 34.8%,
while sales in the contract channel decreased $4.6 million or 14.1% as compared
to the same period of 2002. Retail channel sales increased in the third quarter
of 2003 compared to the same period of 2002 as a result of increased shipments
to national accounts and specialty retailers during the quarter. Contract
channel sales declined during the third quarter primarily due to timing
differences which pushed some shipments into the fourth quarter of 2003.
Gross Profit. Gross profit increased by $1.1 million, or 6.0% in the third
quarter of 2003 to $19.0 million compared to $17.9 million in the third quarter
of 2002. The overall increase in gross margin experienced in the third quarter
of 2003 was primarily due to increased sales volume as discussed above and plant
efficiencies as a result of the increased volume. The contract channel
experienced a decrease in gross margin as a percentage of net sales primarily
due to continued margin pressures as a result of a sluggish economy and plant
inefficiencies due to lower volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.9 million or 13.5% from $13.5 million in
the third quarter of 2002 to $11.6 million in the third quarter of 2003. The
decrease in selling, general and administrative expense for the third quarter of
2003 as compared to the same period of 2002 relates primarily to a decrease in
bad debt, payroll and catalog expenses partially offset by an increase in legal
and travel related expenses. In addition, the results for the third quarter of
2003 include a charge of $0.1 million for the loss on the sale of certain
property. Also contributing to the variance was a decrease in commission expense
related to increased sales to national accounts, which do not have commissions
associated with them.
Amortization. Amortization expense of $0.7 million in the third quarter of 2003
relating to the amortization of certain intangible assets was substantially
unchanged compared to the same period for the prior year.
Operating Income. As a result of the above, operating income increased from $3.8
million in the third quarter of 2002 (7.2% of net sales) to $6.7 million (12.2%
of net sales) in the same period of 2003.
Interest Expense. Interest expense increased $0.1 million in the third
quarter of 2003 to $8.0 million from $7.9 million in the same period of 2002,
primarily due to an increase in interest rate margins under the terms of our
Senior Credit Facility pursuant to an amendment to the facility entered into in
March of 2003 (see Note 6 of the accompanying Notes to Consolidated Financial
Statements). This increase in interest expense was partially offset by a lower
outstanding debt balance.
Provision for Income Taxes. The effective tax rate in the third quarter of 2003
was a benefit of 26.5 % compared to a tax benefit of 39.4% for the same period
of the prior year. The lower rate in 2003 is attributable to a provision for
foreign taxes.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 26, 2003 AND SEPTEMBER 27, 2002
Net Sales. Consolidated net sales decreased $4.2 million or 1.7% during the
nine months ended September 26, 2003, to $247.5 million, compared to $251.7
million for the same period of 2002. Net sales in the retail channel decreased
$3.7 million or 2.3%, while sales in the contract channel decreased $0.5 million
or 0.6% as compared to the same period of 2002. Retail channel sales decreased
in the first nine months of 2003 compared to the same period of 2002 as a result
of poor seasonal sales at many retailers, including both specialty retailers and
national accounts due to poor weather conditions in the first quarter. The
negative impact of the weather was partially offset by increased sales in the
second and third quarter of 2003 as compared to the same period of 2002.
Contract sales declined during the nine month period ended September 26, 2003
primarily due to timing differences which have pushed some shipments into the
fourth quarter of 2003.
Gross Profit. Gross profit decreased by $6.6 million, or 9.4% in the first
nine months of 2003 to $64.2 million compared to $70.8 million for the same
period of 2002. The overall decrease in gross margin experienced in the first
nine months of 2003 was primarily due to decreased sales volume as discussed
above, compounded by an unfavorable product mix which included a greater
percentage of total sales to national accounts, which are typically lower in
margin. In addition the retail channel gross profit was down as a percent of net
sales due to overall lower sales volume resulting in fixed costs accounting for
a greater percentage of net sales and to a lesser extent an unfavorable product
mix to specialty customers. The contract channel experienced a slight decrease
in gross margin as a percentage of net sales primarily due to margin pressures
resulting from a sluggish economy.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $3.4 million or 8.2% from $40.8 million in the
first nine months of 2002 to $37.4 million in 2003 primarily due to a decrease
in compensation expense partially offset by increased legal and professional
service expense, along with a loss incurred on the sale of certain assets.
Amortization. Amortization expense of $2.2 million for the nine months
ended September 26, 2003 relating to the amortization of certain intangible
assets was substantially unchanged compared to the same period for the prior
year.
Operating Income. As a result of the above, operating income decreased from
$28.0 million in the first nine months of 2002 (11.1% of net sales) to $24.6
million (10.0% of net sales) in the same period of 2003.
Interest Expense. Interest expense increased $1.2 million in the first nine
months of 2003 to $25.6 million from $24.4 million in the same period of 2002,
primarily due to an increase in interest rate margins under the terms of our
Senior Credit Facility pursuant to an amendment to the facility entered into in
March of 2003 (see Note 6 of the accompanying Notes to Consolidated Financial
Statements). This increase in interest expense was partially offset by a lower
outstanding debt balance.
Provision for Income Taxes. The effective tax rate in the first nine months
of 2003 was a tax benefit of 21.2% compared to a tax expense of 39.4% for the
same period of the prior year. The lower rate in 2003 is attributable to a
provision for foreign income taxes.
Cumulative effect of change in accounting principle. As of January 1, 2002
the Company implemented the provisions of SFAS No. 142. We recorded a cumulative
effect of change in accounting principle to reflect the impairment of goodwill
of $201.2 million, net of tax. This adjustment was recorded effective January 1,
2002.
SEASONALITY AND QUARTERLY INFORMATION
Sales of retail specialty products are typically higher in the second
quarter of each year as a result of high demand for retail furniture preceding
the summer months. Sales of retail specialty products are also higher in the
fourth quarter as a result of our merchandising programs with its dealers. Sales
of retail products to national accounts are typically higher in the fourth and
first quarters as the national accounts warehouse products for the spring
season. Weather conditions during the peak retail selling season and the
resulting impact on consumer purchases of outdoor furniture products can also
affect sales of our casual products.
Operating results may also fluctuate due to other factors including, but not
limited to:
changes in general economic conditions including changes in national,
regional or local construction or industrial activities;
adverse weather conditions;
competitive pricing pressures; and
changes in interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Our short-term cash needs are primarily for debt service and working
capital, including accounts receivable and inventory requirements. We have
historically financed our short-term liquidity needs with cash flow generated
from operations and revolving line of credit borrowings. At September 26, 2003,
we had $49.4 million of working capital and $28.7 million of unused and
available funds under our revolving credit facility.
Cash Flows from Operating Activities. During the first nine months of 2003, net
cash provided by operations was $20.7 million, compared to $32.9 million for the
same period of 2002. The decrease in cash provided by operations in the first
nine months of 2003 as compared to the same period of the prior year relates
primarily to an increase in accounts receivable associated with longer dating on
certain shipments, an increase in inventory, a decrease in accounts payable and
a decrease in other accrued liabilities, partially offset by a refund for income
taxes.
Cash Flows from Investing Activities. During the first nine months of 2003
the Company spent $1.2 million on capital expenditures which was offset by $1.2
million generated from the sale of certain assets. This is compared to the first
nine months of 2002, which included $1.4 million spent on capital expenditures
and $4.9 million generated by the sale of certain assets resulting in $3.5
million provided by investing activities.
Cash Flows from Financing Activities. Net cash used in financing activities
during the first nine months of 2003 was $28.0 million compared to net cash used
in financing activities of $38.3 million for the same period of 2002. During the
first nine months of 2003 we made scheduled term loan principal payments of $6.9
million along with an additional payment of $1.1 million from the sale of
certain assets and paid $20.0 million against the revolving line of credit,
resulting in total net payments of $28.0 million.
During the nine months ended September 26, 2003, our senior credit facility
consisted of a $165.0 million term loan of which $144.4 million was outstanding
on January 1, 2003. During the same nine month period, principal payments
totaling $8.0 million were made against the term loan leaving an outstanding
balance on the loan of $136.4 million as of September 26, 2003. During the nine
months ended September 26, 2003 our senior credit facility also included a $50.0
million revolving credit facility, of which $13.0 million was borrowed and $6.7
million was allocated to existing letters of credit outstanding at September 26,
2003. As of September 26, 2003, we had undrawn availability based on a borrowing
base formula under the revolving credit facility of approximately $28.7 million.
The senior credit facility also requires us to enter into an interest rate swap
agreement to fix the interest rate on a portion of the Company's variable rate
debt. (See Note 5 to the Consolidated Financial Statements).
We have significant amounts of debt requiring interest and principal
repayments. The senior subordinated notes (See Note 6 to the Consolidated
Financial Statements) require semi-annual interest payments and will mature in
August 2007. Borrowings under the senior credit facility also require quarterly
interest payments. In addition, under our senior credit facility, as amended, we
were required to pay down the principal amount of all borrowings under the
revolving credit facility to zero for a period of thirty (30) days between July
1, 2003 and August 31, 2003. We paid down the entire revolving credit facility
balance on July 23, 2003, and under the provisions of the second amendment of
the senior credit facility, we were able to borrow again on August 22, 2003. As
a result of this requirement we funded the semi-annual interest payment to the
holders of our senior subordinated notes, which was due on August 15, 2003, on
August 22, 2003, within the grace period provided under the Indenture governing
the senior subordinated notes.
Our other liquidity needs relate to working capital, capital expenditures
and potential acquisitions. We intend to fund our working capital, capital
expenditures and debt service requirements through cash flow generated from
operations and borrowings under our senior credit facility.
We believe that existing sources of liquidity and funds expected to be
generated from operations will provide adequate cash to fund our anticipated
working capital needs. Significant expansion of our business or the completion
of any material strategic acquisitions may require additional funds which, to
the extent not provided by internally generated sources, could require us to
amend our current Senior Credit Facility or seek access to debt or equity
markets.
Operating cash flows are closely correlated to demand for our products. A
decrease in demand for the Company's products would impact the availability of
these internally generated funds. Further, the Company's revolving line of
credit is contingent upon the Company meeting particular debt covenants. Failure
to comply with these covenants would impact the availability of funds on the
revolving credit line.
Our anticipated capital needs through 2003 will consist primarily of the
following:
interest payments due on the notes and interest and principal due under
our senior credit facility,
increases in working capital driven by the growth of our business, and
the financing of capital expenditures.
Aggregate capital expenditures are estimated at approximately $1.7 million for
2003. To the extent available, funds will be used to reduce outstanding
borrowings under our senior credit facility.
As of December 31, 2002 we were not in compliance with the Maximum
Consolidated Total and Senior Leverage Covenant Ratios and the Interest Coverage
Covenant Ratio as defined in the Senior Credit Facility. The lender's agent and
the requisite lenders waived these violations of covenants pursuant to the terms
contained in the Second Amendment to the Credit Agreement and Limited Waiver
("Second Amendment"). The Second Amendment, dated March 19, 2003, changed
certain covenant requirements, established the applicable LIBOR margin at 5.0%
for the term debt and 4.5% for the revolver debt, until the later of March 31,
2004 or the delivery of the audited 2003 financial statements. The revolving
credit portion of the facility was also reduced from $60 million to $50 million.
As of September 26, 2003 we were in compliance with all financial debt
covenants. On November 3, 2003 the Company was however notified that it was in
technical default of certain non-financial covenants set forth in the second
amendment (See Note 9 Notes to Consolidated Financial Statements).
Under a Guaranty Agreement between the senior bank group and Trivest,
Trivest agreed to fund us for up to $13.4 million in the event that we failed to
make its subordinated debt interest payment or was not in compliance with the
fixed charge covenant in the Second Amendment. The Second Amendment allowed us
to become liable for its obligations under the Trivest Reimbursement Agreement
pursuant to a subordination agreement between Trivest and the senior bank group.
The Trivest Reimbursement Agreement obligates us to reimburse Trivest for any
funds paid by it pursuant to the Guaranty Agreement between Trivest and the bank
group.
RELATED PARTY TRANSACTIONS
In October 1994, we entered into a ten-year agreement (the "Investment
Services Agreement") with Trivest. Pursuant to the Investment Services
Agreement, Trivest provides corporate finance, financial relations, strategic
and capital planning and other management advice to us. The annual base
compensation under the Investment Services Agreement is $750,000. Pursuant to
the Second Amendment to the Senior Credit Facility we will continue to expense
the management fee of $750,000 but we are restricted to paying only $375,000
during the period of the Second Amendment. We paid $281,000 to Trivest pursuant
to a Management Services Agreement during the period from January 1, 2003 to
September 26, 2003.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
Our purchases some raw materials from several Italian suppliers. In
addition, we fund some expenses for its Juarez, Mexico manufacturing facility.
These transactions expose us to the effects of fluctuations in the value of the
U.S. dollar versus the Euro and Mexican Peso. If the U.S. dollar declines in
value versus these foreign currencies, we will pay more in U.S. dollars for
these transactions. To reduce our exposure to loss from such potential foreign
exchange fluctuations, we will occasionally enter into foreign exchange forward
contracts. These contracts allow us to buy Euros and Mexican Pesos at a
predetermined exchange rate and thereby transfer the risk of subsequent exchange
rate fluctuations to a third party. During the nine months ended September 26,
2003 we did not enter into foreign exchange forward contracts and there were no
contracts outstanding at September 26, 2003. We do not speculate in foreign
currency.
Inflation has not had a significant impact on us in the past three years, and
management does not expect inflation to have a significant impact in the
foreseeable future.
CRITICAL ACCOUNTING POLICIES
General
Management's discussion and analysis of its financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to customer programs and incentives, product returns, bad debts,
inventories, intangible assets, income taxes, warranty obligations, pensions and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
Company performs periodic credit evaluations of its customers' financial
condition and determines if collateral is needed on a customer by customer
basis.
Warranty Reserve
We provide for the estimated cost of product warranties at the time revenue
is recognized. While we engages in product quality programs and processes,
including actively monitoring and evaluating the quality of its component
suppliers, the Company's warranty obligation is affected by product failure
rates, material usage and service delivery costs incurred in correcting a
product failure. Should actual product failure rates, material usage or service
delivery costs differ from our estimates, revisions to the estimated warranty
liability would be required. We accrue for warranties based on historical
experience and sales.
Inventory
We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
Goodwill
Under the purchase method of accounting for acquisitions, goodwill
represents the excess of the purchase price over the fair value of the net
assets acquired. Goodwill is capitalized and through December 31, 2001 was
amortized on a straight-line basis over its estimated useful life which was 40
years. Effective with our adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets," on January 1, 2002, goodwill is no longer subject to
amortization. Instead, goodwill is subject to an annual assessment for
impairment in value by applying a fair-value based test. Should there be a
significant decline in our financial performance, the results of this impairment
test could have a material impact on our financial statements.
Impairment loss for goodwill arising from the initial adoption of SFAS No. 142
is to be reported as resulting from a change in accounting principle. During the
fourth quarter, we completed our Step 2 assessment of goodwill and recorded a
SFAS No. 142 transition impairment of $201.2 million, net of tax. The impairment
has been accounted for as a cumulative effect of a change in accounting
principle and has been recorded effective January 1, 2002.
Trademarks
Trademarks represent the estimated fair value of trade name related intangible
assets acquired in connection with certain business acquisitions. Trademarks are
indefinite lived intangible assets and therefore are not being amortized. Such
assets are tested annually for impairment or when indicators are present.
Customer relationships
Customer relationships represent the estimated fair value of customer
related intangible assets acquired in connection with certain business
acquisitions. Customer relationships are being amortized over their estimated
useful life of 10 years. Accumulated amortization as of September 26, 2003 and
amortization expense for the quarter then ended is $5.5 million and $0.6
million, respectively. In addition to the amortization over the useful life,
customer relationships are reviewed at least annually for impairment. Should
there be a significant decline in our financial performance, the results of this
impairment test could have a material impact on our financial statements.
Interest Rate Swap
We utilize an interest rate swap to hedge the variability of cash flow to
be paid related to a portion of its recognized variable-rate debt liability. The
effectiveness of the interest rate swap hedge relationship is assessed by
utilizing the "variable cash flows method." Changes in the fair value of a
derivative that is designated and qualifies as a cash flow hedge, to the extent
that the hedge is effective, are recorded in other comprehensive income, until
earnings are affected by the variability of the hedged cash flows. Cash flow
hedge ineffectiveness is recorded as interest expense.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," SFAS No. 149 also amends SFAS
No. 133 for decisions made (1) as part of the Derivatives Implementation Group
process that effectively required amendments to SFAS No. 133, (2) in connection
with other FASB projects dealing with financial instruments and (3) in
connection with implementation issues raised in relation to the application of
the definition of derivative. SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003, except as stated below, and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of SFAS No. 149 will be applied prospectively. The
provisions of SFAS No. 149 that relate to SFAS No. 133 implementation issues
that have been effective for fiscal quarters that began prior to June 15, 2003
should continue to be applied in accordance with their respective effective
dates. In addition, certain provisions relating to forward purchases or sales of
when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after June 30,
2003. The implementation of SFAS No. 149 has had no material effects on our
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity,"("SFAS No. 150"). The statement requires that an issuer classify
financial instruments that are within its scope as a liability. Many of those
instruments were classified as equity under previous guidance. SFAS No. 150 is
effective for all financial instruments entered into or modified after May 31,
2003. Otherwise, it is effective for the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on
our financial position or results of operations.
In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN No. 45"). FIN No. 45 will significantly change
current practice in the accounting for, and disclosure of, guarantees.
Guarantees meeting the characteristics described in FIN No. 45 are required to
be initially recorded at fair value, which is different from the current
practice of recording a liability only when a loss is probable and reasonably
estimable, as those terms are defined in FASB Statement No. 5, "Accounting for
Contingencies." FIN No. 45 also requires a guarantor to make significant new
disclosures for virtually all guarantees even when the likelihood of the
guarantor's having to make payments under the guarantee is remote. FIN No. 45
disclosure requirements are effective for financial statements with annual
periods ending after December 15, 2002 and requires initial recognition and
initial measurement provisions on a prospective basis to guarantees issued or
modified after December 29, 2002. The guarantor's previous accounting for
guarantees issued prior to the date of the adoption of FIN No. 45 will not be
revised or restated to reflect the Interpretation's provisions. The adoption of
FIN No. 45 did not impact our financial position, results of operations or cash
flows for the nine months ended September 26, 2003.
In January 2003, the Financial Accounting Standards Board ("FASB') issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 requires an investor with a majority of the variable interests in a
variable interest entity to consolidate the entity and also requires majority
and significant variable interest investors to provide certain disclosures. A
variable interest entity is an entity in which the equity investors do not have
a controlling interest or the equity investment at risk is insufficient to
finance the entity's activities without receiving additional subordinated
financial support from the other parties. The requirements of FIN 46 are to be
applied immediately to variable interest entities created after January 31,
2003. For calendar year companies, consolidation of variable interest entities
existing prior to January 31, 2003 will be required in their financial
statements for the year ended December 31, 2003. We do not believe the adoption
of FIN 46 will have a material effect on its consolidated financials statements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements about our financial
condition, results of operations and business within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can find many of these statements by looking for words like "will,"
"should," "believes," "expects," "anticipates," "estimates," "intends," "may,"
"pro forma," or similar expressions used in this prospectus. These
forward-looking statements are subject to assumptions, risks and uncertainties,
including those relating to the following:
o our level of leverage;
o our ability to meet our debt service obligations;
o the subordination of the registered notes to our senior indebtedness,
which is secured by substantially al of our assets;
o the restrictions and financial covenant requirements imposed upon
us by our indenture and our senior credit facility;
o our ability to identify suitable acquisition opportunities and
to finance, complete and integrate acquisitions;
o the competitive and cyclical nature of the furniture manufacturing
industry; and
o general domestic and global economic conditions.
Because these statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. You are cautioned not to place undue reliance on these statements,
which speak only as of the date of this filing.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this filing. Additionally, we do not undertake any
responsibility to update you on the occurrence of any unanticipated events which
may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required by this item is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," under
the heading "Foreign Exchange Fluctuations and Effects of Inflation."
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this Quarterly Report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of the end of the
period covered by this Quarterly Report in timely alerting them as to material
information required to be included in this Quarterly Report.
There was no change in our internal control over financial reporting during
our last fiscal quarter identified in connection with the evaluation referred to
above that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and other claims
arising in the ordinary course of our business. We maintain insurance coverage
against potential claims in an amount that we believe to be adequate. We believe
we are not presently a party to any litigation, the outcome of which would have
a material adverse effect on our business, financial condition, and results of
operations or future prospects.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Rule 13a-14(a) /15d-14(a) Certification of Principal
Executive Officer.
31.2 Rule 13a-14(a) /15d-14(a) Certification of Principal
Financial Officer.
32.1 Section 1350 Certification of Principal Executive Officer.
32.2 Section 1350 Certification of Principal Financial Officer.
SIGNATURES
Pursuant to the requirements of the Company's Senior Subordinated
Debenture, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BROWN JORDAN INTERNATIONAL, INC
November 17, 2003 By:/s/ Bruce R. Albertson
----------------------------
Bruce R. Albertson
President and Chief Executive Officer
November 17, 2003 By:/s/ Vincent A.Tortorici, Jr.
----------------------------
Vincent A. Tortorici, Jr.
Chief Financial Officer
EXHIBIT 31.1
CERTIFICATION
I, Bruce R. Albertson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brown Jordan
International, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 17, 2003
By: /s/ Bruce R. Albertson
-----------------------------
Bruce R. Albertson
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Vincent A. Tortorici, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brown Jordan
International, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 17, 2003
By: /s/ Vincent A. Tortorici, Jr.
-----------------------------
Vincent A. Tortorici, Jr.
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Brown Jordan
International, Inc. (the "Company") for the period ended September 26, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Bruce R. Albertson, President and Chief Executive Officer of the
Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Bruce R. Albertson
-------------------------------
Bruce R. Albertson
President and Chief Executive Officer
November 17, 2003
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Brown Jordan
International, Inc. (the "Company") for the period ended September 26, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Vincent A. Tortorici, Jr., Chief Financial Officer of the Company,
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
/s/ Vincent A. Tortorici, Jr.
------------------------------
Vincent A. Tortorici, Jr.
Chief Financial Officer
November 17, 2003