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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended December 31, 2003
[] TRANSACTION 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 (I.R.S. employer
of incorporation or organization) identification no.)
1801 NORTH ANDREWS AVENUE, POMPANO BEACH, FLORIDA 33069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(954) 960-1117
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer as
defined in Exchange Act Rule 12b-2). Yes___ No_X_
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of March 31, 2004 was 1,000. The registrant has no
securities registered pursuant to Sections 12(b) or 12(g) nor are any securities
listed or trading on any market. The registrant files periodic reports under the
Securities Exchange Act of 1934 solely to comply with requirements under that
certain Indenture related to the 12 3/4% Senior Subordinated Notes due 2007, as
amended, and the Company's Senior Secured Term Notes.
INDEX TO ITEMS
Page
PART I
ITEM 1. Business............................................................................................... 3
ITEM 2. Properties............................................................................................. 12
ITEM 3. Legal Proceedings...................................................................................... 13
ITEM 4. Submission of Matters to a Vote of Security Holders.................................................... 13
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............................. 13
ITEM 6. Selected Financial Data................................................................................ 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 14
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk............................................. 26
ITEM 8. Financial Statements and Supplementary Data............................................................ 27
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 56
ITEM 9A Controls and Procedures................................................................................ 56
PART III
ITEM 10. Directors and Executive Officers of the Registrant..................................................... 56
ITEM 11. Executive Compensation................................................................................. 59
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters......... 64
ITEM 13. Certain Relationships and Related Transactions......................................................... 64
PART IV
ITEM 14. Principal Accountant Fees and Services................................................................. 67
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................ 68
Signatures ....................................................................................................... 74
PART I
ITEM 1. BUSINESS
GENERAL
Brown Jordan International, Inc. ("BJI" or the "Company"), is a premier
designer, manufacturer and marketer of fine luxury retail and contract
furnishings. BJI's brand names include Brown Jordan, Pompeii, Winston, Vineyard,
Tommy Bahama, Stuart Clark, Casual Living, Tradewinds, Molla, Loewenstein,
Charter, Lodging by Liberty, Woodsmiths, Wabash Valley, Southern Wood Products,
Texacraft, and Tropic Craft. BJI sells its furniture products in the retail
market to both national and specialty accounts and in the contract market to
commercial and institutional users. BJI's retail product offerings include
chairs, chaise lounges, tables, umbrellas, cushions and related accessories,
which are generally constructed from aluminum, wood or fiberglass. BJI's
contract products include the same type of products in addition to wood, metal
and upholstered chairs, sofas and loveseats, which are offered in a wide variety
of finish and fabric options to the contract market. In addition, the Company's
contract line includes a variety of tables, chairs, benches and swings for the
site amenity market. Most of BJI's furniture products, excluding Wabash Valley
and Southern Wood Products, are manufactured pursuant to customer orders.
Business
BJI markets its products using retail distribution and contract
distribution channels. In the retail channel, BJI sells to specialty stores and
national accounts primarily in the United States. The specialty furniture
products are distributed under the Brown Jordan, Winston, Vineyard, Tommy
Bahama, Stuart Clark, Casual Living, Tradewinds and Molla brand names through
independent sales representatives and a direct sales force. In addition, BJI
markets the Company's outdoor products to national accounts under the Southern
Wood Products and Casual Living brand names and under private label names.
In the contract channel the Company's offerings include the Brown Jordan,
Loewenstein, Charter, Lodging by Liberty, Pompeii, Wabash Valley, Woodsmiths,
Texacraft, and Tropic Craft brand names. The Company's contract products are
primarily sold to lodging and restaurant chains, country clubs, apartment
developers and property management firms, architectural design firms,
municipalities and other commercial and institutional users. The Brown Jordan,
Pompeii, Loewenstein and Lodging by Liberty brands are sold through independent
sales organizations. Texacraft and Tropic Craft are primarily marketed through
an in-house sales force. BJI markets a variety of site amenity products under
the Wabash Valley brand name. Wabash Valley products are targeted at educational
facilities, municipality and recreation centers, hotels and motels and other
institutional and corporate users. The Company manufactures an extensive
assortment of seating products ranging from traditional to contemporary styles
of chairs, as well as reception area love seats, sofas and stools. BJI designs,
assembles and finishes seating products with component parts from a variety of
suppliers, including a number of Italian and Mexican manufacturers.
The Company manages its business through two operating segments (retail and
contract) based on the channels into which the products are sold. See Note 13 to
the Consolidated Financial Statements.
History
The Company was formed in 1994 through the merger of Winston Furniture
Company, Inc., a designer, manufacturer and distributor of outdoor furniture for
the residential, contract and hospitality markets, and Loewenstein Furniture
Group, Inc., a manufacturer of seating products for the contract and hospitality
markets and of ready-to-assemble furniture products, with and into WinsLoew
Furniture, Inc., a newly-formed corporation that was organized for the purpose
of the merger.
From December 19, 1994 through August 27, 1999, WinsLoew's common stock was
traded on the NASDAQ National Market under the symbol "WLFI." On August 27,
1999, WinsLoew and Trivest Furniture Corporation (Trivest Furniture), a newly
formed Florida corporation was merged with and into WinsLoew, with WinsLoew
being the surviving corporation. The merger was approved by majority vote of the
shareholders on August 27, 1999. Pursuant to the merger, each holder of the
outstanding WinsLoew common stock, other than stock held by Trivest Furniture,
received $34.75 per share in cash, without interest, and the holder of each
outstanding stock option received a cash payment equal to the difference between
$34.75 and the exercise price of the option. Funds to pay the cash merger
consideration, option cancellation payments and related fees and expenses were
provided by the following sources: (1) the net proceeds from the sale of units
consisting of 12 3/4% senior subordinated notes due 2007 and warrants to
purchase common stock; (2) borrowings of term loans and drawings on a revolving
line of credit under the senior credit facility; (3) and equity. The stock
purchase described above was completed in one transaction. The Company accounted
for the transaction in accordance with the purchase method of accounting and
adjusted the basis of the assets and liabilities based upon the purchase price
described above. WinsLoew continued to report its full year of operations as it
is the surviving corporation. The total amount of goodwill recorded as a result
of the going private transaction was $191.2 million.
Since 1999, BJI has expanded its business through the following acquisitions:
o In July 1999, the Company purchased the stock of Miami Metal Products
d/b/a Pompeii Furniture Industries, Inc. and its affiliate, Industrial
Mueblera Pompeii De Mexico, S.A. De C.V. ("Pompeii"), a manufacturer of
upper-end outdoor furniture sold into both the retail and contract
markets.
o In March 2000, BJI acquired all of the stock of Wabash Valley
Manufacturing, a manufacturer of site amenity furniture.
o In June 2000, the Company purchased certain assets of Stuart Clark,
Inc. and its affiliates. Stuart Clark is a manufacturer of mid-price
point upholstered furniture for the hospitality industry. The assets
and operations of Stuart Clark were merged into the Lodging by Liberty
business.
o In August 2000, the Company purchased all of the stock of Charter
Furniture. Charter provided high quality upholstered furniture for
rooms, suites and common areas of premier hospitality companies.
o In March 2001, the Company purchased The Woodsmiths Company. Woodsmiths
is a manufacturer of custom tabletops for the contract and hospitality
industry.
o In May 2001, WinsLoew Furniture, Inc. and its parent WLFI Holdings,
Inc. acquired all of the outstanding stock of Brown Jordan
International, Inc. a manufacturer whose products serve the premium
price point categories in both retail and contract markets and Casual
Living Worldwide which markets to national retailers and specialty
patio stores under a variety of brand names in the moderate to lower
price points to round out the Company's product offerings.
In April 2002, WinsLoew changed its name to Brown Jordan International,
Inc. ("BJI" or the "Company").
RECENT DEVELOPMENTS
New Financing Arrangements
In March 2004, the Company entered into two financing transactions which,
in the aggregate, provide the Company with $225.0 million of new financing. The
new financing consists of a: (i) $90.0 million asset based revolving credit
facility ("Revolver"); and a (ii) $135.0 million senior secured term notes
("Senior Notes"). Both the Revolver and the Senior Notes are three year
commitments. Upon the closing of the transactions, approximately $189 million
was drawn under the credit facilities ($135.0 million under the Senior Notes and
$54.2 million under the Revolver.) Proceeds were used to repay the Company's
previously existing senior secured lenders ("former lenders") in full. Interest
costs under the new credit facilities will approximate those of the former
credit facility. The Company had been operating under a forbearance agreement
with its former lenders as of January 9, 2004, that was subsequently extended
through March 31, 2004, while the new financing was arranged.
The terms of the Revolver provide borrowing availability based on eligible
accounts receivable and eligible inventory. Substantially all of the Company's
accounts receivable, inventory, fixed assets and intangibles have been pledged
as collateral for the Revolver on a first lien basis. The Company must maintain
a minimum of $5.0 million of available borrowing capacity at all times, and,
provided that the Company maintains a minimum of $9.0 million of available
borrowing capacity, the facilities do not have financial covenants. As of the
closing date of the transaction, the Company had approximately $61 million
outstanding under the Revolver (including letters of credit) and approximately
$19 million available to be drawn.
The Senior Notes are secured by a second lien on substantially all of the
Company's accounts receivable, inventory, fixed assets and intangibles, and a
first lien on the Company's capital stock as well as that of all domestic
subsidiaries. There are no financial covenants associated with the Senior Notes.
There is no required amortization on the Senior Notes through maturity. The
structure of the new financings will provide the Company with additional
liquidity to grow the businesses as well as increased flexibility resulting from
having no expected financial covenants or senior debt amortization for the next
three years.
See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES" and Note 15 to the
Consolidated Financial Statements for further discussion of the new financing
transactions.
Joint Venture and Supply Agreements
During 2003, the Company expanded its initiative to source furniture
products from China. In December 2002, the Company signed a supply agreement
with Shian Industry [Hong Kong] Company Limited, allowing them to develop a
manufacturing facility in Jiaxing, China that exclusively develops and produces
BJI products. The facility supports the manufacturing of furniture made in
various materials, including extruded aluminum, combination metals, and woven
materials. Shian completed construction of the manufacturing facility and
production commenced in March 2004. The agreement provides for the Company to
purchase a minimum of $10.0 million of furniture products in the year production
begins and $40.0 million for each one-year period thereafter, for the term of
the agreement. See Note 11 to the Consolidated Financial Statements for
additional discussion.
The Company also entered into a joint venture with Shian Industry [Hong
Kong] Company Limited to build a research, design, manufacturing and model
showroom facility in Shanghai, China, dedicated exclusively to BJI products,
called the "Center of Excellence." The Center of Excellence is dedicated to
exploring and developing the latest global design trends and will serve as a
center for global sourcing. Designers can utilize Computer Aided Design (CAD)
technologies, allowing for a seamless transmission of information to BJI's
design resources in Pompano Beach, Florida, Los Angeles, California and
Birmingham, Alabama. The model showroom in the Center of Excellence is used to
display BJI's latest offerings in outdoor furniture products. Its convenient
location in Shanghai allows it to serve as a hosting facility for BJI's
international customers while they are traveling throughout Asia. Construction
of the Center of Excellence was substantially completed in January 2004 and
production in the manufacturing facility is expected to commence late in the
second quarter or early in the third quarter of 2004. See Note 5 to the
Consolidated Financial Statements for additional discussion regarding the joint
venture.
In August 2003, BJI also signed a supply agreement with Werner Woods,
making BJI the exclusive distributor of certain products made of teak and all
weather wicker formerly marketed by Werner Woods. The agreement has an initial
term of four years, which automatically renews for one-year terms thereafter.
The agreement is cancelable with six months written notice by either party. In
September 2003, the Company introduced its first offering under the agreement.
Exclusive Distribution Rights
In December 2002, BJI and Hanamint Corporation, a leading manufacturer and
designer of cast aluminum outdoor furniture, signed an agreement giving BJI
exclusive rights to distribute cast aluminum products from Hanamint to the U.S.
national account retail market.
Under the agreement, BJI will exclusively brand and market Hanamint's cast
aluminum outdoor furniture to national account customers under BJI's brand names
and through private label programs. Hanamint will continue to manufacture its
own exclusive collections of cast aluminum products under the Hanamint brand
name to the U.S. specialty retail channel. As part of the agreement, the
companies will combine expertise and resources in the areas of product design
and development for the new BJI cast collections to ensure innovative products
for BJI's premier brands distributed through the specialty channel.
Licensing Agreements
During 2003, the Company expanded its product offerings through licensing
agreements. In August 2003, BJI signed a licensing agreement with Tommy Bahama
that provides BJI with the sole and exclusive right and license to distribute
weather-resistant furniture for outdoor use ("Licensed Product") with the Tommy
Bahama trademark. In September 2003, the Company introduced its first offerings
under the agreement.
COMPETITIVE STRENGTHS
BJI believes that it has achieved a leading market position by capitalizing
on the following key competitive strengths:
Brand Recognition. BJI's brands, including Brown Jordan are perhaps the
most recognized brand names in the outdoor furniture industry. BJI continues to
manufacture and import only products that it believes are representative of the
Company's reputation for excellence. BJI believes that its initiative to work
with retailers who will exclusively market Brown Jordan products will further
enhance the Company's brand recognition in an environment that is consistent
with its image.
Reputation for Producing High Quality Products. The Company's reputation
for providing customers with high quality products is built upon its use of
superior structural designs, aesthetic styling, sophisticated manufacturing
techniques and strict quality control standards. The Company's dedication to
quality begins with a customer-oriented design process that is based upon the
involvement of senior management, independent designers, sales representatives,
dealers, the engineering department and suppliers. The Company also employs a
number of sophisticated manufacturing processes that increase the quality of
products and differentiate them from those of the Company's competitors.
Unique Delivery Capabilities. The Company has tailored its operations to
meet the unique delivery requirements of its customers. On time delivery is
critical to outdoor furniture retailers because of the short selling season,
general desire to minimize inventory levels and need to offer customers products
that will be available at the time of purchase, or soon after. BJI's ability to
deliver "in time, on time" is also important to the contract market customers,
who must receive orders of outdoor furniture or seating products on a timely
basis in order to meet their own construction or operating deadlines. The
Company believes that its ability to deliver products "in time, on time" is
unique in the furniture manufacturing industry and distinguishes BJI from its
competitors.
Continual Focus on Customer Service. BJI is dedicated to providing the
highest level of customer service through its focus on complete customer
satisfaction. The Company provides a variety of services which are geared
towards assisting its customers improve the profitability of their business,
while strengthening their loyalty to the Company's products.
Since the Company's seating customers require unique product features, the
Company works closely with them to provide customized seating products that meet
their particular needs. The Company offers these customized products quickly and
cost effectively through its flexible manufacturing processes and trained sales
staff that is knowledgeable in the design, manufacture, variety and decor
applications of BJI products. BJI also has a customer service department at each
manufacturing plant to respond directly to customer inquiries.
BUSINESS STRATEGY
The Company's strategic objective is to further enhance its leading market
position in the retail, contract and hospitality furniture markets. The Company
plans on achieving this objective through the continued implementation of the
following strategies:
Increase Penetration of Existing Customers. The Company is constantly
working on ways to increase sales to the existing customer base. The Company
believes that it can increase its penetration of existing customers by
continuing to emphasize high quality products, broad product offerings, timely
delivery and customer service together with innovatively styled new product
designs.
Attract New Customers. The Company has undertaken a number of programs to
expand its customer base in existing and new markets. Examples of these efforts
include: (i) exclusive retail arrangements, (ii) the entrance into traditional
furniture stores, (iii) the use of specific market focused sales personnel, (iv)
private labeling, and (v) the targeting of national specialty stores. In the
seating business, the Company has established dedicated sales groups to focus on
attractive specialty end markets. Through the Company's private labeling
program, it has taken advantage of the trend towards outsourcing by selling its
seating products to several nationally recognized designers of office furniture
systems, who in turn sell BJI's products under their own brand name. In the
retail market, the Company is targeting national specialty stores that offer
home design products, including outdoor furniture. The penetration of these
national specialty retailers allows the Company to take advantage of new,
expanding distribution channels and capitalize on the significant marketing
clout of these retailers without significantly increasing selling and marketing
expenses or cannibalizing the existing customer base.
New Products. The Company annually updates and expands its product lines
with new designs and styles, as well as periodically introduces complementary
products. BJI's annual design process results in the introduction of newly
designed products that make up a meaningful portion of the current year's
product offering. The Company's design process involves personnel from all areas
of the Company including senior management, manufacturing and sales, as well as
the distributors and sales representatives in an effort to design new furniture
styles that are attractive and innovative, while cost effective to manufacture
and which it believes have a higher likelihood of success.
PRODUCTS AND MARKETS
The Company distributes to two channels: retail and contract. The Company's
products include outdoor furniture designed for residential, commercial and
institutional use; seating products designed for commercial and institutional
use; and ready-to-assemble furniture designed for household use. For the year
ended December 31, 2003, the retail channel and contract channel products
accounted for 67% and 33%, respectively, of net sales. The following is a
summary of our principal products, customers and markets:
Brand Principal Products Principal Customers and Markets
Brown Jordan, Tommy Outdoor furniture, including chairs, chaise Specialty patio stores. full-line furniture
Bahama, Winston, Molla, lounges, tables, umbrellas and related accessories retailers and department stores in the
Tradewinds, Stuart Clark constructed of extruded aluminum and teak. residential market.
Brown Jordan, Texacraft, Outdoor furniture, including chairs, chaise Lodging and restaurant chairs, country clubs,
Tropic Craft, Pompeii lounges, tables, umbrella and related accessories, architectual firms and other commercial and
constructed of aluminum, wrought iron, wood, institutional users in the contract market.
fiberglass and teak.
Wabash Valley Site amenity products including chairs, tables Educational facilities, municipal and
benches, swings and related accessories constructed recreation centers, hotels, motels and other
of steel and coated to provide long-term durability institutional and corporate users.
Loewenstein Contemporary to traditional seating products such Lodging and restaurant chains, country clubs,
as wood, metal and upholstery chairs, sofas and apartment developers and managers,
loveseats. architectual firms and other commercial and
institutional users in the contract and
hospitality market.
Charter and Lodging by Custom and semi-custom upholstery furnishings Hotel and other hospitality markets.
Liberty such as sofa benches, chaises, lounge chairs
and ottomans.
Southern Wood Products Ready to assemble furniture products such as book National catalog accounts and wholesalers.
shelves, entertainment centers, coffee and end
tables, computer stations and wall units as well
as case goods such as chest of drawers, changing
towers and hutches, all of which are constructed
of wood or wood derivatives.
Vineyard All weather wicker and wood. Specialty patio stores, home furnishings
stores and department stores.
Woodsmith Custom table tops, bases and conference room Restaurants, country clubs, health care
furnishings. facilities, universities and government
agencies.
The Company's outdoor furniture products feature a durable painted finish,
which is offered in a wide selection of colors. The suggested retail prices for
a residential table and four chairs currently range from approximately $700 to
$10,000 for the medium to upper-end segment and $150 to $800 for the
promotionally priced market. The Company's outdoor furniture is generally used
by residential customers indoors and on patios, decks and poolside, while the
contract customers generally use the Company's products in restaurants and
lodging, as well as for outdoor purposes.
The Company's seating products are marketed under the Loewenstein, Lodging
by Liberty, Charter and Woodsmiths brand names and include an extensive variety
of products, ranging from contemporary to traditional styles of wood, metal and
upholstered chairs, reception area love seats, sofas, ottomans, chaises, stools
and tables. The Company purchases or assembles wood frames and finishes them
with one of the numerous standard colors or, if requested, to the customer's
specification. The Company's metal chairs are available in chrome or in a
selection of standard powder coat finishes. For upholstered products, the
customer may select from a number of catalog fabrics, vinyls and leathers or may
specify or supply its choice of materials. The Company maintains an inventory of
unassembled chair components that enables it to respond quickly to large
quantity orders in a variety of finish and fabric combinations. The Company's
seating products have a number of commercial and institutional uses, including
seating for in-room lodging and common areas, stadium luxury skyboxes,
restaurants, lounges and classrooms. The Company also provides seating for
various retailers, as well as commercial and institutional construction
projects, such as professional sports stadiums and arenas. BJI has excellent and
in many instances, long-term relationships with its diverse customer base.
The Company sells its ready-to-assemble products under the Southern Wood
Products brand name to mass merchandisers and catalog wholesalers. BJI's
ready-to-assemble products include promotionally priced traditional
ready-to-assemble "flatline" and "spindle" furniture and a new line of fully
assembled case goods furniture products designed for household use. "Flatline"
products include ready-to-assemble items that are constructed of flat pieces of
wood, such as book shelves, entertainment and computer centers and tape storage
units. The Company's "spindle" products include ready-to-assemble items that are
constructed of flat pieces of wood connected by decorative joints and brackets,
such as coffee tables, end tables, wall units and rolling carts. Case goods
products include fully assembled four drawer chests and three-drawer chest and
changing towers, with an optional hutch.
MANUFACTURING AND SOURCING
BJI produces its products at 12 manufacturing facilities located throughout
the United States and one facility in Mexico. See "ITEM 2. PROPERTIES." The
Company has tailored its manufacturing processes to each business in order to
maximize efficiencies, create high quality products and maintain operating
flexibility. The Company's outdoor furniture facilities are vertically
integrated - BJI manufactures its residential and contract outdoor furniture
products from basic raw materials such as aluminum rod and fabric. In contrast,
BJI's seating facilities take advantage of outsourcing opportunities - the
Company assembles its seating products from wood components received from its
Italian and other suppliers. In both cases, the Company maintains flexible
manufacturing processes that enable it to; (i) minimize finished goods inventory
and warehousing costs; (ii) efficiently expand its product lines to meet the
demands of a diverse customer base; and (iii) effectively control the cost,
quality and production time of its products.
The Company sources approximately 50% of its product from overseas, mainly
from China. The Company has sourced the majority of its National Account sales
in China and continues to seek sourcing when it feels it can obtain quality
product at a reduced cost.
Outdoor Furniture
The Company markets outdoor furniture to both the retail and contract
segments. In the manufacturing process for outdoor furniture products, the
Company cuts extruded aluminum tubes to size and shapes or bends them in
specially designed machinery. The aluminum is then welded to form a solid frame,
and the frame is subjected to a grinding and buffing process to eliminate any
rough spots that may have been caused during welding. After this process is
completed, the frame is cleaned, painted in a state-of-the-art powder coating
system and heat cured. The Company then adds vinyl strapping, cushions, fabric
slings or other accessories to the finished frame, as appropriate. The Company
then packages the product with umbrellas, tempered glass and other accessories,
as applicable, and ships it to the customer.
The Company believes that it sells the highest quality aluminum outdoor
furniture in its price range. Unlike manufacturers of lower-end products that
rivet or bolt major frame components, BJI welds the major frame components of
its aluminum furniture, thereby increasing the durability and enhancing the
appearance of the aluminum product line. The Company's state-of-the-art powder
coated painting process results in an attractive and durable finish. To ensure
that only the highest quality products are shipped to customers, the Company's
quality control department has established numerous checkpoints where the
quality of all of its aluminum products are examined during the manufacturing
process.
All fabricated weldments enter into a grinding area for inspection and
deburring. After this process is completed the parts enter a wash, rinse and
prime cycle. Upon exiting this phase of the manufacturing process the parts flow
either to powder coating booths or the Company's plastisol dip tanks. Throughout
the manufacturing process all parts and components are carefully inspected to
ensure the highest degree of quality.
Contract Seating and Site Amenity Products
The Company assembles most of its contract and hospitality products to
order, but does not generally have the same level of vertical integration as is
present in the manufacture of its outdoor product lines. Instead, the Company
purchases component parts from a variety of suppliers, including a number of
Italian suppliers. The Company utilizes these component parts because they
enable it to offer sturdy and aesthetically appealing products, which
incorporate unique designs and sophisticated manufacturing techniques that are
generally unavailable or are not cost effective in the United States. The
principal elements of wood chair assembly include: (i) frame glue-up, (ii)
sanding, (iii) seat assembly (in which upholstered seats are constructed from
component bottoms, foam padding and cloth coverings), and (iv)
painting/lacquering.
To provide consistency and speed in this finishing process, the Company
utilizes a state-of-the-art conveyorized paint line with electrostatic spray
guns and a three-dimensional ultraviolet drying system. In particular,
Loewenstein's finishing system applies specially formulated materials via
robotic reciprocators and utilizes three advanced technologies:
o Electrostatic Finish Application - this process is designed to ensure
that a significantly higher percentage of the actual finishing material
will adhere to the product, thereby reducing raw material costs;
o Ultraviolet Finishing Materials - these materials allow a much higher
solids content, thereby reducing environmental concerns and enhancing
finish quality; and
o High-powered Ultraviolet Light - this type of light can cure chairs in
less than 60 seconds, thereby speeding inventory turn-over and reducing
warehouse requirements.
For upholstered products, the specified fabric cloth is stretched to fit
the chair frame over foam padding. The Company generally assembles metal chairs
from imported components. After rework and leveling, BJI places the chairs in
cartons to prevent damage in transportation. The manufacturing process also
includes a number of product inspections and other quality control procedures.
Wabash Valley is a designer, manufacturer and finisher of the Company's
site amenity products. The fabrication process includes cutting, punching,
forming, bending, sawing, welding and grinding. The Company has invested heavily
in its fabrication capabilities in the past few years, with focus in Computer
Numerical Control ("CNC") technology. This includes a roll forming line, robotic
welding, CNC plasma, CNC punching and cutting as well as CNC tube bending. All
CNC equipment instructions are downloaded from the Company's on-site drafting
and engineering department.
Ready-to-Assemble Furniture
For the manufacture of the Company's ready-to-assemble products, which
include "spindle," "flatline" and case goods products, BJI uses high-density
particleboard, which the Company laminates with a variety of wood grains and
solid colors. For the Company's "spindle" products, BJI turns, stains and
lacquers all of the spindles and then individually boxes the products with
spindles and board, along with any necessary hardware and assembly instructions.
With respect to "flatline" products, the Company individually boxes the cut
laminated particleboard, along with necessary hardware and assembly
instructions. The edges of the case goods products cut laminated particleboard
may be "soft formed" for aesthetic value. The Company then assembles the unit
using glue, screws and hardware, such as self-closing drawer runners, on all
units.
Manufacturing Capacity
Management believes that the Company's manufacturing facilities in the
retail and contract and hospitality product lines are currently operating, in
the aggregate, at approximately 65% of capacity, assuming a one-shift basis.
Management considers the Company's present manufacturing capacity to be
sufficient for the foreseeable future and believes that, by adding multiple
shift operations, the Company can significantly increase the total capacity of
its facilities to meet growing product demand with minimal additional capital
expenditures. In addition, the Company engages in an ongoing maintenance and
upgrading program, and considers its machinery and equipment to be in good
condition and adequate for the purposes for which they are currently used.
MARKETING AND SALES
The Company sells its products through both independent manufacturers'
representatives and internal sales staff. The Company sells its retail outdoor
furniture, contract and hospitality products through approximately 180
independent sales representatives. The Company primarily uses an internal sales
staff to sell to national accounts and to sell its outdoor furniture products
into the contract market. The Company's site amenity and ready-to-assemble
products are sold exclusively by independent sales representatives. The Company
has strong relationships with its independent sales personnel. Each independent
representative promotes, solicits and sells the Company's products in an
assigned territory, assists in the collection of receivables, and receives
commissions based on the net sales made in his or her territory.
The Company determines the prices at which its products will be sold and
may refuse to accept any orders submitted by a sales representative for
credit-worthiness or other reasons. Senior management is also involved in the
sales process for all of the Company's furniture products.
The Company has developed a comprehensive marketing program to assist its
representatives in selling the Company's products. Key elements of this program
include: (i) holding exhibitions at national and regional furniture markets,
including the pre-market show in Las Vegas, Nevada; (ii) leasing ten year-round
showrooms at locations across the country, including the Merchandise Mart in
Chicago, Illinois and High Point, North Carolina; (iii) providing retailers with
annual four-color catalogs of the Company's products, sample materials
illustrating available colors and fabrics, point of sale materials and special
sales brochures; (iv) providing information directly to representatives at
annual sales meetings attended by senior management and manufacturing personnel;
(v) maintaining a customer service department at each of the Company's
manufacturing facilities which ensures that the Company promptly respond to the
needs and orders of its customers; (vi) maintaining regular contact with key
retailers; and (vii) conducting ongoing surveys to determine dealer
satisfaction.
BACKLOG
As of December 31, 2003, the backlog of orders was approximately $104
million, compared to $101 million at December 31, 2002. Backlog is defined as
committed purchase orders with future ship dates. Management, in accordance with
industry practice, generally permits orders to be canceled prior to shipment
without penalty. Further, management does not consider backlog to be predictive
of future sales activity because of the short manufacturing cycle and delivery
time in both the outdoor and seating segments and, especially in the case of
outdoor furniture, the seasonality of sales.
RAW MATERIALS AND SOURCING
BJI's principal raw materials consist of extruded aluminum tubes, expanded
mesh steel, sheet and tube steel, woven vinyl fabrics, paint/finishing
materials, vinyl strapping, cushion filler materials, cartons, glass table tops,
component parts for seating, particle board and other lumber products and
hardware. Although the Company has limited long-term supply contracts, it
generally maintains a number of sources for raw materials and has not
experienced any significant problems in obtaining adequate supplies for
operations. In addition, increases in the cost of raw materials, such as
fluctuations in the costs of aluminum, lumber and other raw materials have not
historically had a material adverse effect on the results of operations as BJI
is generally able to pass through such increases in raw material costs to
customers over time through price increases. The Company believes that its
policy of maintaining several sources for most supplies and large volume
purchases contribute to its ability to obtain competitive pricing. Nevertheless,
the market for aluminum is, from time to time, highly competitive, and its
price, as a commodity, is subject to market conditions beyond the Company's
control. Accordingly, future price increases could have a material adverse
effect on BJI's business, financial condition, and results of operations or
prospects. In addition, a significant portion of contract product's raw
materials consist of component chair parts purchased from several Italian
manufacturers.
The Company views its suppliers as "partners" and works with such suppliers
on an ongoing basis to design and develop new products. The Company believes
that these cooperative efforts, its long-standing relationships with these
suppliers and its experience in conducting on-site, quality control inspections
provide it with a competitive advantage over many other furniture manufacturers,
including a competitive purchasing advantage in times of product shortages. In
the case of BJI's Italian suppliers, the current contracts for purchases are
primarily based on the Euro, accordingly, these transactions expose the Company
to the effects of fluctuations in the value of the U.S. dollar versus the Euro.
(See Item 7.) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION."
The Company has close working relationships with its foreign suppliers and its
future success may depend, in part, on maintaining these or similar
relationships. Given the special nature of the manufacturing capabilities of
these suppliers, in particular certain wood-bending capabilities, and sources of
specialized wood types, the contract division could experience a disruption in
operations in the event of any replacement of such suppliers. Situations beyond
the Company's control, including political instability, significant and
prolonged foreign currency fluctuations, economic disruptions, the imposition of
tariffs and import and export controls, changes in government policies and other
factors could have a material adverse effect on the Company's business,
financial condition, and results of operations or prospects.
The Company also sources certain of its finished goods for the retail
business. The Company sources complete lines of tables, chairs, chaise lounges
and other outdoor furniture. The Company has developed significant relationships
with manufacturers overseas and continues to seek out additional manufacturers
that meet its requirements. Although the Company maintains a close relationship
with suppliers and has diversified its supply base, the Company's future success
may depend in part on its ability to maintain these or similar relationships.
Currently these transactions have been negotiated in US dollars accordingly;
there has been no risk in currency fluctuation.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies that
compete directly with BJI may have greater financial and other resources. Based
on the Company's extensive industry experience, BJI believes that competition in
retail and contract markets is generally a function of product design,
construction quality, prompt delivery, product availability, customer service
and price.
The Company believes that it can successfully compete in the furniture
industry primarily on the basis of its innovatively styled product offerings,
the Company's unique delivery capabilities, the quality of its products, and its
emphasis on providing high levels of customer service. The Company believes that
its retail outdoor product line has a leading share of the outdoor furniture
market in the geographic region east of the Mississippi River.
Sales of imported, foreign-produced furniture have increased in recent
years. During 2001, the Company moved to address this share of the market
through acquisitions. The Company has a manufacturing facility in Mexico and a
joint venture with furniture manufacturers located in China. This move has
opened up new furniture markets that were previously not targeted by the
Company, (as well as lowered cost of production to more competitive levels.)
In the contract segment, the Company competes with many manufacturers,
ranging from large, national, publicly traded entities to small, one-product
firms selling to limited geographic markets.
TRADEMARKS AND PATENTS
The Company has registered the Winston, Loewenstein, Pompeii, Southern Wood
Products, Wabash Valley trademarks with the United States Patent and Trademark
Office, in addition to numerous trademarks under Brown Jordan Company and BJIP,
Inc. The Company believes that its trademark position is adequately protected in
all markets in which it does business. The Company also believes that its
various trade names are generally well recognized by dealers and distributors,
and are associated with a high level of quality and value.
The Company holds several design and utility patents and the Company's
policy is to apply for design and utility patents, as deemed economically
necessary. BJI vigorously defends these patents and trademarks.
EMPLOYEES
At December 31, 2003, the Company had approximately 1,460 full-time
employees, of whom 153 were employed in management, 192 in sales, general, and
administrative positions, and approximately 1,115 in manufacturing, shipping,
and warehouse positions.
The Company has two manufacturing locations whose employees are subject to
collective bargaining agreements. Approximately 130 of the full-time hourly
employees in Haleyville, Alabama, are represented by the Retail, Wholesale, and
Department Store Union. The labor agreement between the Company and such union,
which expires in July 2006, provides that there shall be no strikes, slowdowns
or lockouts. Approximately 174 of the full time hourly employees in El Monte,
California are represented by the Paper, Allied-Industrial, Chemical and Energy
Workers International Union. The labor agreement between the Company and this
union expires in September 2006. The labor agreement provides that there shall
be no strikes, slowdowns or lockouts.
Management considers its employee relations to be good.
ENVIRONMENTAL MATTERS
The Company believes that it complies in all material respects with all
applicable federal, state and local provisions relating to the protection of the
environment. The principal environmental regulations that apply to the Company
govern air emissions, water quality and the storage and disposition of solvents.
In particular, the Company is subject to environmental laws and regulations
regarding air emissions from paint and finishing operations and wood dust levels
in its manufacturing operations. As is typical of the furniture manufacturing
industry, the finishing operations use products that may be deemed hazardous and
that pose an inherent risk of environmental contamination. Compliance with
environmental protection laws and regulations has not had a material adverse
impact on BJI's financial condition or results of operations in the past and the
Company does not expect compliance to have a material adverse impact in the
future.
SEASONALITY
Sales of retail products are typically higher in the first and fourth
quarters as a result of high demand for outdoor furniture in advance of summer
use. Weather conditions during the peak retail selling season and the resulting
impact on consumer purchases of outdoor furniture products can also affect sales
of outdoor products.
ITEM 2. PROPERTIES
Location Primary Use Approx Sq. Ft. Leased/Owned
- -------- ----------- -------------- ------------
Birmingham, AL Retail channel sales office 5,000 Leased (1)
Haleyville, AL Manufacturing and offices 155,000 Owned
Haleyville, AL Manufacturing and offices 218,000 Owned
Haleyville, AL Warehouse 20,000 Owned
Haleyville, AL Warehouse 30,000 Owned
Medley, FL Manufacturing and offices 173,000 Leased (2)
Pompano Beach, FL Manufacturing, office and corporate offices 100,000 Owned
Pompano Beach, FL Manufacturing and offices 45,000 Leased (3)
Liberty, NC Manufacturing and offices 126,000 Owned
Chicago, IL Showroom 5,500 Leased (4)
Sparta, TN Manufacturing and offices 94,300 Owned
Silver Lake, IN Manufacturing and offices 240,000 Owned
El Monte, CA Manufacturing and offices 57,000 Leased (5)
El Monte, CA Manufacturing 19,450 Leased (6)
Washington, DC Showroom 3,500 Leased (7)
Chicago, IL Showroom 7,069 Leased (8)
Dallas, TX Showroom 4,916 Leased (9)
San Francisco, CA Showroom 3,889 Leased (10)
Los Angeles, CA Showroom 5,467 Leased (11)
High Point, NC Showroom 4,761 Leased (12)
Miami, FL Showroom 5,178 Leased (13)
New York, NY Showroom 5,000 Leased (14)
Laguna, CA Showroom 3,888 Leased (15)
El Monte, CA Warehouse and offices 29,232 Leased (16)
Juarez, MX Manufacturing and offices 259,800 Leased (17)
El Monte, CA Manufacturing and offices 143,300 Owned
Chicago, IL Showroom 9,485 Leased (18)
Oxnard, CA Manufacturing, warehouse and offices 200,000 Leased (19)
Ocala, FL Contract sales office 3,000 Leased (20)
Location Primary Use Approx Sq. Ft. Leased/Owned
- -------- ----------- -------------- ------------
Haleyville, AL Warehouse 51,000 Leased (21)
Haleyville, AL Warehouse 31,325 Leased (22)
Pompano Beach, FL Offices 2,000 Leased (23)
Bentonville, AK Sales Office 6,000 Leased (24)
(1) Month-to-month. (13)Lease expires December 2008.
(2) Lease expires March 2012. (14)Lease expires September 2011.
(3) Lease expires June 2004. (15)Lease expires October 2004
(4) Lease expires March 2009. (16)Lease expires September 2005.
(5) Lease expires March 2005. (17)Lease expires March 2005.
(6) Lease expires March 2005. (18)Lease expires August 2007.
(7) Lease expires February 2007. (19)Lease expires December 2007.
(8) Lease expires December 2004. (20)Lease expires August 2004.
(9) Lease expires December 2006. (21)Lease expires July 2006.
(10) Lease expires December 2006. (22)Lease expires March 2005.
(11) Lease expires April 2007. (23)Lease expires September 2004.
(12) Lease expires October 2005. (24)Lease expires June 2004.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of business. The Company maintains
insurance coverage against potential claims in an amount that it believes to be
adequate. The Company believes that it is not presently a party to any
litigation, the outcome of which would have a material adverse effect on its
business, financial condition, results of operations or future prospects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Not applicable. None of our securities are registered pursuant to Sections
12 (b) or 12(g) of the Exchange Act and there is no established public trading
market for our securities.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years ended December 31, 2003 is derived from the audited Consolidated Financial
Statements of BJI. The following selected consolidated financial data should be
read in conjunction with BJI's Consolidated Financial Statements and related
Notes, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the other financial information included herein.
Years Ended December 31,
(In thousands) 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net sales............................. $ 346,294 $ 354,670 $286,154 $ 188,963 $162,139
Cost of sales......................... 264,685 262,913 199,568 110,941 96,384
------------ ------------ ------------ ------------ ------------
Gross profit.......................... 81,609 91,757 86,586 78,022 65,755
Selling, general and administrative
expense............................ 50,674 52,898 44,124 30,063 25,674
Amortization.......................... 2,857 2,789 9,078 6,957 3,321
----------- ----------- ----------- ----------- -----------
Operating income................... 28,078 36,070 33,384 41,002 36,760
Interest expense, net................. 33,146 33,555 34,358 27,114 8,910
----------- ----------- ----------- ----------- -----------
(Loss) income before provision for income taxes and cumulative effect of
change in accounting principle .... (5,068) 2,515 (974) 13,888 27,850
Income tax (benefit) provision
Current............................ (2,783) 753 2,399 6,549 10,991
Deferred........................... 961 237 591 602 348
----------- ----------- ----------- ----------- -----------
(1,822) 990 2,990 7,151 11,339
(Loss) income before cumulative effect
of change in accounting principle.. (3,246) 1,525 (3,964) 6,737 16,511
Gain on sale of discontinued operation,
net of taxes....................... - - - - (755)
Cumulative effect of change in accounting
principle, net of tax benefit - 201,247 - - -
------------ ------------ ------------ ------------ ------------
Net (loss) income $(3,246) $(199,722) $(3,964) $ 6,737 $ 17,266
======= ========== ======= ======= ========
Other financial data
Depreciation and amortization......... $ 6,352 $ 6,604 $ 12,798 $ 10,561 $ 4,845
Capital expenditures.................. $ 1,822 $ 1,440 $ 5,165 $ 5,966 $ 3,265
Ratio of earnings to fixed charge..... 0.9x 1.1x 1.0x 1.5x 4.0x
Primary working capital (1)........... $ 90,438 $ 86,464 $ 79,345 $ 51,451 $ 35,986
Total assets.......................... $ 306,906 $ 302,093 $544,609 $ 367,622 $ 308,062
Long-term debt........................ $ 239,397 $ 273,329 $287,878 $ 238,147 $ 198,258
Total debt............................ $ 280,572 $ 283,029 $295,078 $ 242,172 $ 201,958
Stockholder's (deficit) equity........ $(37,689) $(35,626) $168,365 $ 97,876 $ 81,711
(1) Primary working capital is the sum of "Accounts receivable, net" and
"Inventories, net" less "Accounts payable."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Prior to the 2001 acquisition of the entity formerly known as Brown Jordan
International, Inc. ("Former Brown Jordan"), WinsLoew Furniture, Inc.
("WinsLoew") completed a recapitalization transaction wherein, WinsLoew became a
wholly-owned subsidiary of a new holding company called WLFI Holdings, Inc.
("Holdings"), a Florida corporation.
In order to accomplish the recapitalization, Holdings was initially formed
as WinsLoew's wholly-owned subsidiary. In addition to Holdings, WinsLoew formed
another company called WLFI Merger, Inc., a Florida corporation, as a
wholly-owned subsidiary of Holdings. Then, immediately prior to the consummation
of the former Brown Jordan acquisition, WinsLoew merged with WLFI Merger, Inc.
and was the surviving corporation of the merger.
As a result of these transactions and as described below, WinsLoew became a
wholly-owned subsidiary of the new holding company, Holdings. All shares of
WinsLoew common stock that were outstanding immediately prior to the merger were
converted into shares of common stock of Holdings. In addition, each warrant or
option to purchase shares of WinsLoew's common stock was converted into a
warrant or option to purchase an equivalent number of shares of common stock of
Holdings. In addition, 1,000 shares of previously unissued WinsLoew common stock
were then issued to WLFI Holdings, Inc. Finally, by operation of the merger, the
separate corporate existence of WLFI Merger ended.
The recapitalization of WinsLoew did not result in a change in the stock
ownership; accordingly, there was no change in the basis of WinsLoew's assets or
liabilities.
In April 2002, WinsLoew changed its name to Brown Jordan International,
Inc. ("BJI" or the "Company").
GENERAL
BJI is a premier designer, manufacturer and marketer of fine luxury retail
and contract furnishings. BJI's brand names include Brown Jordan, Pompeii,
Winston, Vineyard, Tommy Bahama, Stuart Clark, Casual Living, Tradewinds, Molla,
Loewenstein, Charter, Lodging by Liberty, Woodsmiths, Wabash Valley, Southern
Wood Products, Texacraft, and Tropic Craft. BJI sells its furniture products in
the retail market to both national and specialty accounts and in the contract
market to commercial and institutional users. BJI's retail product offerings
include chairs, chaise lounges, tables, umbrellas, cushions and related
accessories, which are generally constructed from aluminum, steel, wood or
fiberglass. BJI's contract products include the same type of products in
addition to wood, metal and upholstered chairs, sofas and loveseats, which are
offered in a wide variety of finish and fabric options to the contract market.
In addition, the Company's contract line includes a variety of tables, chairs,
benches and swings for the site amenity market. All of BJI's furniture products,
excluding Wabash Valley and Southern Wood Products, are manufactured pursuant to
customer orders.
ACQUISITIONS
On March 9, 2001 the Company purchased all of the assets of The Woodsmiths
Company. Woodsmiths, a manufacturer of custom tabletops for the contract and
hospitality industry, is located in Pompano Beach, Florida. The purchase price
of approximately $2.8 million was paid in cash of approximately $0.3 million and
a $2.5 million note payable to the sole shareholder of Woodsmiths, which was
paid in July 2001.
In addition, the stock purchase agreement provided for an additional
contingent deferred payment of up to $1.0 million based upon Woodsmiths'
earnings before interest, taxes, depreciation, amortization and management fees
for the twelve-month period ended December 31, 2001. The maximum contingent
payment amount of $1.0 million was recorded at the time of purchase as an
addition to goodwill and an accrued liability of the Company. Woodsmiths' level
of earnings before interest, taxes, depreciation, amortization and management
fees for the twelve month period ended December 31, 2001 was below the amount
required to earn the contingent payment, accordingly, the accrued liability was
reversed in 2002, resulting in a decrease to goodwill of $1.0 million. The
acquisition was accounted for under the purchase method of accounting resulted
in goodwill of approximately $2.4 million, including the aforementioned
adjustment reducing goodwill.
On May 8, 2001, the Company and Holdings acquired all of the outstanding
stock of Former Brown Jordan at a purchase price of $78.6 million. The Stock
Purchase Agreement by and among Holdings, the Company, Former Brown Jordan and
the stockholders of Former Brown Jordan also called for the repayment of
outstanding Former Brown Jordan indebtedness at closing, which approximated
$44.6 million.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired using
management's estimate of the fair value of the assets and liabilities acquired.
Pursuant to the purchase method of accounting, the excess of the purchase price
over the $44.6 million fair value of net assets after payment of Former Brown
Jordan indebtedness at closing was recorded as goodwill in the amount of $47.1
million.
In order to complete the acquisition, Holdings raised $50.9 million of
equity and issued $22.0 million of subordinated notes to the sellers for Former
Brown Jordan stock. Holdings contributed the cash of $50.9 million to the
Company as additional equity. The stock of Former Brown Jordan obtained in
exchange for subordinated notes was also contributed to the Company. The balance
of the proceeds was provided through a refinancing of the Company's existing
senior credit facility. During 2002, the Company adjusted the purchase price for
Former Brown Jordan reducing the principal amount of the Holdings notes payable
to $19.5 million as a result of the settlement of certain indemnity claims under
the purchase contract. As a result the Company reduced goodwill recorded in
connection with the purchase and reduced additional paid in capital by $2.5
million.
The operating results of the above acquisitions have been included in the
consolidated operating results since the dates of acquisition.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross profit as
a percent of net sales for the years ended December 31, 2003, 2002 and 2001 for
each of the Company's market channels (in thousands, except for percentages):
2003 2002 2001
-------------------------------------- ------------------------------------- -----------------------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Profit % Sales Profit Profit% Sales Profit Profit%
----- ------ -------- ----- ------ ------- ----- ------ -------
Retail $232,599 $46,327 19.9% $243,200 $56,382 23.2% $160,985 $43,665 27.1%
Contract 113,695 35,282 31.0% 111,470 35,375 31.7% 125,169 42,921 34.3%
----------- ---------- ----------- ---------- ----------- -----------
Total $346,294 $81,609 23.6% $354,670 $91,757 25.9% $286,154 $86,586 30.3%
See Note 13 to Consolidated Financial Statements for more information concerning
the Company's segments.
The following table sets forth certain information relating to the
Company's operations expressed as a percentage of the Company's net sales.
2003 2002 2001
---- ---- ----
Gross profit........................................................... 23.6% 25.9% 30.3%
Selling, general and administrative expense............................ 14.6% 14.9% 15.4%
Amortization........................................................... 0.8% 0.8% 3.2%
Operating income....................................................... 8.1% 10.2% 11.7%
Interest expense....................................................... 9.6% 9.5% 12.0%
(Benefit) provision for income taxes................................... (0.5%) 0.3% 1.0%
Income (loss) before cumulative effect of a change in accounting
principle........................................................... (0.9%) 0.4% (1.4%)
Cumulative effect of change in accounting principle.................... 0.0% 56.7% 0.0%
Net loss............................................................... (0.9%) (56.3%) (1.4%)
COMPARISON OF YEARS ENDED DECEMBER 31, 2003 AND 2002
Net Sales. Consolidated net sales were $346.3 million in 2003, a decrease
of $8.4 million or 2.4%, in 2003 compared to 2002. In the retail channel, net
sales for 2003 were $232.6 million, a $10.6 million or 4.4% decrease from 2002
net sales of $243.2 million. The year over year decline in retail sales was
primarily due to lower seasonal sales at many retailers, including both
specialty retailers and national accounts, due to poor weather conditions in the
first quarter of 2003. The negative impact of the weather was partially offset
by increased sales in the remaining nine months of 2003 as compared to the same
period of 2002. Contract channel sales increased by $2.2 million, or 2.0%, to
$113.7 million in 2003 compared to $111.5 million in 2002 primarily due to an
increase in lodging and commercial seating sales, partially offset by a decrease
in outdoor contract sales.
Gross Profit. Gross profit in 2003 was $81.6 million, a decrease of $10.1
million or 11.1% compared to 2002. The decline in the gross margin as compared
to 2002 is driven by the retail channel, which experienced gross profit declines
of $10.1 million or 17.8% versus the prior year. As a percentage of net sales,
the retail gross profit percentage decreased 3.3%, from 23.2% in 2002 to 19.9%
in 2003. The decrease in the retail gross profit percentage in 2003 compared to
2002, relates primarily to pricing pressures in the national accounts portion of
the business, higher returns and allowances related to sourced product and to a
lesser extent, unfavorable product mix and inefficiencies related to lower
domestic manufacturing volume. The contract channel gross margin for 2003
remained consistent with 2002, both as a percentage of net sales and in dollars.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $50.7 million in 2003, representing a
decrease of $2.2 million or 4.2% from $52.9 million in 2002. SG&A spending was
lower in the 2003 period primarily due to (i) lower employee incentive related
costs, (ii) lower travel related costs, (iii) costs associated with relocating
employees to the corporate offices in Florida that were incurred in the 2002
period and (iv) lower advertising costs. These year over year cost reductions
were partially offset by increased costs in 2003 associated with legal fees,
group insurance and sales meetings. In addition, during 2002, the Company
received a $1.0 million dividend as a result of its ownership interest in Lexman
Holdings, Limited. The Company sold its interest in Lexman Holdings, Limited in
December 2002.
Amortization. Amortization expense was consistent in 2003 as compared to
2002.
Operating Income. As a result of the above, operating income decreased
22.2% from $36.1 million in 2002 (10.2% of net sales) to $28.1 million (8.1% of
net sales) in 2003.
Interest Expense. Interest expense decreased $0.5 million in 2003 to $33.1
million from $33.6 million in 2002 primarily due to a favorable impact in 2003
from the interest rate swap, nearly offset by higher average borrowings and
higher interest rates in the 2003 period.
Provision for Income Taxes. The effective tax rate in the 2003 was a tax
benefit of 38.8% compared to a tax expense of 39.4% for the same period of the
prior year. The lower absolute rate in 2003 is attributable to a lower valuation
allowance provision in 2003.
Cumulative Effect of Change in Accounting Principle. As of January 1, 2002
the Company implemented the provisions of SFAS No. 142. The Company 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.
COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2001
Net Sales. Consolidated net sales increased $68.5 million in 2002, or 23.9%
to $354.7 million compared to $286.2 million in 2001. Net sales in the retail
channel of $243.2 million for 2002 increased from 2001 retail channel net sales
of $161.0 million as a result of the acquisition of the Former Brown Jordan.
Contract channel sales decreased in 2002 compared to 2001 resulting from a
slowdown in new construction and refurbishing projects in the commercial and
hospitality markets caused by economic recession and the continued impact of the
events of September 11, 2001.
Gross Profit. Gross profit increased $5.2 million in 2002 or 6.0% to $91.8
million compared to $86.6 million in 2001. The retail channel experienced lower
gross profit in 2002, resulting from the continued impact of a higher percentage
of sales to lower margin national accounts, pricing pressure in the Company's
specialty business and the Company's initiatives to increase its sales in the
middle price points of this market. In addition to specialty stores, the retail
channel also targets the lower margin, national accounts market. The contract
channel gross profit decreased as a result of lower volumes and the pricing
pressure experienced by the Company during 2002 as a result of the continued
impact from the events of Sept 11, 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.8 million or 20.0% from $44.1 million in
2001 to $52.9 million in 2002 primarily resulting from the full year impact of
the 2001 acquisitions.
Amortization. Amortization expense decreased $6.3 million from $9.1 million
in 2001 to $2.8 million in 2002. The decrease is related to a change in
accounting as a result of the implementation of Statement of Financial
Accounting Standards ("SFAS") No. 142. Under the provisions of this statement
goodwill is no longer amortized but is reviewed for impairment each year. See
Impact of recently Issued Accounting standards below regarding the
implementation of this standard.
Operating Income. As a result of the above, actual operating income
increased 8.0% from $33.4 million in 2001 (11.7% of net sales) to $36.1 million
(10.2% of net sales) in 2002.
Interest Expense. Interest expense decreased $0.8 million in 2002 to $33.6
million from $34.4 million in 2001 as a result of the reclassification, in
accordance with SFAS No. 145, of approximately $2.6 million in debt issuance
costs written off in 2001 as a result of the refinancing in connection with the
acquisitions in 2001. Excluding these costs interest expense increased as a
result of the higher interest rates and the fact that the debt was outstanding
for a full year.
Provision for Income Taxes. The effective tax rate in 2002 (39.4%) and 2001
(307.0%) is greater than the federal statutory rate due to the effect of state
income taxes in 2001 and the impact of non-deductible goodwill amortization.
Cumulative Effect of Change in Accounting Principle. As of January 1, 2002
the Company implemented the provisions of SFAS No. 142. The Company recorded a
cumulative effect of change in accounting principle to reflect the impairment of
goodwill of $201.2 million, net of a tax benefit of $15.6 million. This
adjustment was recorded effective January 1, 2002.
LIQUIDITY AND CAPITAL RESOURCES
New Financing Arrangements
As of December 31, 2003, the Company was not in compliance with certain
provisions of its senior credit facility, including certain financial covenants.
These violations constituted events of default. On January 9, 2004, the Company
entered into a forbearance agreement with its lenders under the senior credit
facility that, as amended, provided for a forbearance period through March 31,
2004. During the forbearance period, the Company arranged financing with new
lenders and repaid the senior credit facility in full. The terms of the new
financing arrangements are summarized below.
The Company entered into new financing arrangements on March 31, 2004, that
consist of a (i) $90.0 million asset based revolving credit facility
("Revolver") with a new lender and a (ii) $135.0 million senior secured term
notes ("Senior Notes") with another lender. Proceeds under these new facilities
were used to (i) repay all outstanding balances under the Company's existing
senior credit facility and term loan, which was terminated on March 31, 2004,
(ii) pay all existing indebtedness and fees to Trivest ($12.1 million), (iii)
pay interest rate swap breakage fees, and (iv) to pay fees and expenses relating
to the new financing transactions. Upon the closing of the transactions, $189.2
million ($54.2 million under the Revolver and $135.0 million under the Senior
Notes) was drawn under the new facilities. The termination of the existing
senior credit facility and term loan will result in the write-off of deferred
financing fees of approximately $6 million and the settlement of the interest
rate swap of $4.3 million in the quarter ending June 25, 2004.
Availability under the Revolver is based on a borrowing base consisting of
the Borrowers' eligible accounts receivable and inventory. The interest rate on
borrowings under the Revolver is based on the base rate (which is defined as a
variable rate of interest per annum equal to the highest of the prime rate,
reference rate, base rate or other similar rate as determined by the lender)
plus 0.25% per year (the "Domestic Rate"), or at the election of the Company,
the applicable London Interbank Offering Rate ("LIBOR") plus 2.25% per year (the
"Eurodollar Rate"). The Company also pays an unused facility fee equal to 0.375%
per annum on the average unused daily balance of the Revolver. Borrowings under
the Revolver are secured by a first priority lien on substantially all of the
Company's accounts receivable, inventory, fixed assets and intangible assets.
The Revolver contains a $10.0 million swing-line sub-facility, which accrues
interest at the Domestic Rate per year. The Revolver terminates on May 1, 2007,
unless terminated earlier by the Company. The Company must pay a $0.9 million
termination fee if it elects to terminate the Revolver on or prior to March 31,
2005. As of March 31, 2004, the interest rate on the outstanding balance under
the Revolver was 3.36% and was based on the Eurodollar Rate. As of March 31,
2004, the Company had availability of $18.5 million.
The Revolver also provides for a $15.0 million letter of credit
sub-facility. The aggregate amount of such letters of credit may not exceed the
lesser of (i) $15.0 million and (ii) an amount equal to the $90.0 million
aggregate commitment under the Revolver less the aggregate outstanding principal
balance of the Revolver and swing-line and (iii) the borrowing base less the
aggregate outstanding principal balance of the Revolver and swing-line. However,
the letters of credit with respect to any of the Company's business segments (as
defined in the Revolver) may not exceed the sum of (i) the outstanding Revolver
advances and swing-line loans to such business segment plus (ii) the outstanding
letters of credit to exceed such business units borrowing base. Fees associated
with the letters of credit are equal to the Domestic Rate per year based upon
the face amount of the letters of credit.
The Revolver contains customary covenants and restrictions on the Company's
and its subsidiaries' ability to issue additional debt or engage in certain
activities and certain affirmative covenants, including, but not limited to,
reporting requirements. In addition, the Revolver specifies that the Company
must maintain a minimum of $5.0 million available borrowing capacity at all
times, and provided the Company maintains a minimum of $9.0 million of available
borrowing capacity, the Revolver does not require financial covenants. If
availability falls below $9.0 million at any time during a fiscal quarter, the
Company is subject to a fixed charge ratio. The Revolver also contains events of
default customary for credit agreements of this type, including failure to pay
interest or principal when due and cross-default provisions relating to the
Company's other indebtedness in excess of $1.5 million. In the event of default
and during the continuation thereof, borrowings under the Revolver will bear
interest, at the option of the lender, at the then current Domestic Rate plus
2.00% per annum or at the Eurodollar Rate plus 2.00% per annum.
The Senior Notes, which mature May 1, 2007, bear interest at a rate of
LIBOR plus 9.00% per annum, reset quarterly. The Company will pay interest in
arrears on each March 31, June 30, September 30 and December 31 and on the
maturity date, commencing, June 30, 2004. The Senior Notes are secured by a
second priority lien on substantially all of the Company's accounts receivable,
inventory, fixed assets and intangible assets and a first priority lien on the
Company's capital stock as well as that of all of its domestic subsidiaries. The
Senior Notes are guaranteed by substantially all of the Company's domestic
subsidiaries. Holdings' pledge of the Company's stock is non-recourse to
Holdings. As of March 31, 2004, the interest rate on the outstanding balance was
10.11%.
The Company may redeem, at its option, the Senior Notes, in whole or in
part from time to time after March 31, 2005 at applicable redemption prices
ranging from 103.0% to 100.0% of face value. In addition, the Company may, at
its option, elect on one occasion occurring on or prior to the 60 days following
the completion of the Company's audit for the year ended December 31, 2004 (but
in any event, no later than June 30, 2005), redeem at a redemption price of 100%
of the principal amount thereof, plus accrued interest, a principal amount of
the Senior Notes, not to exceed the lesser of (i) 5.0% of the principal amount
of the Senior Notes issued and (ii) the amount of excess cash flow (as defined
in the agreement) for the year ended December 31, 2004. The ability to redeem
Senior Notes in accordance with this provision is contingent on the requirement
that (i) no default or event of default shall have occurred and be continuing as
such time, and (ii) that the report of the Company's independent auditors in
respect of the year ended December 31, 2004 is an "unqualified" audit report.
The Senior Notes contain various covenants customary for notes of a similar
nature, including limitations on the activities of the Company and its
subsidiaries to, among other things, (i) declare or pay cash dividends, (ii)
modify the capital structure, (iii) acquire or retire indebtedness that is
subordinate to the Senior Notes, (iv) issue preferred stock, (v) create or
assume any indebtedness, (vi) sell, transfer or assign its properties or assets,
(vii) create or assume liens, (viii) enter into sale and leaseback transactions,
or (ix) engage in mergers or acquisitions. In addition, the Senior Notes contain
affirmative covenants including, but not limited to maintenance of the Company's
properties and reporting obligations. The Senior Notes also contain events of
default customary for financing agreements of this type, including failure to
pay interest on principal when due and cross-default provisions relating to the
Company's other indebtedness in excess of $5.0 million.
In the event of default, holders of 33 1/3% or more in principal amount of
the then outstanding Senior Notes may declare the principal amount of all of the
Senior Notes due and payable immediately, by written notice to the Company, and
upon such notice, such principal amount and any accrued and unpaid interest
shall be immediately due and payable.
The Company paid approximately $6 million in fees relating to the Revolver
and the Senior Notes that will be amortized to interest expense over the 36
month period beginning March 31, 2004.
Maturities of long-term debt for the five years succeeding December 31,
2003 are $0.3 million in 2004, $0.3 million in 2005, $0.3 million in 2006 and
$239.7 million in 2007.
Cash Flows from Operating Activities. During 2003, net cash used in
operations was $2.7 million, compared to net cash provided by operations of $7.0
million in 2002. The year over year decrease in cash flow from operations is
primarily attributable to the lower level of sales and lower gross margins in
the 2003 period as compared to the 2002 period, as previously discussed.
Additionally, during 2003 higher levels of cash were required for working
capital purposes. The increase in accounts receivable in 2003 as compared to
2002 is predominantly driven by increased volume in the Company's "early-buy"
program in the specialty retail business. The "early-buy" program provides
customers with extended terms for placing pre-season orders. The year over year
increase in inventory is primarily due to a higher percentage of sourced
products, which requires an earlier inventory build for the season. The increase
in accounts payable in the 2003 period is largely due to timing.
Cash Flows from Investing Activities. During 2003, the Company spent $1.8
million on capital expenditures and sold non-core assets which generated $1.5
million in cash, resulting in net cash used for investing activities of $0.4
million. In 2002, cash flow provided by investing activities was $8.3 million,
primarily as a result of the Company's selling a number of non-core assets, as
well as its investment in Lexman Holdings, Limited. The sales of assets
generated net proceeds of $9.8 million. Capital expenditures of $1.4 million in
2002 partially offset the net cash provided by the assets sales. Capital
spending in 2003 and 2002 was primarily for replacement machinery and equipment.
Cash Flows from Financing Activities. Net cash used for financing
activities during 2003 was $2.9 million compared to net cash used of $12.5
million in 2002. During 2003, in addition to scheduled loan amortization of $9.7
million, the Company sold assets, using the proceeds ($1.5 million) to reduce
its outstanding senior term loan. During 2002, in addition to scheduled loan
amortization payments of $7.2 million, the Company sold assets using the
proceeds ($9.8 million) to reduce its outstanding term loan balance.
During 2003, the senior credit facility consisted of a $165.0 million term
loan of which $144.4 million was outstanding on January 1, 2003. During 2003,
principal payments totaling $10.8 million were made against the term loan
leaving an outstanding balance on the loan of $133.6 million as of December 31,
2003. During 2003, the senior credit also included a $50.0 million revolving
credit facility of which $40.9 million was borrowed and $6.7 million was
allocated to existing letters of credit outstanding at December 31, 2003. As of
December 31, 2003, the Company had availability based on a borrowing base
formula under the revolving credit facility of approximately $2.5 million.
The senior credit facility was terminated in March 2004 in connection with
the Company's entering into new financings, as discussed above.
The Company believes that the structure of the new financings will provide
additional liquidity to support growth of the businesses, as well as provide
increased flexibility resulting from having no expected financial covenants or
senior debt amortization for the next three years. The Company's short-term cash
needs are primarily for debt service and working capital requirements. The
Company has historically financed its short-term liquidity needs with cash flow
generated from operations and from borrowings under a revolving line of credit.
Operating cash flows are closely correlated to demand for the Company's
products. A decrease in demand for the Company's products would impact the
availability of these internally generated funds. The Company's anticipated
capital needs through 2004 will consist primarily of the following, (i) interest
payments due on outstanding borrowings, (ii) increases in working capital driven
by the growth of our business, and (iii) the financing of capital expenditures.
Aggregate capital expenditures are budgeted at approximately $2.0 million
in 2004.
Contractual Obligations
The following table sets forth the Company's contractual obligations and
commitments.
1 year After
(In thousands) Total or less 2-3 years 4-5 years 5 years
----- ------- --------- --------- -------
Revolving line of credit.............. $ 40,850 $40,850 $ - $ - $ -
Long-term debt........................ 236,797 - - 236,797 -
IDB debt.............................. 2,925 325 650 650 1,300
Operating leases...................... 22,757 4,967 7,443 5,146 5,201
Standby letters of credit............. 6,655 6,655 - - -
Supply commitment(1).................. 370,000 10,000 80,000 80,000 200,000
(1) The Company's obligation under the supply commitment is based on the
initial term of the agreement. The agreement provides for auto-renewals and
allows for early termination with the appropriate notification.
The Company also has contractual obligations to certain of the Company's
executives in the event that such executives are terminated without cause, as
defined in the individual agreements. See "Item 11. Executive Compensation" for
additional information.
SEASONALITY AND QUARTERLY INFORMATION
Sales of retail products are typically higher in the first and fourth
quarters as a result of high demand for outdoor furniture in advance of summer
use. Weather conditions during the peak retail selling season and the resulting
impact on consumer purchases of outdoor furniture products can also affect sales
of outdoor products.
The following table presents the Company's unaudited quarterly data for
2003 and 2002. Such operating results are not necessarily indicative of results
for future periods. BJI believes that all necessary and normal recurring
adjustments have been included in the amounts in order to present fairly and in
accordance with generally accepted accounting principles the selected quarterly
information when read in conjunction with BJI's consolidated financial
statements included elsewhere herein.
Quarters for the Year Ended December 31, 2003
(In thousands) First Second Third Fourth
----- ------ ----- ------
Net Sales
Retail.............................................. $ 79,591 $ 54,332 $ 26,859
$ 71,817
Contract............................................ 23,511 35,241 27,951 26,992
---------- ---------- ---------- -----------
Total net sales........................................ 103,102 89,573 54,810 98,809
Gross profit........................................... 19,102 26,072 19,009 17,426
Operating income....................................... 4,754 13,168 6,692 3,464
Interest expense....................................... 9,024 8,541 8,027 7,554
(Loss) income before provision for income taxes and
cumulative change in accounting principle........... (4,270) 4,627 (1,335) (4,090)
(Benefit) provision for income taxes................... (1,474) 1,621 (354) (1,615)
Net (loss) income...................................... (2,796) 3,006 (981) (2,475)
Quarters for the Year Ended December 31, 2002
(In thousands) First Second Third Fourth
----- ------ ----- ------
Net Sales
Retail.............................................. $ 103,017 $ 41,563 $ 19,923
$ 78,697
Contract............................................ 21,902 32,791 32,538 24,239
---------- ----------- ---------- ----------
Total net sales........................................ 124,919 74,354 52,461 102,936
Gross profit........................................... 27,025 25,885 17,926 20,921
Operating income....................................... 12,915 11,284 3,778 8,093
Interest expense....................................... 8,172 8,356 7,876 9,151
Income (loss) before provision for income taxes and
cumulative change in accounting principle........... 4,743 2,928 (4,098) (1,058)
Provision (benefit) for income taxes................... 1,867 1,152 (1,613) (416)
Cumulative effect of change in accounting principle, net
of tax benefit of $15.6 million..................... 201,247 - - -
Net (loss) income...................................... (198,371) 1,776 (2,485) (642)
RELATED PARTY TRANSACTIONS
In December 1994, the Company 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 the Company. In
2001, as a result of acquisitions, the annual base compensation was increased
from $400,000 to $750,000. For the years ended December 31, 2003, 2002 and 2001,
the amount expensed was $770,000, $764,000 and $651,000, respectively. These
amounts include the annual base compensation and reimbursement of certain
expenses. Under the agreement, during 2001, the Company also paid Trivest
$1,300,000 in connection with the acquisition of Former Brown Jordan. Trivest
and its affiliates made additional equity investments into Holdings of
approximately $48.0 million in 2001, in support of the Former Brown Jordan
acquisition. Pursuant to the Second Amendment to the Senior Credit Facility the
Company will continue to expense the management fee, but is restricted to paying
only $350,000 during the period of the Second Amendment. As of December 31,
2003, the Company had a liability of $420,000 to Trivest as a result of this
restriction on paying management fees.
On March 31, 2004, in connection with the Company's new financing
arrangements, the Investment Services Agreement with Trivest was amended to (i)
provide for the payment of accrued, unpaid management fees, (ii) provide for an
additional incentive fee of $0.8 million for services provided in connection
with the new financing arrangements, (iii) reduce the annual base compensation
to $350,000 and (iv) provide for a component of compensation that is based on
the Company's performance ("Performance Compensation"), as defined in the
amendment to the Investment Services Agreement. The Performance Compensation is
not to exceed $400,000 in any year. The base compensation will be adjusted
annually to reflect any increase from the prior year in the Consumer Price
Index, with the first such adjustment to occur as of January 1, 2005.
As a condition to the extension of the forbearance period under the
Company's former senior credit facility, Trivest provided the Company with an
advance for the financing of the interest payment due in February 2004 to
holders of the Senior Subordinated Notes ($6.9 million). In addition, on March
5, 2004, Trivest made a payment, under a guaranty in favor of the Company's
lenders, of $3.5 million to the Company's lenders under the Amended Facility on
the Company's behalf. The Company repaid Trivest for the advance of the interest
payment, the $3.5 million guaranty payment, plus a guarantee fee and interest of
$0.4 million, paid management fees accrued as of December 31, 2003, as referred
to above, as well fees earned and accrued through March 31, 2004 ($0.5 million
in total) and paid a fee of $0.8 million in connection with the Company's new
financing arrangements out of the proceeds from the new financings. See Notes 6
and 15 to the Consolidated Financial Statements for additional discussion.
Holdings and the Company entered into a tax sharing agreement pursuant to
which the Company was included in the consolidated federal income tax return and
certain consolidated state income tax returns of Holdings for all taxable
periods ended on or prior to December 31, 2002. The Company expects to file in
the same manner for 2003. For all periods presented, federal and state income
taxes are provided for as if the Company filed its own tax returns. The
accompanying consolidated balance sheet as of December 31, 2003 includes $2.6
million payable to Holdings in "Other accrued liabilities" as a result of the
benefit to the consolidated tax returns of Holdings' taxable net losses. See
Note 9 to the Consolidated Financial Statements.
As a result of the Former Brown Jordan acquisition the Company acquired
approximately 20% ownership of Lexman Holdings, Limited ("Lexman"). Lexman is
the sole equity holder of Leisure Garden, a furniture manufacturer in the
People's Republic of China. The Company had a long-term supply agreement with
Lexman, which expired in 2001, providing for the Company to purchase a minimum
of $10 million of furniture per year. The Company entered into a new supply
agreement with Lexman during 2003, see discussion in Note 11. During 2002, the
Company purchased approximately $92 million from Leisure Garden.
In December 2002, the Company divested its interest in Lexman for $4.3
million in cash and the return of the shares owned by the principals of Lexman
and Leisure Garden in Holdings. The Company did not realize any gain or loss
from the sale of this asset, but did record a reduction of additional paid in
capital of $194,000 as a result of the return of the shares of Holdings. The
Company reported dividend income from Leisure Garden, in 2002 of $1.0 million
and of $0.7 million in 2001.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
BJI purchases some raw materials from several Italian suppliers. In
addition, the Company funds some expenses for its Juarez, Mexico manufacturing
facility. These transactions expose the Company 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, the Company will pay
more in U.S. dollars for these transactions. To reduce its exposure to loss from
such potential foreign exchange fluctuations, the Company will occasionally
enter into foreign exchange forward contracts. These contracts allow the Company
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.
Consequently, the Company elected to hedge a portion of its exposure to
purchases made in 2002 by entering into foreign currency forward contracts, with
a value of $1.5 million, none of which were outstanding and unsettled at
December 31, 2002. Further, the Company entered into Mexican Peso forward
contracts during 2002, with a value of $4.2 million, none of which were
outstanding at December 31, 2002. The Company did not incur significant gains or
losses during 2002 as a result of these foreign currency transactions. The
Company did not enter into foreign currency forward contracts in 2003. The
Company does 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. Purchases made from China have been negotiated in US Dollars
therefore there is no risk of currency fluctuations associated with these
transactions.
CRITICAL ACCOUNTING POLICIES
General
Management's discussion and analysis of its financial condition and results
of operations are based upon the Company's 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 the Company 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, the Company evaluates
its 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. The Company
bases its 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.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
Concentrations of Credit Risk
Substantially all of the Company's trade receivables are due from
retailers, distributors and hotels and restaurants located throughout the United
States. Approximately 38% of the Company's sales in 2003 were to its five
largest customers. The Company establishes its credit policies for each business
segment based on the nature of the commercial relationships. The Company
performs an ongoing evaluation of its customers' credit worthiness and
competitive market conditions, and establishes its allowances for doubtful
accounts for receivables based upon an assessment of exposures to credit losses
at each balance sheet date. The Company believes its allowances for doubtful
accounts are sufficient based on the credit exposures outstanding at December
31, 2003. However, if the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Warranty Reserve
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.
Inventory
The Company writes down its 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.
The carrying value of inventories is based on the lower of cost or market.
Cost is determined utilizing the first-in, first-out ("FIFO") method.
Goodwill and Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142"). Under the provisions of SFAS No. 142, goodwill and other
intangible assets that have indefinite lives are no longer amortized but rather
are tested, on a reporting unit basis, at least annually for impairment.
In the first quarter of 2002, as a result of the adoption of SFAS No. 142,
the Company recognized a pre-tax charge of $216.8 million ($201.2 million, net
of tax benefit of $15.6 million). The charge is reflected in "Cumulative effect
of change in accounting principle, net" in the Consolidated Statements of
Operations. (See Note 4 to Consolidated Financial Statements.)
The Company has elected October 1 as the date for performance of its annual
impairment tests on identified intangible assets with indefinite lives. Pursuant
to the impairment tests performed effective October 1, 2003, the Company has
determined that there has been no additional impairment of the intangible assets
with indefinite lives.
Long -Lived Assets
The Company follows the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). In accordance
with SFAS No. 144, the carrying value and estimated lives of long-lived assets
(other than identified intangible assets with indefinite lives) are reviewed if
the facts and circumstances suggest that the carrying value may be impaired or
the useful lives may require revision. If this review indicates that the
carrying value of long-lived assets will not be recoverable, as determined based
on the undiscounted cash flows of the long-lived asset over the remaining
amortization period, the Company's carrying value of the long-lived assets will
be reduced by the amount by which the carrying value exceeds the fair value.
Management has reviewed the carrying value of the Company's long-lived assets to
be held and used in the Company's operations (other than identified intangible
assets with indefinite lives) and has determined there has been no impairment of
the carrying value for any of the periods presented.
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. The Company periodically reviews the estimated useful
life of customer relationships to determine if the amortization period continues
to be appropriate. Accumulated amortization as of December 31, 2003 and
amortization expense for the year then ended is $4.1 million and $2.5 million,
respectively.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivables and accounts payable
approximate fair value due to the short-term nature of these accounts. The fair
value of the variable rate long-term debt as of December 31, 2003 is disclosed
in Note 6. The fair value of the interest rate swap as of December 31, 2003 is
disclosed in Note 7.
Derivatives
The Company utilizes an interest rate swap to hedge the variability of cash
flow to be paid related to a portion of its variable-rate debt. 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.
Revenue Recognition
Sales are recorded at time of shipment from the Company's facilities or
suppliers to customers, at which point title and risk of loss have passed.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity Including Certain Costs Incurred in a
Restructuring" ("EITF 94-3"). The principal difference between SFAS No. 146 and
EITF 94-3 relates to SFAS No. 146's requirements for recognition of a liability
for a cost associated with an exit or disposal activity. SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF 94-3, a liability for an
exit cost was recognized at the date of an entity's commitment to an exit plan.
A fundamental conclusion reached by FASB in this statement is that an entity's
commitment to a plan, by itself, does not create an obligation that meets the
definition of a liability. Therefore, this statement eliminates the definition
and requirements for recognition of exit costs in EITF 94-3. This statement also
establishes that fair value is the objective for initial measurement of the
liability. The effective date of the new statement is January 1, 2003, with
earlier adoption encouraged. The adoption of this statement did not have a
material impact on the Company's 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"). This statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). This statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The Company has
adopted SFAS No. 150 and the adoption did not have a material effect on the
Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," an Interpretation of Accounting
Research Bulletin (ARB) No. 51, "Consolidated Financial Statements." FIN 46
addresses the consolidation by business enterprises of variable interest
entities (VIEs) either: (1) that do not have sufficient equity investment at
risk to permit the entity to finance its activities without additional
subordinated financial support, or (2) in which the equity investors lack an
essential characteristic of a controlling financial interest. In December 2003,
the FASB completed deliberations of proposed modifications to FIN 46 (Revised
Interpretations) resulting in multiple effective dates based on the nature and
creation date of the VIE. The Revised Interpretations must be applied to all
VIEs no later than the end of the first interim or annual reporting period
ending after March 15, 2004. However, prior to the required application of the
Revised Interpretations, its provisions must be adopted by the end of the first
interim or annual reporting period that ends after December 15, 2003 (for the
year ended December 31, 2003 for the Company) for VIEs considered to be special
purpose entities (SPEs). SPEs for this provision include any entity whose
activities are primarily related to securitizations or other forms of
asset-backed financings or single- lessee leasing arrangements. The Company does
not have any SPEs and is currently evaluating the effect that the adoption of
FIN 46 will have on its financial position, results of operations and cash flows
for non-SPE VIEs.
In December 2003, the FASB issued revised SFAS No. 132 (revised 2003),
"Employers' Disclosure about Pensions and Other Postretirement Benefits" ("SFAS
No. 132R"). SFAS 132R incorporates all of the disclosure requirements of SFAS
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). It requires additional disclosures to those in the
original SFAS No. 132 about the assets, obligations, cash flows and net periodic
benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. SFAS No. 132R amends APB Opinion No. 28, "Interim
Financial Reporting," to require interim-period disclosure of the components of
net periodic benefit cost and, if significantly different from the previously
disclosed amounts, the amounts of contributions and projected contributions to
fund pension plans and other postretirement benefit plans. Information required
to be disclosed about pension plans should not be combined with information
required to be disclosed about other postretirement benefit plans except as
permitted by SFAS No. 132R. The provisions of SFAS No. 132 remain in effect
until the provisions of SFAS No. 132R are adopted. SFAS No. 132R shall be
effective for the fiscal years ending after December 15, 2003. The
interim-period disclosures required by SFAS No. 132R shall be effective for
interim periods beginning after December 15, 2003. The Company has adopted SFAS
No. 132R.
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,
which may cause our results to be materially different from the future results
expressed or implied in such forward-looking statements, including those
relating to the following:
o our level of leverage;
o our ability to meet debt service obligations;
o the subordination of the registered notes to the Revolver and Senior
Notes, which are secured by substantially all of our assets;
o the restrictions imposed upon us by our indenture and the Revolver and
Senior Notes;
o the competitive and cyclical nature of the furniture manufacturing
industry; and
o general domestic and global economic conditions.
You are cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date of this filing.
The Company does 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, the
Company does not undertake any responsibility to provide updates 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 7A. 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" and in Note
1 of the Company's Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Certified Public Accountants............................................................ 28
Consolidated Balance Sheets as of December 31, 2003 and 2002.................................................. 29
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001.................... 30
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2003,
2002 and 2001................................................................................................. 31
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001.................... 32
Notes to Consolidated Financial Statements.................................................................... 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Brown Jordan International, Inc.
We have audited the accompanying consolidated balance sheets of Brown
Jordan International, Inc. and subsidiaries (the "Company") as of December 31,
2003 and 2002, and the related consolidated statements of operations,
stockholder's equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brown Jordan
International, Inc. and subsidiaries at December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill.
Fort Lauderdale, Florida
April 9, 2004 /s/ Ernst & Young LLP
Brown Jordan International, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31,
(Amounts in thousands, except share amounts)
2003 2002
---- ----
Assets
Current assets:
Cash and cash equivalents............................................. $ 1,910 $ 7,927
Accounts receivable, net.............................................. 84,367 76,379
Refundable income taxes............................................... 4,999 4,012
Inventories, net...................................................... 37,248 28,238
Prepaid and other current assets...................................... 10,679 10,856
----------- -----------
Total current assets.................................................. 139,203 127,412
Property, plant and equipment, net....................................... 25,376 28,682
Customer relationships, net.............................................. 18,043 20,504
Trademarks............................................................... 25,335 25,335
Goodwill................................................................. 91,254 91,254
Other assets, net........................................................ 7,695 8,906
----------- -----------
$306,906 $ 302,093
======= =======
Liabilities and stockholder's deficit
Current liabilities:
Current portion of long-term debt..................................... $ 41,175 $ 9,700
Accounts payable...................................................... 31,177 18,153
Accrued interest...................................................... 5,157 4,917
Other accrued liabilities ............................................ 23,878 21,223
----------- -----------
Total current liabilities............................................. 101,387 53,993
Long-term debt, net of current portion................................... 239,397 273,329
Other non-current liabilities............................................ - 6,381
Deferred income taxes.................................................... 3,811 4,016
----------- -----------
Total liabilities........................................................ 344,595 337,719
Commitments and contingencies (Note 11)
Stockholder's deficit
Common stock - par value $.01 per share 1,000 shares authorized, issued and
outstanding at December 31, 2003 and 2002............................. - -
Additional paid in capital............................................... 162,041 162,041
Accumulated deficit...................................................... (197,884) (194,638)
Accumulated other comprehensive loss..................................... (1,846) (3,029)
----------- -----------
Total stockholder's deficit.............................................. (37,689) (35,626)
----------- -----------
$306,906 $ 302,093
======= =======
See notes to Consolidated Financial Statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31,
(Amounts in thousands)
2003 2002 2001
---- ---- ----
Net sales................................................................ $ 346,294 $ 354,670 $ 286,154
Cost of sales............................................................ 264,685 262,913 199,568
------------- ------------- -------------
Gross profit............................................................. 81,609 91,757 86,586
Selling, general and administrative expense.............................. 50,674 52,898 44,124
Amortization............................................................. 2,857 2,789 9,078
------------- ------------- ------------
Operating income 28,078 36,070 33,384
Interest expense, net.................................................... 33,146 33,555 34,358
------------- ------------- -------------
(Loss) income before provision for income and taxes and cumulative
effect of change in accounting principle.............................. (5,068) 2,515 (974)
Income tax (benefit) provision:
Current............................................................... (2,783) 753 2,399
Deferred.............................................................. 961 237 591
------------- ------------- -------------
(1,822) 990 2,990
------------- ------------- -------------
(Loss) income before cumulative effect of change in accounting
principle............................................................. (3,246) 1,525 (3,964)
Cumulative effect of change in accounting principle, net of tax benefit
of $15.6 million (Note 4)............................................ - 201,247 -
------------- ------------- -------------
Net loss $ (3,246) $ (199,722) $ (3,964)
======== ======== ========
See notes to Consolidated Financial Statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Stockholder's Equity (Deficit)
(Amounts in thousands, except share amounts)
Common
Stock Additional Retained Accumulated
-------------------------- Paid Earnings Other
Shares Amount in Capital (Accum. Deficit) Comp Loss Total
------ ------ ---------- ---------------- --------- -----
Balance at December 31, 2000..... 850,350 $ 9 $ 88,819 $ 9,048 $ - $ 97,876
Proceeds of stock issued......... 147 20 - - 20
Former Brown Jordan acquisition
and merger into holdings...... (849,497) (9) 75,896 - - 75,887
Comprehensive loss for the year
ended December 31, 2001:
Net loss...................... - - - (3,964) - (3,964)
Unrealized loss on interest rate
swap........................ - - - - (1,454) (1,454)
----------
Comprehensive loss............... (5,418)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2001..... 1,000 - 164,735 5,084 (1,454) 168,365
---------- ---------- ---------- ---------- ---------- ----------
Retirement of parent stock....... - - (194) - - (194)
Former Brown Jordan acquisition
adjustment.................... - - (2,500) - - (2,500)
Comprehensive loss for the year
ended December 31, 2002:
Net loss...................... - - - (199,722) - (199,722)
Change in fair value of interest rate
swap.......................... - - - - (1,575) (1,575)
-----------
Comprehensive loss............... (201,297)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002..... 1,000 - 162,041 (194,638) (3,029) (35,626)
----------- ----------- ----------- ----------- ----------- -----------
Comprehensive loss for the year
ended December 31, 2003:
Net loss...................... - - - (3,246) - (3,246)
Change in fair value of interest rate
swap, net of deferred taxes of
$1.1 million.................. - - - 1,398 1,398
Minimum pension liability, net of
deferred tax benefit of $0.1 million - - - - (215) (215)
-----------
Comprehensive loss............... (2,063)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003..... 1,000 $ - $162,041 $(197,884) $ (1,846) $(37,689)
======= ======= ======= ======= ======= ========
See notes to Consolidated Financial Statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(Amounts in thousands)
2003 2002 2001
---- ---- ----
Operating activities:
Net loss............................................................ $ (3,246) $ (199,722) $ (3,964)
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..................................... 6,352 6,604 12,798
Non-cash interest charges......................................... 2,851 2,587 4,811
(Reduction in) provision for allowance for doubtful accounts...... (306) 64 (403)
Provision for excess and obsolete inventory....................... 572 2,245 1,427
Loss on disposal of assets........................................ 79 733 -
Changes in operating assets and liabilities, exclusive of impact of
acquisitions:
Accounts receivable............................................... (7,682) 10,091 (16,045)
Refundable income taxes........................................... (987) (4,012) -
Inventories....................................................... (9,581) (2,372) 3,416
Prepaid expenses and other current assets......................... 177 1,257 (1,018)
Other assets...................................................... (1,544) (336) (261)
Accounts payable.................................................. 13,024 (17,147) 20,311
Accrued interest.................................................. 240 (297) (1,551)
Other accrued liabilities......................................... (1,651) 4,801 (3,317)
Deferred income taxes............................................. (998) 1,292 1,121
------------ ------------ ------------
Net cash (used in) provided by operating activities............... (2,700) 7,035 17,325
Investing activities:
Capital expenditures................................................ (1,822) (1,440) (5,165)
Acquisitions of business, net of cash acquired...................... - - (73,725)
Cash received on sale of investment................................. - 4,300 -
Cash proceeds from the sale of property, plant and equipment, net... 1,454 5,468 -
----------- ------------ ------------
Net cash (used in) provided by investing activities............... (368) 8,328 (78,890)
Financing activities:
Net proceeds (repayments) under revolving credit agreements......... 8,204 4,597 (28,385)
Proceeds from long-term debt........................................ - - 203,849
Payments on long-term debt.......................................... (11,153) (17,140) (5,000)
Proceeds from issuance of common stock, net......................... - - 20
Proceeds from issuance of common stocks for acquisition............. - - -
Contributed capital in connection with acquisition.................. - - 50,928
Deferred financing costs............................................ - - (8,005)
Payoff of existing credit facility.................................. - - (147,337)
------------ ------------ ------------
Net cash (used in) provided by financing activities............... (2,949) (12,543) 66,070
------------ ------------ -----------
Net (decrease) increase in cash and cash equivalents................ (6,017) 2,820 4,505
Cash and cash equivalents at beginning of year...................... 7,927 5,107 602
----------- ---------- ------------
Cash and cash equivalents at end of year............................ $ 1,910 $ 7,927 $ 5,107
======= ======= =======
See notes to Consolidated Financial Statements.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1- Name Change, Business and Organization
Name Change
In April 2002, the Company changed the name of WinsLoew Furniture, Inc.
("WinsLoew") to Brown Jordan International, Inc. ("BJI" or the "Company").
Business
BJI is engaged in the design, marketing, manufacture and distribution of
outdoor furniture, ready-to-assemble ("RTA") furniture, contract and hospitality
seating products and site amenity products. The Company accesses the market
through the retail and contract channels. In the retail channel, BJI's furniture
products are distributed through specialty stores, national accounts and
traditional furniture stores. BJI's RTA products include promotionally priced
furniture products and are distributed through the retail channel to national
accounts, catalog wholesalers and specialty retailers. BJI's contract and
hospitality furniture products are distributed through the contract channel to a
customer base, which includes architectural design firms, restaurant and
hospitality chains. Site amenity products, which include park benches, picnic
tables and accessories are marketed through distributors to the end user. The
Company's products are constructed of extruded and tubular aluminum, wrought
iron, cast aluminum, expanded mesh, sheet and tubular steel, wood and fabric.
Organization
Prior to the 2001 acquisition of the entity formerly known as Brown Jordan
International, Inc. ("Former Brown Jordan"), WinsLoew completed a
recapitalization transaction wherein WinsLoew became a wholly-owned subsidiary
of a new holding company called WLFI Holdings, Inc. ("Holdings"), a Florida
corporation.
All shares of WinsLoew's common stock that were outstanding immediately
prior to the merger (850,497 shares) were converted into shares of common stock
of Holdings. Each warrant or option to purchase shares of WinsLoew's common
stock was converted into a warrant or option to purchase an equivalent number of
shares of common stock of Holdings. In addition, 1,000 shares of previously
unissued WinsLoew common stock were then issued to WLFI Holdings, Inc.
Affiliates of Trivest Partners, L. P. ("Trivest") are majority shareholders of
Holdings. Trivest, Holdings and the Company have certain common shareholders,
officers and directors.
Because there was no change in the stock ownership of WinsLoew as a result
of the recapitalization, there was no change in the basis of the Company's
assets or liabilities.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of BJI and its
subsidiaries. All material intercompany balances and transactions have been
eliminated.
Uses of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and use assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Significant accounting estimates
include the establishment of the allowance for doubtful accounts, reserves for
sales returns and allowances, product warranty reserves, excess and obsolete
inventory reserves, accruals related to the Company's insurance programs, the
allocation of purchase price of acquired businesses and the valuation of
intangible assets related to the acquired businesses.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
Cash and Cash Equivalents
The Company classifies as cash and cash equivalents all highly liquid
investments that have maturities at the date of purchase of three months or
less. The Company maintains its cash in bank deposit accounts, which, at times,
may exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Concentrations of Credit Risk
Substantially all of the Company's trade receivables are due from
retailers, distributors and hotels and restaurants located throughout the United
States. Approximately 38% of the Company's sales in 2003 were to its five
largest customers. The Company establishes its credit policies for each business
segment based on the nature of the commercial relationships. The Company
performs an ongoing evaluation of its customers' credit worthiness and
competitive market conditions, and establishes its allowances for doubtful
accounts for receivables based upon an assessment of exposures to credit losses
at each balance sheet date. The Company believes its allowances for doubtful
accounts are sufficient based on the credit exposures outstanding at December
31, 2003. However, if the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Inventories
The Company writes down its 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.
The carrying value of inventories is based on the lower of cost or market.
Cost is determined utilizing the first-in, first-out ("FIFO") method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation on a straight-line basis over the following estimated useful lives:
buildings and improvements, 8 to 40 years; manufacturing equipment, 2 to 11
years; office furniture and equipment, 3 to 7 years; and vehicles, 3 to 5 years.
Normal repairs and maintenance are expensed as incurred.
Goodwill and Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
("SFAS No. 142"). Under the provisions of SFAS No. 142, goodwill and other
intangible assets that have indefinite lives are no longer amortized but rather
are tested, on a reporting unit basis, at least annually for impairment.
In the first quarter of 2002, as a result of the adoption of SFAS No. 142,
the Company recognized a pre-tax charge of $216.8 million ($201.2 million, net
of tax benefit of $15.6 million). The charge is reflected in "Cumulative effect
of change in accounting principle, net" in the Consolidated Statements of
Operations. (See Note 4.)
The Company has elected October 1 as the date for performance of its annual
impairment tests on identified intangible assets with indefinite lives. Pursuant
to the impairment tests performed effective October 1, 2003, the Company has
determined that there has been no additional impairment of the intangible assets
with indefinite lives.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
Long -Lived Assets
The Company follows the provisions of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). In accordance
with SFAS No. 144, the carrying value and estimated lives of long-lived assets
(other than identified intangible assets with indefinite lives) are reviewed if
the facts and circumstances suggest that the carrying value may be impaired or
the useful lives may require revision. If this review indicates that the
carrying value of long-lived assets will not be recoverable, as determined based
on the undiscounted cash flows of the long-lived asset over the remaining
amortization period, the Company's carrying value of the long-lived assets will
be reduced by the amount by which the carrying value exceeds the fair value.
Management has reviewed the carrying value of the Company's long-lived assets to
be held and used in the Company's operations (other than identified intangible
assets with indefinite lives) and has determined there has been no impairment of
the carrying value for any of the periods presented.
Deferred Financing Fees
Costs incurred in connection with obtaining financing are deferred and
amortized to interest expense over the terms of the related borrowings using the
straight line method, which approximates the effective interest method. As of
December 31, 2003 and 2002, the amount of deferred financing fees included
within "Other assets" on the Consolidated Balance Sheets was $6.0 million and
$7.5 million, net of accumulated amortization of $6.6 million and $4.3 million,
respectively. Amortization of deferred financing fees was $2.3 million, $2.1
million and $4.3 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Amortization in 2001 includes $2.6 million of deferred financing
charges that were written off in connection with the Company's refinancing of
the then existing credit facility.
Advertising and Catalog Costs
The Company expenses the cost of advertising as incurred, except for
catalog costs. The costs of producing and distributing sales catalogs are
capitalized and charged to expense in the periods (seasons) over which the
catalogs relate. Advertising expense was $6.3 million in 2003, $7.6 million in
2002 and $5.5 million in 2001 and is included in "Selling, general and
administrative expenses." Capitalized catalog costs of $2.1 million in 2003 and
$2.0 million in 2002 are included in "Prepaid expenses and other current assets"
in the Consolidated Balance Sheets.
Income Taxes
The Company accounts for income taxes under the liability method pursuant
to SFAS No. 109, "Accounting for Income Taxes." Under the liability method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Recognition of deferred tax assets is limited to amounts
considered by management to more likely than not be realizable in future
periods. The Company and its wholly-owned subsidiaries file a consolidated
federal income tax return.
Revenue Recognition
Sales are recorded at time of shipment from the Company's facilities or
suppliers to customers, at which point title and risk of loss have passed.
Stock Options
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and its
interpretations in accounting for its stock options and other stock-based
employee compensation awards and the disclosure requirements of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." Under the
provisions of APB No. 25, no compensation expense has been recognized for stock
option grants as the exercise prices are at
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
or greater than the fair value of shares at the date of the grant. The fair
value of the options was calculated using the minimum value methodology as
allowed under SFAS No. 123 for company's that do not have publicly traded
equity.
Pro forma impact on the Company's results is as follows:
Years Ended December 31,
(In thousands) 2003 2002 2001
---- ---- ----
Net loss, as reported.................................................... $(3,246) $(199,722) $(3,964)
Pro forma stock based compensation expense, net of tax................... - - 532
---------- ---------- ----------
Pro forma net loss....................................................... $(3,246) $(199,722) $(4,496)
====== ====== ======
Expected dividend yield.................................................. zero zero zero
Expected stock price volatility.......................................... 0% 0% 0%
Risk-free interest rate.................................................. 4.21% 5.00% 5.00%
Expected life of options in years........................................ 8 9 10
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivables and accounts payable
approximate fair value due to the short-term nature of these accounts. The fair
value of the variable rate long-term debt as of December 31, 2003 is disclosed
in Note 6. The fair value of the interest rate swap as of December 31, 2003 is
disclosed in Note 7.
Derivatives
The Company utilizes an interest rate swap to hedge the variability of cash
flow to be paid related to a portion of its variable-rate debt. 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 in interest expense.
New Accounting Standards
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity Including Certain Costs
Incurred in a Restructuring" (EITF 94-3). The principal difference between SFAS
No. 146 and EITF 94-3 relates to SFAS No. 146's requirements for recognition of
a liability for a cost associated with an exit or disposal activity. SFAS No.
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost was recognized at the date of an entity's commitment
to an exit plan. A fundamental conclusion reached by FASB in this statement is
that an entity's commitment to a plan, by itself, does not create an obligation
that meets the definition of a liability. Therefore, this statement eliminates
the definition and requirements for recognition of exit costs in EITF 94-3. This
statement also establishes that fair value is the objective for initial
measurement of the liability. The adoption of this statement on January 1, 2003
did not have a material impact on the Company's 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"). This statement establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). This statement is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The Company has
adopted SFAS No. 150 and the adoption did not have a material effect on the
Company's consolidated financial statements.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," an Interpretation of Accounting
Research Bulletin (ARB) No. 51, "Consolidated Financial Statements." FIN 46
addresses the consolidation by business enterprises of variable interest
entities (VIEs) either: (1) that do not have sufficient equity investment at
risk to permit the entity to finance its activities without additional
subordinated financial support, or (2) in which the equity investors lack an
essential characteristic of a controlling financial interest. In December 2003,
the FASB completed deliberations of proposed modifications to FIN 46 (Revised
Interpretations) resulting in multiple effective dates based on the nature and
creation date of the VIE. The Revised Interpretations must be applied to all
VIEs no later than the end of the first interim or annual reporting period
ending after March 15, 2004. However, prior to the required application of the
Revised Interpretations, its provisions must be adopted by the end of the first
interim or annual reporting period that ends after December 15, 2003 (for the
year ended December 31, 2003 for the Company) for VIEs considered to be special
purpose entities (SPEs). SPEs for this provision include any entity whose
activities are primarily related to securitizations or other forms of
asset-backed financings or single-lessee leasing arrangements. The Company does
not have any SPEs and is currently evaluating the effect that the adoption of
FIN 46 will have on its financial position, results of operations and cash flows
for non-SPE VIEs.
In December 2003, the FASB issued revised SFAS No. 132 (revised 2003),
"Employers' Disclosure about Pensions and Other Postretirement Benefits" ("SFAS
No. 132R"). SFAS 132R incorporates all of the disclosure requirements of SFAS
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). It requires additional disclosures to those in the
original SFAS No. 132 about the assets, obligations, cash flows and net periodic
benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. SFAS No. 132R amends APB Opinion No. 28, "Interim
Financial Reporting," to require interim-period disclosure of the components of
net periodic benefit cost and, if significantly different from the previously
disclosed amounts, the amounts of contributions and projected contributions to
fund pension plans and other postretirement benefit plans. Information required
to be disclosed about pension plans should not be combined with information
required to be disclosed about other postretirement benefit plans except as
permitted by SFAS No. 132R. The provisions of SFAS No. 132 remain in effect
until the provisions of SFAS No. 132R are adopted. SFAS No. 132R shall be
effective for fiscal years ending after December 15, 2003. The interim-period
disclosures required by SFAS No. 132R shall be effective for interim periods
beginning after December 15, 2003. The Company has adopted SFAS No. 132R (See
Note 12).
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2003
presentation.
Note 3 - Acquisitions
On March 9, 2001 the Company purchased all of the assets of The Woodsmiths
Company. Woodsmiths, a manufacturer of custom tabletops for the contract and
hospitality industry, is located in Pompano Beach, Florida. The purchase price
of approximately $2.8 million was paid in cash of approximately $0.3 million and
a $2.5 million note payable to the sole shareholder of Woodsmiths, which was
paid in July 2001.
In addition, the stock purchase agreement provided for an additional
contingent deferred payment of up to $1.0 million based upon Woodsmiths'
earnings before interest, taxes, depreciation, amortization and management fees
for the twelve-month period ended December 31, 2001. The maximum contingent
payment amount of $1.0 million was recorded at the time of purchase as an
addition to goodwill and an accrued liability of the Company. Woodsmiths' level
of earnings before interest, taxes, depreciation, amortization and management
fees for the twelve month period ended December 31, 2001 was below the amount
required to earn the contingent payment, accordingly, the accrued liability was
reversed in 2002, resulting in a decrease to goodwill of $1.0 million. The
acquisition was accounted for under the purchase method of accounting resulting
in goodwill of approximately $2.4 million, including the aforementioned
adjustment reducing goodwill.
On May 8, 2001, the Company and Holdings acquired all of the outstanding
stock of Former Brown Jordan at a purchase price of $78.6 million. The Stock
Purchase Agreement by and among Holdings, the Company, Former Brown Jordan and
the
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3 - Acquisitions - (continued)
Stockholders of Former Brown Jordan also called for the repayment of
outstanding Former Brown Jordan indebtedness at closing, which approximated
$44.6 million.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired using
management's estimate of the fair value of the assets and liabilities acquired.
Pursuant to the purchase method of accounting, the excess of the purchase price
over the $44.6 million fair value of net assets after payment of Former Brown
Jordan indebtedness at closing was recorded as goodwill in the amount of $47.1
million.
In order to complete the acquisition, Holdings raised $50.9 million of
equity and issued $22.0 million of subordinated notes to the sellers for Former
Brown Jordan stock. Holdings contributed the cash of $50.9 million to the
Company as additional equity. The stock of Former Brown Jordan obtained in
exchange for subordinated notes was also contributed to the Company. The balance
of the proceeds was provided through a refinancing of the Company's existing
senior credit facility. During 2002, the Company adjusted the purchase price for
Former Brown Jordan reducing the principal amount of the Holdings notes payable
to $19.5 million as a result of the settlement of certain indemnity claims under
the purchase contract. As a result the Company reduced goodwill recorded in
connection with the purchase and reduced additional paid in capital by $2.5
million.
The operating results of the above acquisitions have been included in the
consolidated operating results since the dates of acquisition.
The following unaudited pro forma information has been prepared assuming
the acquisitions of Woodsmiths and Former Brown Jordan occurred on January 1,
2001. Pro forma adjustments include only the effects of events directly
attributable to the transaction that are factually supportable and expected to
have a continuing impact. The pro forma results are not necessarily indicative
of what actually would have occurred if the acquisitions had been in effect for
the entire period presented. In addition, they are not intended to be a
projection of future results and do not reflect any synergies that might be
achieved from combined operations.
Year Ended
(In thousands) December 31, 2001
-----------------
Pro forma net sales.................................... $356,887
=======
Pro forma net loss..................................... $ (3,332)
=======
The impact of the acquisitions on investing activities included in the 2001
Consolidated Statement of Cash Flows is summarized below:
Year Ended
(In thousands) December 31, 2001
-----------------
Fair value of assets acquired.......................... $147,718
Cash on hand of acquired companies..................... (960)
Liabilities assumed.................................... (48,074)
Less: Value of stock consideration..................... (24,959)
------------
Cash paid for acquisition, net of cash acquired........ $ (73,725)
=======
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Intangible Assets
Effective January 1, 2002, the Company adopted SFAS No. 142. This statement
addresses financial accounting and reporting for goodwill and other intangibles.
Under the provisions of this statement, goodwill and intangible assets that have
indefinite useful lives are no longer amortized, but rather are tested at least
annually, on a reporting unit basis, for impairment. The Company's reportable
segments are organized and managed based on the market channel into which the
Company's products are sold, and these reportable segments are comprised of
Retail and Contract. The Company discontinued amortization of identifiable
intangible assets with indefinite lives as of January 1, 2002.
Transitional Impairment Charge
Identifiable intangible assets deemed to have indefinite lives must be
tested for impairment as of the beginning of the fiscal year in which SFAS No.
142 was initially applied. That transitional intangible asset impairment test
was required to be completed in the first interim period in which SFAS No. 142
was initially applied. SFAS No. 142 prescribes that any impairment loss be
measured as the difference between the carrying amount of the identifiable
intangible asset at each applicable reporting unit and its estimated fair value.
SFAS No. 142 sets forth guidelines for the evaluation of goodwill for
impairment using a "two-step" impairment test. SFAS No. 142 required the
completion of the first step of the transitional goodwill impairment test
(whereby the fair value of a reporting unit was compared to its carrying value,
including goodwill) no later than June 30, 2002. As the results of the first
step of the test indicated a potential impairment of goodwill, the Company
performed the second step of the test to measure the impairment loss in the
fourth quarter of 2002. The second step compared the carrying amount of a
reporting unit's goodwill to the implied fair value of that goodwill and an
impairment loss was recognized. Based on an external valuation study using
discounted cash flows, the Company determined that goodwill was impaired.
Consequently, the Company recognized a pre-tax charge of $216.8 million ($201.2
million, net of tax benefit of $15.6 million). The impairment charge is
reflected as a "Cumulative effect of change in accounting principle" in the
Consolidated Statements of Operations and was recorded effective January 1,
2002.
The Company's transitional testing for impairment of identifiable
intangible assets other than goodwill, specifically, trademarks and tradenames,
indicated that these identifiable intangible assets were not impaired. The fair
value of trademarks and tradenames was determined based on a valuation study
performed by an external valuation firm.
Identifiable Assets with Indefinite Useful Lives
(In thousands) Retail Contract Shared Total
------ -------- ------ -----
Goodwill
Balance as of January 1, 2002....................... $ 106,248 $ 57,075 $ 148,245 $ 311,568
Purchase accounting adjustments (Note 3)............ (2,500) (1,000) - (3,500)
Impairment charge................................... (28,723) (39,846) (148,245) (216,814)
--------- --------- --------- ---------
Balance as of December 31, 2002 and 2003 .............. $ 75,025 $ 16,229 $ - $ 91,254
======= ======= ======= =======
Trademarks and trade names
Balance as of January 1, 2002....................... $ 25,335 $ - $ - $ 25,335
Impairment charge................................... - - - -
--------- --------- --------- ---------
Balance as of December 31, 2002 and 2003 .............. $ 25,335 $ - $ - $ 25,335
========= ========= ========= =========
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Intangible Assets - (continued)
The Company has elected October 1 as the date for performance of its annual
impairment tests on identified intangible assets with indefinite lives. Pursuant
to the impairment tests performed effective October 1, 2003, the Company has
determined that there has been no additional impairment of the intangible assets
with indefinite lives.
Intangible Assets with Finite Useful Lives
Customer relationships represent the estimated fair value of customer
related intangible assets acquired in connection with certain business
acquisitions. Customer relationships relate to the Retail segment and are
amortized over their estimated useful life of 10 years. The Company periodically
reviews the estimated useful life of customer relationships to determine if the
amortization period continues to be appropriate.
The following tables present information about the Company's Retail
Segment's customer relationships as of December 31, 2003 and 2002.
Gross
Carrying Accumulated Carrying
(In thousands) Amount Amortization Amount
------ ------------ ------
December 31, 2003 .................................. $24,604 $(6,560) $18,044
====== ====== ======
December 31, 2002 .................................. $24,604 $(4,100) $20,504
======= ====== ======
Consolidated amortization expense related to customer relationships was
$2.5 million, $2.5 million and $1.6 million for the years ended December 31,
2003, 2002 and 2001, respectively. Estimated amortization expense for the next
five years ending December 31 and thereafter is summarized below (in thousands):
Year Amount
- ---- ------
2004......................................... $2,460
2005........................................ 2,460
2006...................................... 2,460
2007...................................... 2,460
2008...................................... 2,460
2009 and thereafter....................... 5,744
----------
$18,044
======
Impact of Non-Amortization Provision for Intangible Assets with Indefinite
Useful Lives
The Company determined that certain of its intangible assets have
indefinite useful lives and, upon adoption of SFAS No. 142, the Company
discontinued amortization of these assets. The following table shows the
reconciliation of the Company's reported net loss to pro forma net (loss) income
as if the non-amortization provisions of SFAS No. 142 had been applied at the
beginning of the respective periods.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 - Intangible Assets - (continued)
Years Ended December 31,
(In thousands) 2003 2002 2001
---- ---- ----
Net loss, as reported.................................................... $(3,246) $(199,722) $(3,964)
Goodwill amortization, net of tax........................................ - - 7,812
---------- ---------- ----------
Pro forma net (loss) income.............................................. $(3,246) $(199,722) $ 3,848
====== ======= ======
Note 5 - Investment in Joint Venture
In December 2002, the Company entered into a joint venture with Shian
Industry [Hong Kong] Company Limited ("Shian") to build a research and design
center and a model showroom in Shanghai, China. The facility, called the "Center
of Excellence," is dedicated exclusively to BJI products. Construction of the
Center of Excellence was substantially completed in January 2004 and production
in the manufacturing facility is expected to commence late in the second quarter
or early in the third quarter of 2004.
The joint venture is currently accounted for using the equity method of
accounting. The Company is in the process of evaluating the structure of the JV
entity in order to determine if it qualifies as a VIE that would require that
the Company consolidate it, in accordance with the provisions of FIN 46. The
Company's share of equity in losses of the JV entity for 2003 was approximately
$0.1 million, net of taxes. The carrying value of the investment in the JV was
$0 as of December 31, 2003 and 2002. BJI's share of the JV losses and an
investment in the JV are not recorded in the accompanying Consolidated Financial
Statements as BJI has not made an investment in the JV and has no commitment to
provide funding.
See Note 11 for a discussion relating to a supply agreement between BJI and
Shian.
Note 6 - Long-Term Debt
Long-term debt consisted of the following at December 31, 2003 and 2002:
Years Ended December 31,
(In thousands) 2003 2002
---- ----
Revolving line of credit................................................. $ 40,850 $ 32,647
Term loan................................................................ 133,607 144,435
Senior subordinated notes................................................ 103,190 102,697
IDB bonds................................................................ 2,925 3,250
----------- -----------
$280,572 $ 283,029
Less current portion..................................................... (41,175) (9,700)
----------- -----------
$239,397 $ 273,329
======= =======
Senior Credit Facility
As of December 31, 2003, the Company was not in compliance with certain
provisions of its senior credit facility, including certain financial covenants
contained within the agreement. These violations constituted events of default.
On January 9, 2004, the Company entered into a forbearance agreement with its
lenders under the senior credit facility that, as amended,
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Long-Term Debt - (continued)
(the "Amended Facility") provided for a forbearance period through March
31, 2004. During the forbearance period, the Company arranged financing with new
lenders and repaid the senior credit facility in full. See Note 15.
The Amended Facility provided for borrowings of up to $215 million. The
Amended Facility was collateralized by substantially all of the assets of the
Company and was secured by a pledge of the capital stock of all the Company's
domestic subsidiaries. The Amended Facility consisted of a revolving line of
credit (maximum of $50 million) and a term loan (aggregate of $165 million, of
which $31.4 million was repaid as of December 31, 2003). The revolving line of
credit allowed the Company to borrow funds up to a certain percentage of
eligible inventories and accounts receivable. At the option of the Company, the
interest rates under the Amended Facility were either: (1) the base rate, which
is the higher of the prime lending rate or 0.5% in excess of the federal funds
effective rate, plus a margin, or (2) the adjusted LIBOR rate plus a margin. The
Amended Facility contained a floor of 2.5% on the LIBOR rate. The margins of
different loans under the Amended Facility varied according to a pricing grid.
The margin for term loans that were LIBOR based was 5.0% while the margin for
revolving loans that were LIBOR based was 4.5%. Both LIBOR based term and
revolving rates were based upon the Company's consolidated total leverage ratio.
Margins on base rate loans are the applicable LIBOR margin for such type loans
less 1%. The senior credit facility contained a $5.0 million swing-line
sub-facility, which accrued interest at the base rate per year. As of December
31, 2003, the term loan was priced at a rate of 7.5% and the revolving line of
credit was priced from 7.0% to 7.5%.
The Company also paid commitment fees at a rate per annum equal to 0.5% on
the average daily excess of revolving loan commitments over the sum of the
aggregate principal amount of outstanding revolving loans (but not any
outstanding swing line loans) plus letter of credit usage.
The Amended Facility contained 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. The Amended
Facility specified that the Company must meet or exceed interest coverage ratios
and must not exceed defined leverage ratios.
As of December 31, 2003, the term loan is classified as long-term as the
Company refinanced this facility on a long-term basis. The balance outstanding
under the revolving line of credit as of December 31, 2003 has been classified
as current as the revolver under the refinanced credit facility is required to
be classified as current, in accordance with the provisions of Emerging Issues
Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings
Outstanding Under Revolving Credit Agreements that Include both a Subjective
Acceleration Clause and a Lockbox Arrangement" ("EITF No. 95-22"). See Note 15.
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. As of
December 31, 2003, the Company was not in compliance with certain guaranteed
financial covenants and the Guaranty was called upon by the senior bank group.
Trivest made a payment of $3.5 million to the lenders under the Amended Facility
on the Company's behalf. The Company repaid Trivest the $3.5 million, plus a
guarantee fee and interest of $0.4 million out of proceeds from the new
financings. See Note 15.
Senior Subordinated Notes and Warrants
In connection with the merger described in Note 1, the Company issued
105,000 units ("Units") consisting of $105 million aggregate principal amount at
maturity, of 12 3/4 % senior subordinated notes due 2007 ("Notes") and warrants
("Warrants") to purchase an aggregate of 24,129 shares of its capital stock.
Each Unit consists of $1,000 aggregate principal amount at maturity of Notes and
a Warrant to purchase 0.2298 shares of common stock at an exercise price of
$0.01 per share. The issue price of each Unit was $975.73, of which the Company
allocated $962.40 to the Notes and $13.33 to the Warrants. The total value of
the Warrants, $1.4 million, is reflected as "Additional paid-in capital" in the
accompanying Consolidated Balance Sheets. The total amount of discount recorded
on the notes was $3.9 million and is being amortized to interest
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Long-Term Debt - (continued)
expense over the life of the Notes. The Notes are general unsecured
obligations of the Company and are junior in the right of payment to the
Company's debt that does not expressly provide that it ranks equally with or
junior to the Notes, including the Company's obligations under its senior credit
facility. The Notes are unconditionally guaranteed by the direct and indirect
domestic subsidiaries of BJI and bear interest at 12 3/4%, that is payable
semi-annually on February 15 and August 15, beginning on February 15, 2000. The
Notes will mature on August 15, 2007.
On or after August 15, 2003, the Company may redeem the Notes, in whole or
in part, at any time at the following redemption prices:
Year Percentage
- ---- ----------
2003....................................... 106.375%
2004....................................... 104.250%
2005....................................... 102.125%
2006 and thereafter........................ 100.000%
In conjunction with the Brown Jordan International acquisition, each
outstanding warrant of the Company issued pursuant to the Warrant Agreement
dated as of August 24, 1999, between the Company and American Stock Transfer &
Trust Registrant, as Trustee, was assumed by Holdings in accordance with the
Warrant Agreement so that each warrant became exercisable for that number of
shares of Holdings common stock equal to the number of shares of the Company's
common stock issuable upon the exercise of the warrant immediately prior to the
merger, at the same exercise price as was in effect immediately prior to the
merger.
The Warrants are exercisable on or after the occurrence of certain events.
Assuming full exercise of the Warrants, the aggregate number of shares would
approximate 3% of the common stock of Holdings. The Warrants expire on August
15, 2007.
The indenture under which the Notes (the "Indenture") are issued include
provisions generally common in such indentures including restrictions on
dividends, additional indebtedness and asset sales. At December 31, 2003, the
Company was in compliance with such covenants. However, the Company failed to
make the $6.9 million scheduled semi-annual interest payment in February 2004.
The Company subsequently made the interest payment within the cure period
specified in the Notes. Trivest provided the financing to the Company for this
interest payment.
In March 2004, the Indenture was amended to increase the level of permitted
indebtedness under the senior credit facility from an aggregate amount not to
exceed the greater of $155 million, or the sum of $125 million, plus 60% of the
inventory of the Company, plus 85% of the accounts receivable of the Company to
an aggregate amount not to exceed $195.0 million , or the sum of $125 million,
plus 60% of the inventory of the Company, plus 85% of the accounts receivable of
the Company.
In March 2003, the Indenture was amended 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 either the senior bank group or voluntarily
called by Trivest to avoid a default under the senior credit facility.
Industrial Development Board Bonds
In connection with the Company's plant expansion at its Haleyville facility
the Company entered into a lease agreement with the Industrial Development Board
("IDB") of The City of Haleyville, Alabama. The plant expansion was funded with
proceeds from the issuance of IDB bonds in the amount of $3.9 million. The bonds
mature in May 2012.
The Company has agreed to make payments on the debt service and to pay the
purchase price of the Bonds pursuant to Mandatory Tender and Optional Tender
provisions in the Indenture. The Company has also entered into a Bond Guarantee
Agreement dated May 1, 2000 in favor of the Trustee, whereby the Company
guarantees payment when due of debt service on the Bonds and the purchase price
of Bonds tendered for purchase under the Indenture. As additional security, an
irrevocable Letter of Credit has been issued in favor of the Trustee.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Long-Term Debt - (continued)
The Bonds may bear interest at either a variable rate or fixed rate, and if
at a fixed rate, for varying periods of time as specified in the Indenture. The
variable rate shall be a fluctuating rate per annum determined by the
Remarketing Agent on a weekly basis. The Company may, pursuant to the provisions
of the Indenture, elect that the Bonds pay interest at a fixed rate. The
Remarketing Agent will also determine the interest rate for such a fixed period.
When establishing either the variable or fixed rate of interest, the
Remarketing Agent determines, the lowest interest rate that would, in the
opinion of the Remarketing Agent, result in the market value of the Bonds being
100% of the principal amount on the date of such determination, taking into
account relevant market conditions and credit rating factors as they exist on
such date. As of December 31, 2003, the Bonds bore interest at a variable rate
of 1.325%.
The Bonds are subject to mandatory redemption, by lot, by the Issuer at a
redemption price equal to the principal amount to be redeemed plus accrued
interest to the redemption date, without premium or penalty, on the first day in
May in the years and in the amounts as follows:
Amount
Year (In thousands)
2004.................................. $ 325
2005.................................. 325
2006.................................. 325
2007.................................. 325
2008.................................. 325
Thereafter............................ 1,300
--------
$2,925
=====
The Bonds also carry an Optional Redemption feature that may be exercised
at the direction of the Company, with certain conditions. If redemption occurs
during any variable rate period, this feature provides for redemption of
authorized multiples, at a price equal to 100% of the principal amount plus
accrued interest to the date of redemption. In the case when redemption may
occur during a fixed rate period the Indenture provides for redemption of
authorized multiples, at a price equal to 100%-102% of the principal amount plus
accrued interest. The redemption price during a fixed rate period is based upon
the length of time the Bonds have been at a fixed rate, with no optional
redemption allowed when the Bonds have been at a fixed rate period for four
years or less.
WLFI Holdings, Inc. Notes
As mentioned in Note 3 regarding the acquisition of Former Brown Jordan,
Holdings, the Company's parent, issued $22.0 million in notes to the sellers
that mature in August 2007. During 2002, the principal amount of the Holdings
notes payable was reduced to $19.5 million as a result of the settlement of
certain indemnity claims under the purchase contract. (See Note 4.) Holdings do
not generate cash internally and is, therefore, dependent upon the Company's
cash flows to service its debt. Cash interest payments by Holdings would need to
be funded from the Company's existing working capital or revolving credit line.
However, the Company currently does not pay dividends to its shareholder and was
prohibited under the Amended Facility from doing so. Additionally, the Company
has no obligation to fund interest payments on the notes; accordingly, all
interest payments by Holdings were paid in kind ("pik") through the issuance of
additional notes in equal value to the interest payable. The Company's new
financing agreements also include restrictions on the payment of dividends to
shareholders. Therefore, it is Holdings' intention to continue to issue
additional pik notes to the note holders in lieu of quarterly cash payments for
interest earned. The total additional notes issued during 2003 and 2002 as pik
interest was $4.7 million and $3.4 million, respectively.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Long-Term Debt - (continued)
The fair value of the Company's fixed rate debt is estimated using reported
transaction values. The fair value of the Company's fixed rate date as of
December 31, 2003 was $86.1 million, as compared to the carrying value of $103.2
million. The carrying value of the Company's variable rate debt is assumed to
approximate market based upon periodic adjustments of the interest rate to the
current market rate in accordance with the terms of the debt agreements. The
fair value of the Company's variable rate debt approximated its carrying value
of $177.4 million.
Note 7- 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 December 31, 2003 and 2002, the fair value of the swap was recorded
as a liability of $3.7 million and $6.4 million, respectively. The portion of
the change in fair value attributable to the ineffectiveness of the hedge is
recorded in the accompanying statement of operations as "interest expense" and
was $1.0 million during 2003 and was $1.3 million in 2002. The balance of the
change in fair value of $1.4 million is recorded in other comprehensive loss,
net of tax, as of December 31, 2003.
From the period of December 31, 2002 through December 31, 2003, the 3-month
LIBOR interest rate declined approximately 20 basis points. The fair value of
the swap is derived from discounted cash flows based on 3-month LIBOR futures
contracts for the remaining life of the swap. The decline of the fair value of
the swap during 2003 relates primarily to a decline in future cash flows
relating to a shorter remaining life of the swap, partially offset by increased
cash flow associated with a drop in the 3-month LIBOR interest rate. 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.
On March 31, 2004, the interest rate swap agreement was terminated in
connection with the Company's new financing arrangements. As a result of the
termination of this contract, the Company will write-off the fair value of the
interest rate swap of $4.3 million and $1.4 million included in "Other
comprehensive income" related to the change in the fair value of the effective
portion of the interest rate swap, in the second quarter of 2004. (See Note 15.)
Note 8 - Stock Option Plans
In 2001, Holdings established a Stock Option Plan (the "Plan") as a means
to provide incentives to key employees and directors of the Company. Options are
granted under the Plan on such terms and at such prices as determined by the
Compensation Committee, except that the per share exercise price of incentive
stock options cannot be less than the fair market value of Holdings' common
stock on the date of grant. Holdings have reserved 56,108 shares of common
stock, (representing approximately 4.7% of Holdings' outstanding common stock on
a diluted basis) for issuance upon exercise of stock options. All options which
have been granted generally have a term of ten years and vest ratably over three
or five years. As of December 31, 2003, Holdings had issued 52,269 options to
employees of the Company.
Pursuant to the terms of the Former Brown Jordan acquisition, certain
employees of Former Brown Jordan were allowed to rollover existing options of
Former Brown Jordan common stock into options of Holdings' common stock. All
such options were 100% vested at the rollover date. There were no exercises of
stock options during 2003 and 2002.
Stock option activity for the years ended December 31, 2003, 2002 and 2001
is summarized as follows:
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 8 - Stock Option Plans
Options Weighted Avg.
(In thousands) Outstanding Exercise Price
----------- --------------
December 31, 2000 balance....................................... 39,593 $102.52
Granted......................................................... - -
Canceled........................................................ - -
---------- ----------
December 31, 2001 balance.............................. 39,593 $102.52
Granted................................................ 26,242 132.78
Canceled............................................... (9,727) 151.50
---------- ----------
December 31, 2002 balance.............................. 56,108 $108.18
Canceled............................................... (3,839) 151.50
---------- ----------
December 31, 2003 balance.............................. 52,269 $105.00
====== ======
Information with regard to options outstanding and exercisable at December 31,
2003 is as follows:
Options Weighted Avg. Outstanding Exercisable
Weighted Avg. Outstanding Remaining Life Weighted Avg.
Exercise Price Exercise Price 2003 at 12/31/2003 Shares Exercise Price
- -------------- -------------- ---- ------------- ------ --------------
$ 30.30 $ 30.30 16,000 7.36 16,000 $ 30.30
100.00 100.00 9,537 8.07 1,907 100.00
151.50 151.50 26,732 8.00 12,265 151.50
---------- ---------- ---------- ---------- ----------
Total $105.00 52,269 7.81 30,172 $ 85.65
====== ====== ====== ====== ======
Note 9 - Income Taxes
The significant components of the (benefit) provision for income taxes consist
of the following:
Years Ended December 31,
(In thousands) 2003 2002 2001
---- ---- ----
Federal:
Current............................................................... $(2,664) $686 $1,517
Deferred.............................................................. 866 205 536
State:
Current............................................................... (260) 67 882
Deferred.............................................................. 95 32 55
Foreign:
Current............................................................... 141 - -
---------- ---------- ----------
$(1,822) $990 $2,990
====== ====== ======
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9 - Income Taxes - (continued)
At December 31, 2003 and 2002, deferred tax assets and liabilities consist of
the following:
(In thousands) 2003 2002
---- ----
Deferred tax assets:
Capitalized inventory costs........................................... $ 780 $ 667
Allowances and accruals............................................... 3,031 2,968
Change in fair value of interest rate swap............................ 1,378 2,371
State net operating loss carryforwards................................ 1,058 886
Other................................................................. 141 -
Less: Valuation allowances........................................... (1,058) (886)
---------- ----------
Net deferred tax assets $ 5,330 $ 6,006
---------- ----------
Deferred tax liabilities:
Intangible asset basis difference..................................... $(3,405) $ (2,829)
Excess of tax over book depreciation.................................. (568) (907)
Prepaid expenses...................................................... (380) (230)
Other................................................................. - -
---------- ----------
Deferred tax liabilities $(4,353) $ (3,966)
---------- ----------
Deferred income taxes, net $ 977 $ 2,040
====== ======
Included in:
Other current assets/liabilities...................................... $ 4,646 $ 5,942
Other assets.......................................................... 142 114
Deferred income taxes................................................. (3,811) (4,016)
---------- ----------
$ 977 $ 2,040
====== ======
The following table reconciles the differences attributable to income taxes computed at the U. S. Federal income
tax rate of 35% to the income tax provision for financial statement purposes:
Years Ended December 31,
2003 2002 2001
---- ---- ----
Federal income tax rate.................................................. (35.0)% 35.0% (35.0)%
State income taxes....................................................... (2.2)% 2.7% 35.9%
Goodwill amortization.................................................... - - 238.8%
Change in valuation allowance............................................ - 8.0% 70.3%
Other.................................................................... (1.6)% (6.3)% (3.0)%
---------- ---------- ----------
Effective tax rate (38.8)% 39.4% 307.0%
====== ====== ======
Management has recorded a valuation allowance related to certain separate
company state tax net operating loss ("NOLs") carryforwards, as management
believes it is likely that such NOLs will not be realized. The state NOLs expire
from 2004 through 2018.
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 9 - Income Taxes - (continued)
Pursuant to a tax sharing agreement between Holdings and the Company and
its subsidiaries, the Company was included in the consolidated federal income
tax return and certain consolidated state income tax returns of Holdings for all
taxable periods ended on or prior to December 31, 2002. The Company expects to
file in the same manner for 2003. For all periods presented, federal and state
income taxes are provided for as if the Company filed its own tax returns. The
accompanying consolidated balance sheet as of December 31, 2003 includes $2.6
million payable to Holdings in "Other accrued liabilities" as a result of the
benefit to the consolidated tax returns of Holdings' taxable net losses.
Note 10 - Related Party Transactions
In December 1994, the Company 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 the Company. In
2001, as a result of acquisitions, the annual base compensation was increased
from $400,000 to $750,000. For the years ended December 31, 2003, 2002 and 2001,
the amount expensed was $770,000, $764,000 and $651,000, respectively. These
amounts include the annual base compensation and reimbursement of certain
expenses. Under the agreement, during 2001, the Company also paid Trivest
$1,300,000 in connection with the acquisition of Former Brown Jordan. Trivest
and its affiliates made additional equity investments into Holdings of
approximately $48.0 million in 2001, in support of the Former Brown Jordan
acquisition. Pursuant to the Second Amendment to the Senior Credit Facility the
Company will continue to expense the management fee, but is restricted to paying
only $350,000 during the period of the Second Amendment. As of December 31,
2003, the Company had a liability of $420,000 to Trivest as a result of this
restriction on paying management fees.
On March 31, 2004, in connection with the Company's new financing
arrangements, the Investment Services Agreement with Trivest was amended to (i)
provide for the payment of accrued, unpaid management fees, (ii) provide for an
additional incentive fee of $0.8 million for services provided in connection
with the new financing arrangements, (iii) reduce the annual base compensation
to $350,000 and (iv) provide for a component of compensation that is based on
the Company's performance ("Performance Compensation"), as defined in the
amendment to the Investment Services Agreement. The Performance Compensation is
not to exceed $400,000 in any year. The annual base compensation will be
adjusted annually to reflect any increase from the prior year in the Consumer
Price Index, with the first such adjustment to occur as of January 1, 2005.
As a condition to the extension of the forbearance period under the
Company's former senior credit facility, Trivest provided the Company with an
advance for the financing of the interest payment due in February 2004 to
holders of the Senior Subordinated Notes ($6.9 million). In addition, on March
5, 2004, Trivest made a payment, under a guaranty in favor of the Company's
lenders, of $3.5 million to the Company's lenders under the Amended Facility on
the Company's behalf. The Company repaid Trivest for the advance of the interest
payment, the $3.5 million guaranty payment, plus a guarantee fee and interest of
$0.4 million, paid management fees accrued as of December 31, 2003, as referred
to above, as well fees earned and accrued through March 31, 2004 ($0.5 million
in total) and paid a fee of $0.8 million in connection with the Company's new
financing arrangements out of the proceeds from the new financings. See Notes 6
and 15 to the Consolidated Financial Statements for additional discussion.
As a result of the Former Brown Jordan acquisition the Company acquired
approximately 20% ownership of Lexman Holdings, Limited, ("Lexman"). Lexman is
the sole equity holder of Leisure Garden, a furniture manufacturer in the
People's Republic of China. The Company had a long-term supply agreement with
Lexman, which expired in 2001, providing for the Company to purchase a minimum
of $10 million of furniture per year. The Company entered into a new supply
agreement with Lexman during 2003, see discussion in Note 11. During 2002, the
Company purchased approximately $92 million from Leisure Garden.
In December 2002, the Company divested its interest in Lexman for $4.3
million in cash and the return of the shares owned by the principals of Lexman
and Leisure Garden in Holdings. The Company did not realize any gain or loss
from the sale of
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10 - Related Party Transactions - (continued)
this asset, but did record a reduction of additional paid in capital of
$194,000 as a result of the return of the shares of Holdings. The Company
reported dividend income from Leisure Garden, in 2002 of $1.0 million and of
$0.7 million in 2001.
See Note 9 for a discussion about the tax sharing agreement between the
Company and Holdings.
Note 11 - Commitments and Contingencies
Litigation and Liability Claims
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against potential claims in an amount that management
believes to be adequate. Based primarily on discussions with counsel and
management familiar with the underlying disputes and except as described below,
management believes that the Company is not presently a party to any litigation,
the outcome of which would have a material adverse effect on its business,
financial condition, results of operations or future prospects.
Leases
The Company leases certain office space, manufacturing facilities and
equipment under operating leases. Some leases for office and manufacturing space
contain renewal options and provisions for increases in minimum payments based
on inflation. Rental expense amounted to $5.4 million, $4.2 million and $3.1
million for the years ended December 31, 2003, 2002 and 2001, respectively.
Operating lease agreements at December 31, 2003 have the following remaining
minimum payment obligations (in thousands):
Amount
(In thousands) Per Year
--------
2004................................................... $ 4,967
2005................................................... 3,775
2006................................................... 3,668
2007................................................... 3,171
2008................................................... 1,975
Thereafter............................................. 5,201
----------
$22,757
======
Letters of Credit
The Company utilizes standby letters of credit to back certain financing
instruments, insurance policies and lease and a trade obligation. At December
31, 2003, the Company had approximately $6.7 million in outstanding stand-by
letters of credit, all of which expire during 2004.
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
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 11 - Commitments and Contingencies - (continued)
warranties based on historical experience and sales. Changes in the product
warranty accrual for the year ended December 31, 2003 is summarized below:
Product
Warranty
(In thousands) Cost
----
Balance at December 31, 2002........................... $ 2,135
Accrual for warranties issued ......................... 4,588
Settlements made (in cash or in kind) (4,658)
----------
Balance at December 31, 2003........................... $ 2,065
======
Other Commitments
In December 2002, the Company entered into a supply agreement with Shian
that allowed them to build a manufacturing facility in Jiaxing, China, that
develops and produces BJI products exclusively. Shian completed construction of
the manufacturing facility and production commenced in March 2004. The agreement
provides for the Company to purchase a minimum of $10 million of furniture
products in the year production begins and $40 million for each one-year period
thereafter, for the term of the agreement. The initial term of the agreement
commences December 2002 and ends on August 31, 2014; however, either party may
terminate the agreement at any time upon two years notice to the other party.
The agreement automatically renews for successive three year terms, unless
either party provides the other with written notice of their intent to terminate
the agreement at the end of the then current term, at least one year prior to
the end of the initial term or any renewal term.
The manufacturing facility is currently solely owned by Shian, however, the
agreement provides the Company with the right, but not the obligation, to
purchase a 40% ownership interest in the facility (or in the entity that owns
the facility), at any time after the fifth anniversary of the date upon which
the facility begins to produce BJI products (March 2004, as indicated above).
The purchase price for the ownership interest will be equal to 40% of the cost
to construct the facility.
See Note 5 for a discussion of the Company's joint venture with Shian.
Note 12 - Employee Benefit Plans
During 2003, the Company combined all of its previously separate employee
benefit plans established under the provisions of Section 401(k) of the Internal
Revenue Code into one plan. Full-time employees who meet various eligibility
requirements may participate in the plans. The plans provide for voluntary
employee contributions through salary reductions, as well as discretionary
employer contributions. Company contributions were $321,600 in 2003, $275,000 in
2002 and $202,000 in 2001.
As a result of the Former Brown Jordan acquisition, the Company assumed The
Pension Plan for Hourly Employees of the Former Brown Jordan ("the Plan"), which
is a defined benefit pension plan covering hourly employees of Former Brown
Jordan Company's domestic employees. Benefits are based on age and years of
service. The Company's funding policy is to contribute annually to the Plan the
amount necessary to meet the minimum funding standards established by the
Employee Retirement Income Security Act.
The following table sets forth information related to the Plan at December 31,
2003 and 2002:
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Employee Benefit Plans - (continued)
Years Ended December 31,
(In thousands) 2003 2002
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year............................... $1,262 $ 1,162
Service cost.......................................................... 73 68
Interest cost......................................................... 91 82
Actuarial loss (gain)................................................. 281 (29)
Benefits paid other than settlements.................................. (33) (22)
---------- ----------
Benefit obligation at end of year..................................... $1,674 $ 1,261
====== ======
Change in plan assets:
Fair value of assets at beginning of year............................. $ 948 $ 873
Actual return on plan assets.......................................... 155 (115)
Employer contributions................................................ 96 212
Benefits paid including settlements................................... (33) (22)
---------- ----------
Fair value of assets at end of year $1,166 $ 948
====== ======
Reconciliation of funded status:
Funded status......................................................... $(509) $ (313)
Unrecognized net actuarial loss....................................... 356 153
Unrecognized prior service cost....................................... $ 188 $ 209
---------- ----------
Net amount recognized................................................. $ 35 $ 49
====== ======
Accumulated benefit obligation $1,674 $ 1,261
====== ======
Components of net periodic benefit cost:
Service cost ......................................................... $ 73 $ 68
Interest cost......................................................... 91 82
Expected return on plan assets........................................ (79) (80)
Recognized net actuarial loss......................................... 2 -
Net amortization and deferral of prior service cost................... 22 22
---------- ----------
Net periodic pension cost $ 109 $ 92
====== ======
Actuarial assumptions at end of period:
Discount rate......................................................... 6.25% 7.25%
Long-term rate of return.............................................. 7.50% 8.00%
Plan Assets
The Company's pension plan weighted-average asset allocations at December 31,
2003 and 2002, by asset category are as follows:
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 12 - Employee Benefit Plans - (continued)
2003 2002
---- ----
Equity securities........................................................ 50% 43%
Debt securities.......................................................... 33 41
Real estate.............................................................. 6 6
Other.................................................................... 11 10
-------- --------
Total 100% 100%
===== =====
The long-term rate of return assumptions was developed based upon an
analysis of the historical returns of multiple asset classes to develop a risk
free real rate of return and risk premiums for each asset class. The overall
rate for each asset class was developed by combining a long-term inflation
component, the risk free real rate of return and the associated risk premium. A
weighted average rate was developed based on those overall rates and the target
asset allocation of the plan.
The target asset allocation is expected to be 50% -55% for equity
securities, 33% -40% for debt securities, 4% - 8% for real estate and 8% - 12%
for other investments. The Company's investment strategy is to manage the assets
of the plan to meet the long-term liabilities while maintaining sufficient
liquidity to pay current benefits. This is primarily achieved by holding
equity-like investments while investing a portion of the assets in long duration
bonds in order to match the long-term nature of the liability.
The Company's pension plan expects to make benefit payments to retirees as
follows: 2004, $42,000; 2005, $44,000; 2006, $51,000; 2007, $55,000; 2008,
$65,000 and 2009 - 2013, $590,000. In addition, the Company expects to
contribute $396,000 to its pension plan in 2004.
Note 13 - Operating Segments
The Company has two segments organized and managed based on market channel
into which the Company's products are sold.
The Company evaluates performance and allocates resources based on gross
profit. The accounting policies are the same as those described in the summary
of significant accounting policies. There are no intersegment sales/transfers.
Export revenues are not material. Shared assets include assets that relate to
both the Retail and Contract segments.
(In thousands) Retail Contract Shared Consolidated
------ -------- ------ ------------
Year ended December 31, 2003
Net sales........................................... $ 232,599 $113,695 $ - $346,294
Gross profit........................................ 46,327 35,282 - 81,609
Depreciation and amortization....................... 2,904 1,088 2,360 6,352
Expenditures for long lived assets.................. 226 231 1,365 1,822
Segment assets...................................... 173,278 51,058 82,570 306,906
Year ended December 31, 2002
Net sales........................................... $ 243,200 $111,470 $ - $ 354,670
Gross profit........................................ 56,382 35,375 - 91,757
Depreciation and amortization....................... 3,007 1,118 2,479 6,604
Expenditures for long lived assets.................. 74 145 1,221 1,440
Segment assets...................................... 164,950 52,933 84,210 302,093
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 13 - Operating Segments - (continued)
Year ended December 31, 2001
Net sales........................................... $ 160,985 $125,169 $ - $ 286,154
Gross profit........................................ 43,665 42,921 - 86,586
Depreciation and amortization....................... 2,494 2,951 7,353 12,798
Expenditures for long lived assets.................. 486 523 4,156 5,165
The Company had one customer that accounted for approximately 25%, 29% and 21%
of consolidated sales in 2003, 2002 and 2001, respectively. Sales from this
customer are included in the Retail segment. The Contract segment includes sales
from one customer that accounted for approximately 10% in 2003 and 12% in 2002
and 2001 of the segment's sales.,
Note 14 - Supplemental Disclosures
Supplemental balance sheet disclosures
The following balance sheet captions are comprised of the items specified below:
Years Ended December 31,
(In thousands) 2003 2002
---- ----
Inventories:
Raw materials......................................................... $23,867 $21,497
Work in process....................................................... 2,234 2,667
Finished goods........................................................ 11,147 4,074
---------- ----------
Total inventories, net $37,248 $28,238
====== ======
Property, plant and equipment:
Land.................................................................. $3,309 $ 3,822
Buildings and improvements............................................ 18,032 19,307
Manufacturing equipment............................................... 9,903 8,747
Office furniture and equipment........................................ 6,104 5,551
Construction in progress.............................................. 377 264
Vehicles.............................................................. 213 213
---------- ----------
$37,938 $37,904
Less: Accumulated depreciation........................................... (12,562) (9,222)
---------- ----------
Property, plant and equipment, net $25,376 $28,682
====== ======
Other accrued liabilities:
Compensation, commissions and employee benefits....................... $ 3,728 $ 6,201
Customer deposits..................................................... 4,043 4,728
Fair value of interest rate swap...................................... 3,710 -
Insurance............................................................. 2,025 1,252
Income taxes.......................................................... 2,092 2,630
Warranty.............................................................. 2,065 2,100
Other................................................................. 6,215 4,312
---------- ----------
$23,878 $21,223
========= =========
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14 - Supplemental Disclosures - (continued)
Depreciation expense was $3.6 million, $3.8 million, $3.7 million, for the years
ended December 31, 2003, 2002 and 2001, respectively.
Supplemental Cash Flow Disclosures
Years Ended December 31,
(In thousands) 2003 2002 2001
---- ---- ----
Supplemental cash flow disclosures:
Interest paid......................................................... $ 30,630 $ 29,279 $ 31,083
====== ====== ======
Income taxes (refunded) paid.......................................... (2,636) $ 1,677 $ 2,225
====== ====== ======
Supplemental schedule of non-cash transactions:
Stock acquired through parent capital contributions................... $ - $ - $ 22,000
====== ====== ======
Stock acquired through issuance of company options and stock.......... $ - $ - $ 2,959
====== ====== ======
Reduction of additional paid in capital as a result of settlement of
contract claims (Note 3).............................................. $ - $ 2,500 $ -
====== ====== ======
Reduction of additional paid in capital due to sale of investment
(Note 10)............................................................. $ - $ 194 $ -
====== ====== ======
Note 15 - Subsequent Event- New Financing Arrangements
On March 31, 2004, the Company entered into new financing arrangements that
consist of a (i) $90.0 million asset based revolving credit facility
("Revolver") with a new lender and a (ii) $135.0 million senior secured term
notes ("Senior Notes") with another lender. Proceeds under these new facilities
were used to (i) repay all outstanding balances under the Company's existing
senior credit facility and term loan, which was terminated on March 31, 2004,
(ii) pay all existing indebtedness to Trivest, including an advance by Trivest
for the financing of the interest payment to the Company's Senior Subordinated
Note holders ($6.9 million), the Guarantee payment and related fees and interest
($3.9 million), financial advisors fees ($0.8 million) and management fees
accrued as of December 31, 2003, as well as fees earned and accrued through
March 31, 2004 ($0.5 million in total), (iii) pay interest rate swap breakage
fees, and (iv) to pay fees and expenses relating to the new financing
transactions. Upon the closing of the transactions, $189.2 million ($54.2
million under the Revolver and $135.0 million under the Senior Notes) was drawn
under the new facilities. The termination of the existing credit facility and
term loan will result in the write-off of deferred financing fees of
approximately $6 million, the settlement of the interest rate swap of $4.3
million and the write-off of $1.4 million included in "Other comprehensive
income" related to the change in the fair value of the effective portion of the
interest rate swap, in the quarter ended June 25, 2004. The Company had been
operating under a forbearance agreement with its former lenders as of January 9,
2004 that, as amended, provided for a forbearance period through March 31, 2004,
while the new financing was arranged.
Availability under the Revolver is based on a borrowing base consisting of
the Borrowers' eligible accounts receivable and inventory. The interest rate on
borrowings under the Revolver is based on the base rate (which is defined as a
variable rate of interest per annum equal to the highest of the prime rate,
reference rate, base rate or other similar rate as determined by the lender)
plus 0.25% per year (the "Domestic Rate"), or at the election of the Company,
the applicable London Interbank Offering Rate ("LIBOR") plus 2.25% per year (the
"Eurodollar Rate"). The Company also pays an unused facility fee equal to 0.375%
per annum on the average unused daily balance of the Revolver. Borrowings under
the Revolver are secured by a
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 15 - Subsequent Event- New Financing Arrangements - (continued)
first priority lien on substantially all of the Company's accounts
receivable, inventory, fixed assets and intangible assets. The Revolver contains
a $10.0 million swing-line sub-facility, which accrues interest at the Domestic
Rate per year. The Revolver terminates on May 1, 2007, unless terminated earlier
by the Company. The Company must pay a $0.9 million termination fee if it elects
to terminate the Revolver on or prior to March 31, 2005. As of March 30, 2004,
the interest rate on the outstanding balance was 3.36% and was based on the
Eurodollar Rate. As of March 31, 2004, the Company had availability under the
Revolver of $18.5 million.
The Revolver also provides for a $15.0 million letter of credit
sub-facility. The aggregate amount of such letters of credit may not exceed the
lesser of (i) $15.0 million and (ii) an amount equal to the $90.0 million
aggregate commitment under the Revolver less the aggregate outstanding principal
balance of the Revolver and swing-line and (iii) the borrowing base less the
aggregate outstanding principal balance of the Revolver and swing-line. However,
the letters of credit with respect to any of the Company's business segments (as
defined in the Revolver) may not exceed the sum of (i) the outstanding Revolver
advances and swing-line loans to such business segment plus (ii) the outstanding
letters of credit to exceed such business unit's borrowing base. Fees associated
with the letters of credit are equal to the Domestic Rate per year based upon
the face amount of the letters of credit.
The Revolver contains customary covenants and restrictions on the Company's
and its subsidiaries' ability to issue additional debt or engage in certain
activities and certain affirmative covenants, including, but not limited to,
reporting requirements. In addition, the Revolver specifies that the Company
must maintain a minimum of $5.0 million available borrowing capacity at all
times, and provided the Company maintains a minimum of $9.0 million of available
borrowing capacity, the Revolver does not require financial covenants. If
availability falls below $9.0 million at any time during a fiscal quarter, the
Company is subject to a fixed charge ratio. The Revolver also contains events of
default customary for credit agreements of this type, including failure to pay
interest or principal when due and cross-default provisions relating to the
Company's other indebtedness in excess of $1.5 million. In the event of default
and during the continuation thereof, borrowings under the Revolver will bear
interest, at the option of the lender, at the then current Domestic Rate plus
2.00% per annum or at the Eurodollar Rate plus 2.00% per annum.
The Revolver includes both a subjective acceleration clause and a lockbox
arrangement that requires all lockbox receipts be used to repay revolving credit
borrowings. Accordingly, borrowings under the revolving credit facility will be
classified as current as required by EITF No. 95-22.
The Senior Notes, which mature May 1, 2007, bear interest at a rate of
LIBOR plus 9.00% per annum, reset quarterly. The Company will pay interest in
arrears on each March 31, June 30, September 30 and December 31 and on the
maturity date, commencing, June 30, 2004. The Senior Notes are secured by a
second priority lien on substantially all of the Company's accounts receivable,
inventory, fixed assets and intangible assets and a first priority lien on the
Company's capital stock as well as that of all of the Company's domestic
subsidiaries. The Senior Notes are guaranteed by substantially all of the
Company's domestic subsidiaries. Holdings pledge of the Company's stock is
non-recourse to Holdings. As of March 31, 2004, the interest rate on the
outstanding balance was 10.11%.
The Company may redeem, at its option, the Senior Notes, in whole or in
part from time to time after March 31, 2005 at the applicable redemption price
as set forth below:
Period Redemption Price
- ------ ----------------
March 31, 2005 - March 31, 2006........................ 103.00%
April 1, 2006 - September 30, 2006..................... 101.00%
October 1, 2006 and thereafter......................... 100.00%
In addition, the Company may, at its option, elect on one occasion
occurring on or prior to the 60 days following the completion of the Company's
audit for the year ended December 31, 2004 (but in any event, no later than June
30, 2005), redeem at a redemption price of 100% of the principal amount thereof,
plus accrued interest, a principal amount of the Senior Notes, not to exceed the
lesser of (i) 5.0% of the principal amount of the Senior Notes issued and (ii)
the amount of excess
Brown Jordan International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 15 - Subsequent Event- New Financing Arrangements - (continued)
cash flow (as defined in the agreement) for the year ended December 31,
2004. The ability to redeem Senior Notes in accordance with this provision is
contingent on the requirement that (i) no default or event of default shall have
occurred and be continuing as such time, and (ii) that the report of the
Company's independent auditors in respect of the year ended December 31, 2004 is
an "unqualified" audit report.
The Senior Notes contain various covenants customary for notes of a similar
nature, including limitations on the activities of the Company and its
subsidiaries to, among other things, (i) declare or pay cash dividends, (ii)
modify the capital structure, (iii) acquire or retire indebtedness that is
subordinate to the Senior Notes, (iv) issue preferred stock, (v) create or
assume any indebtedness, (vi) sell, transfer or assign its properties or assets,
(vii) create or assume liens, (viii) enter into sale and leaseback transactions,
and (ix) engage in mergers or acquisitions. In addition, the Senior Notes
contain affirmative covenants including, but not limited to maintenance of the
Company's properties and reporting obligations. The Senior Notes also contain
events of default customary for financing agreements of this type; including
failure to pay interest on principal when due and cross-default relating to the
Company's other indebtedness in excess of $5.0 million.
In the event of default, holders of 33 1/3% or more in principal amount of
the then outstanding Senior Notes may declare the principal amount of all of the
Senior Notes due and payable immediately, by written notice to the Company, and
upon such notice, such principal amount and any accrued and unpaid interest
shall be immediately due and payable.
The Company paid approximately $6 million in fees relating to the Revolver
and the Senior Notes that will be amortized to interest expense over the 36
month period beginning March 31, 2004.
Maturities of long-term debt for the five years succeeding December 31,
2003 are $0.3 million in 2004, $0.3 million in 2005, $0.3 million in 2006 and
$239.7 million in 2007.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No events or occurrences required to be disclosed in this Item 9 have
occurred.
ITEM 9A. CONTROLS AND PROCEDURES
As of December 31, 2003, an evaluation was performed under the supervision
and with the participation of our management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on the evaluation,
our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that our disclosure controls and procedures are adequately
designed to ensure that the information that we are required to disclose in this
report has been accumulated and communicated to our management, including our
Chief Financial Officer and Chief Executive Officer, as appropriate, to allow
timely decisions regarding such required disclosures.
There have been no significant changes in our internal control over
financial reporting during the quarter ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
Name Age Position
Earl W. Powell 65 Chairman of the Board and Director
Bobby Tesney 59 Vice Chairman and Director
Name Age Position
- ---- --- --------
Bruce R. Albertson 58 President, Chief Executive Officer and Director
John W. Frederick 40 Executive Vice President and Chief Administrative Officer
William I. Echols 55 President- Specialty Retail and Contract Markets
John L. Conely, Sr. 59 Executive Vice President-Operations
Vincent A. Tortorici, Jr. 50 Assistant Secretary, Vice President and Chief Financial Officer
Willard C. Kennedy 56 Vice President-Global Procurement and Logistics
Derek A. McDowell 37 Vice President and Director
Robert W. Koehn 31 Director
Richard A. Meringolo 42 Director
Walter J. Olson, III 62 Director
Michael J. Fourticq, Sr. 57 Director
Peter Vandenberg, Jr. 49 Director
The Company was incorporated in September 1994, and in December 1994,
acquired its principal operating subsidiaries, Winston and Loewenstein, each of
which was a publicly held corporation whose common stock traded on the NASDAQ
National Market. The Company's common stock traded on the NASDAQ National Market
from December 1994 through August 1999. On August 27, 1999, Trivest Furniture
Corporation, a newly formed corporation organized by an investor group led by
Trivest Partners, L.P. ("Trivest"), merged with and into the Company. In the
merger, the shares of Trivest Furniture Corporation were converted to the
Company's shares, and all other shares of the Company's common stock were
converted into the right to receive $34.75 per share in cash. As a result of the
merger, the shareholders of Trivest Furniture Corporation became the Company's
sole shareholders.
Mr. Powell, Chairman of the Board of the Company since October 1994, serves
as President and Chief Executive Officer of Trivest Partners, L.P.("Trivest"),
which is a private investment firm specializing in management services and
acquisitions, dispositions and leveraged buyouts.. Trivest is an affiliate of
the Trivest Partnerships and Trivest Manager. Mr. Powell has also served as
Chairman of the Board of Atlantis Plastics, Inc., an American Stock Exchange
company whose subsidiaries are engaged in the plastics industry ("Atlantis"),
since founding that company in February 1984, as Chief Executive of Atlantis
from its organization until February 1995 and as President of Atlantis from
November 1993 to February 1995. Mr. Powell also served as Chairman of the Board
of Winston from December 1988 to December 1994, Chairman of the Board of
Loewenstein from February 1985 to December 1994 and as Loewenstein's President
and Chief Executive Officer from May 1994 to December 1994. From 1971 until
1985, Mr. Powell was a partner with KPMG Peat Marwick, Certified Public
Accountants ("Peat Marwick"), where his positions included serving as managing
partner of Peat Marwick's Miami office.
Mr. Tesney has served as Vice Chairman of the Company since January 2002.
He served as President, Chief Executive Officer and a director of the Company
from October 1994 to January 2002, President, Chief Executive Officer and a
director of Winston from December 1993 to December 1994, General Manager of
Winston from 1985 to December 1993 and as Senior Vice President-Operations of
Winston from January to December 1993. Mr. Tesney also served as Vice President
of Winston from 1979 until January 1992.
Mr. Albertson, the Company's President and Chief Executive Officer since
January 2002, joined GE Appliances in 1973 as a sales counselor, advancing over
the course of the next 25 years to become, in succession, General Manager of
Brand Management & Distribution Strategy, President of GE Appliances in Hong
Kong, and Vice President for Global Marketing and Product Management in
Louisville. Most recently, Mr. Albertson was the President and CEO of Iomega
Corporation, based in Utah.
Mr. Frederick has been the Company's Executive Vice President and Chief
Administrative Officer since January 2004. Prior to joining BJI, Mr. Frederick
was the Chief Financial Officer of Legrand North America. From 1998 through
March 2003, Mr. Frederick was Senior Vice President Finance and Corporate
Controller for American Household, Inc. (formerly Sunbeam Corporation). On
February 6, 2001, Sunbeam Corporation and substantially all of its domestic
subsidiaries filed voluntary petitions with the United States Bankruptcy Court
for the Southern District of New York. On December 18, 2002, the plans of
reorganization became effective under Chapter 11 of Title 11 of the United
States Code. In addition, the name of Sunbeam Corporation was changed to
American Household, Inc.
Mr. Echols has served as the Company's President- Specialty Retail and
Contract Divisions since May 2002 and prior to that as Vice President-Sales and
Marketing. Mr. Echols joined the Company in November 2000. Prior to joining
WinsLoew, Mr. Echols was a consultant to the plastics industry. Mr. Echols has
been involved in the furniture industry for approximately 25 years with
companies such as, Samsonite Furniture, Lineal Group and Mahasco serving in
various leadership capacities including CEO, President and Sales Manager.
Mr. Conely, has been the Company's Executive Vice President Manufacturing
and Operations since May 2002. Before joining Brown Jordan International he
served as Senior Vice President Global Operations for Iomega Corporation in Roy,
Utah from Oct 1997-November 2001. He was with Alcatel in numerous positions from
1985-1997.
Mr. Tortorici, the Company's Vice President and Chief Financial Officer
since October 1994, served as Winston's Vice President-Finance and
Administration and Chief Financial Officer from March 1988 to December 1994. Mr.
Tortorici is a certified public accountant and was employed by Arthur Andersen &
Co. from 1976 until March 1988.
Mr. Kennedy joined the Company in April 2002 as Executive Vice President
Global Procurement and Logistics. Prior to that he served as Vice President
Global Materials and Logistics for Iomega Corp in Utah from 1996-2002.
Mr. McDowell was appointed as one of the Company's directors in January
2003. Mr. McDowell is presently a Managing Director of Trivest and has been with
Trivest since February 1998. From June 1997 until February 1998, Mr. McDowell
was an Investment Professional with H.I.G. Capital Management. Prior to that he
was with Continental Illinois Venture Corporation and Corporate Value
Associates.
Mr. Koehn was appointed as one of the Company's directors in July 2002. He
joined Trivest Partners, L.P. in 1999 as an Associate and is presently a
Director of Trivest Partners. From July 1998 through June 1999, Mr. Koehn was an
Associate with the First Union Capital Markets Corp. Mr. Koehn currently serves
on the board of Jet Industries, Inc.; a leading manufacturer of injection molded
disposable plastic cutlery, tumblers, dinnerware and extruded drinking straws.
Mr. Meringolo was appointed as one of our directors in October 2002. He is
presently a Managing Director of BancBoston Capital and has been with BancBoston
since 2001. From June 1991 until December 2000, Mr. Meringolo was with
FleetBoston Financial Group and held a number of positions most recently as a
Senior Risk Manager.
Mr. Olson, Vice President and Chief Investment Officer for Southern Farm
Bureau Life Insurance Company, has over 30 years of experience in the field of
investments. Joining the company in 1981, he is directly responsible for
managing the company's investment portfolio and is also a member of the
Investment Committee. Mr. Olson graduated from Mississippi State University with
a degree in business. While working at Merrill Lynch as a stockbroker, he
received his MBA from Mississippi College.
Mr. Fourticq was appointed Director in 2001 and founded Hancock Park
Associates ("HPA") in 1986 after an extensive career in principal investment and
operating management. Beginning in 1969, he spent four years with Security
Pacific National Bank's venture investing subsidiary, which was one of the
earliest participants in leveraged acquisition investing. Following Security
Pacific, Mr. Fourticq spent eight years in various management positions
including the Chairman and Chief Executive Officer of Stem Industries, a textile
and floor covering manufacturer. Mr. Fourticq then served as President and Chief
Operating Officer of United Castle Coal, a fully integrated underground coal
mining and processing company. From 1981 through 1985, Mr. Fourticq was a
General Partner of Los Angeles based Brentwood Associates. Upon leaving
Brentwood, he formed HPA to pursue the acquisition of small operating companies.
Mr. Fourticq has assumed various Chief Executive roles and responsibilities of
the portfolio companies since the formation of HPA.
Peter Vandenberg, Jr., a certified public accountant, was appointed as a
director in July 2003. Mr. Vandenberg is the Chairman of the Audit Committee.
Mr. Vandenberg is a Partner of Trivest and has worked at Trivest and its
portfolio companies since 1987. He currently serves on the board of directors of
Atlantis Plastics, Inc., a leading manufacturer of specialty polyethylene films
and molded and extruded plastic components used in a variety of industrial and
consumer applications, Jet Industries, Inc., a leading manufacturer of injection
molded disposable plastic cutlery, tumblers, dinnerware and extruded drinking
straws, Regional Diagnostics, LLC, a chain of outpatient diagnostic imaging
centers, and he is Chairman of Magic Holdings, LLC, a franchisor of personal
health counseling centers, primarily for weight loss. Prior to joining Trivest,
Mr. Vandenberg spent ten years with KPMG Peat Marwick, the last four years as a
Senior Manager in Miami.
Audit Committee and Audit Committee Financial Expert
The Company's securities are not listed on any national securities exchange
or national securities association. Accordingly, the Company is not subject to
the requirements of Section 10A(m) of the Securities Exchange Act of 1934, and
the Company's board of directors does not have an audit committee composed
exclusively of directors who are "independent" as defined in Section 10A(m). The
audit committee of the Company's board of directors consists of Robert W. Koehn,
Walter J. Olson, III and Peter Vandenberg, Jr. Mr. Vandenberg is a member of the
audit committee, and the board of directors has determined that he is an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-K
promulgated under the Securities Exchange Act.
Stockholder Nominees to Board of Directors
Any stockholder of the Company who wishes to recommend a nominee to the
Company's board of directors must submit the nomination in writing to the
Chairman of the Board of the Company, mailed to the attention of the General
Counsel, Trivest Partners, L.P., 2655 South Bayshore Drive, Suite 800, Miami, FL
33133.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation awarded to, earned by or paid
to the Company's Chief Executive Officer, and each of the Company's other
executive officers on December 31, 2003 and to former executive officers whose
total 2003 salary and bonus from the Company was $100,000 or more (the Chief
Executive Officer and such other executive officers are referred to herein as
the "Named Executive Officers").
Other No of
Fiscal Annual Annual Options
Name and Principal Position Year Salary Bonus Compensation Granted
- --------------------------- ---- ------ ----- ------------ -------
Bruce R. Albertson.......................... 2003 $ 414,615 $ - $ 7,746 -
President, Chief Executive Officer 2002 370,769 200,000 125,000 (2) 19,074
and Director 2001 - - - -
William I. Echols........................... 2003 $ 240,000 $ - $ - -
President Specialty Retail and Contract 2002 216,923 80,000 30,691 (1) (2) -
Markets 2001 179,615 98,716 - 1,286
Other No of
Fiscal Annual Annual Options
Name and Principal Position Year Salary Bonus Compensation Granted
- --------------------------- ---- ------ ----- ------------ -------
John L. Conely.............................. 2003 $ 250,000 $ - - -
EVP Manufacturing and 2002 153,846 62,500 $ 55,797 (2) 1,286
Operations 2001 - - - -
Vincent A. Tortorici........................ 2003 $ 245,000 $ - $ 24,028 (2)
VP, Chief Financial Officer and Assistant 2002 233,462 100,000 104,534 (1) (2) -
Secretary 2001 216,000 140,834 25,287 (1) 1,286
Willard C. Kennedy.......................... 2003 $ 225,000 $ - $ 28,213 (2) -
VP Global Procurement 2002 160,096 50,000 16,681 (1) 1,286
and Logistics 2001 - - - -
(1) "Other Annual Compensation" represents amount paid by the Company on
behalf of the Named Executive Officer under the Company's Non-Qualified
Supplemental Executive Retirement Plan established in October 1996. Under the
terms of this Plan, selected employees make after-tax contributions of their
salary to one or more investment alternatives available under such Plan. The
Company then matches the employee contribution (up to 10% of compensation on an
after-tax basis) depending on the employee's length of service (up to 50% for 15
years of continuous service). The employee is vested at all times in the
deferred compensation and is vested immediately in the matching contribution.
Contributions made by the Company with respect to the Non-Qualified Supplemental
Retirement Plan (the "Plan"), were $0, $29,589 and $25,287 for the years ended
December 31, 2003, 2002 and 2001, respectively. In 2002, $26,197 of the total
"Other Annual Compensation" reflected for Mr. Tortorici represented
contributions to the Plan.
(2) Includes relocation expenses paid by the Company for the employee and
such amounts were grossed up for income taxes due. Relocation expenses paid by
the Company for these employees were $52,241, $293,175 and $0 for the years
ended December 31, 2003, 2002 and 2001, respectively. For the year ended
December 31, 2002, "Other Annual Compensation" included $125,000, $78,338 and
$27,297 for relocations costs paid by the Company for Mr. Albertson, Mr.
Tortorici and Mr. Echols, respectively.
Option Grants
In 2001, Holdings established a Stock Option Plan (the "Plan") as a means
to provide incentives to key employees and directors of the Company. Options are
granted under the Plan on such terms and at such prices as determined by the
Compensation Committee, except that the per share exercise price of incentive
stock options cannot be less than the fair market value of Holdings' common
stock on the date of grant. (See Note 8 of Notes to Consolidated Financial
Statements)
2003 Aggregate Option Exercises and December 31, 2003 Option Values
No. of Shares
Underlying Value of Unexercised
No. of No. of Unexercised Options
in-the-Money Options Shares Value at December
31, 2003 at December 31, 2003
Executive Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
- --------- -------- -------- ----------- ------------- ----------- -------------
Bruce R. Albertson............ - - 8,259 10,815 - -
William I. Echols.............. - - 514 772 - -
John L. Conely, Sr............. - - 257 1,029 - -
Vincent A. Tortorici........... - - 514 772 - -
William C. Kennedy............. - - 257 1,029 - -
401(k) Plans
Effective January 1, 1997, the Company established the WinsLoew Furniture,
Inc. 401(k) Plan, subsequently named the Brown Jordan International 401(k) Plan.
The Company's and its subsidiaries' employees are eligible to participate in the
401(k) Plan after the completion of 120 days of employment and (ii) the
employee's 21st birthday. Eligible employees may enroll after the completion of
the initial eligibility requirements on January 1 and July 1. Eligible employees
may make salary reduction contributions to the 401 (k) Plan on a pre-tax basis.
For each calendar year, participating employers may make matching contributions
to the 401(k) Plan based on a discretionary matching percentage to be determined
each year by management. In addition, participating employers may make a
discretionary profit sharing contribution to the plan on behalf of each
participant who completes more than 500 hours of service during the year or who
is employed on the last day of the year. This latter contribution is allocated
proportionately based on each participant's compensation. An employee's vested
benefits are payable upon his retirement, death, disability, or other
termination of employment or upon the attainment of age 59. An employee is
always fully vested in his account balance attributable to his own contributions
to the 401(k) Plan. The employee's interest in the account attributable to his
employer's contributions and earnings thereon becomes fully vested upon the
earlier of the attainment of his normal retirement date (age 65), his death, his
permanent and total disability, or his completion of six years of service. If an
employee terminates employment for reasons other than retirement, death, or
disability, his vested interest is based on a graduated vesting schedule, which
provides for 20% vesting after two years of service and 20% for each year
thereafter. Employees forfeit non-vested amounts.
Brown Jordan Company Union Employees 401(k) Plan:
Employees are eligible to participate once they have attained 21 years of
age and completed one year(s) of service. One year of service is a 12 month
period and a minimum of 1,000 hours worked during such period. Participation
starts on January 1 or July 1 following the date employee meets the eligibility
requirements. The Plan excludes non-union employees.
The Company will match 50% of employee's 401(k) contributions, up to a
maximum matching contribution of $400. The former contribution will change on
January 1, 2002 to 50% of employee's 401(k) contributions, up to a maximum
matching contribution of $500 and on January 1, 2004 to 50% of employee's 401(k)
contributions, up to a maximum matching contribution of $600. To receive the
matching contribution, the employee must be employed on December 31. Eligibility
for contribution; Employee must be employed on the last day of the plan year and
have 1,000 hours of service. Participants who die, become totally disabled, or
retire on or after age 59 1/2 are also eligible for an employer contribution in
that year. Employees are always 100% vested in both their voluntary
contributions and the employer's matching contributions. Normal retirement age
is 59 1/2.
During 2003, the Company combined all of its previously separate employee
benefit plans established under the provisions of Section 401(k) of the Internal
Revenue Code into one plan. Company contributions were $321,600 in 2003,
$275,000 in 2002 and $202,000 in 2001.
Director Compensation
The Company pays each non-Trivest/employee director a $3,000 fee for each
meeting of the board of directors attended. The Company reimburses all directors
for all travel-related expenses incurred in connection with their activities as
directors.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
The Company has entered into a three-year employment agreement with Mr.
Albertson dated January 25, 2002. The agreement provides for an annual base
salary of $400,000 and a bonus to be tied to the profitability of the Company of
at least $200,000 and not more than $350,000 unless otherwise determined by the
Board. The agreement also provides for the granting of certain options to
purchase shares of the Company's stock. The two option agreements allow Mr.
Albertson to purchase 9,537 shares of the Company's stock at $151.50 per share
and 9,537 shares of the Company's stock at $100.00 per share. The options under
each plan vest ratably over three years. In addition the agreement provides that
in the case of a change in control as defined in the agreement Mr. Albertson
will be a paid a bonus based on the per share selling price of the Company's
stock.
The Company has entered into a five-year employment agreement with Mr.
Tortorici effective as of August 27, 1999. The employment agreement provides for
a 2002 base salary of $225,000, adjusted to $245,000 effective August 1, 2002.
The employment agreement also provides for annual incentive compensation
payments of up to a specified portion of the executive's then base salary, 65%
in the case of Mr. Tortorici, based on the operating earnings, adjusted to
exclude the effect of goodwill amortization, of the Company. Mr. Tortorici will
not receive any incentive compensation payment under his employment agreement
for any particular year unless the relevant operating earnings for such year are
at least 75% of the target earnings for such year. The employment agreement also
provides that the executive will receive six months base salary if his
employment is terminated without cause as defined in the employment agreements,
and prohibits the executive from directly or indirectly competing with us for
one year after termination of his employment, or, if he is terminated without
cause, six months after termination.
The Company entered into a five-year employment agreement with Mr. Echols
effective as of February 12, 2001. The employment agreement provides for a 2001
base salary of $160,000 ("Base Salary"). Throughout the term of this agreement,
the Base Salary will be adjusted for, at minimum, annual cost of living
adjustments. The Base Salary will also be reviewed, at least annually, for merit
increases and may, by action and in the discretion of the Company's Board of
Directors, be increased from time to time. The employment agreement also
provides for annual incentive compensation payments of up to 75% of the
executive's then base salary, based on the operating earnings, adjusted to
exclude the effect of goodwill amortization, of our contract and hospitality
division. Mr. Echols will not receive any incentive compensation payment under
his employment agreement for any particular year unless the relevant operating
earnings for such year are at least 75% of the target earnings for such year.
Mr. Echols' employment agreement also prohibits the executive from directly or
indirectly competing with us for one year after termination of his employment,
or, if he is terminated by us without cause, six months after termination.
Severance Agreements
The employment agreement entered into with Mr. Albertson on January 25,
2002 included certain severance provisions related to the termination of Mr.
Albertson. If Mr. Albertson is terminated without cause, as defined in the
employment agreement, he shall be entitled to receive his base salary for a
period of one year following his termination and, in addition, Mr. Albertson is
entitled to receive a pro rata portion of any incentive compensation owed for
the period of the year from January 1 until the severance date.
On August 27, 1999 the Company entered into a severance agreement with Mr.
Tortorici, under which the Company has agreed to provide him with severance pay
and benefits if his employment is terminated by us following a change in control
as defined in the agreement. Under the agreement, if the Company terminates
employment either for cause as defined in the agreement, because of the
employee's death, or if the employee terminates his employment other than for
good reason as defined in the agreement, following a change in control, the
Company must pay the employee his full base salary through the date of
termination plus all other benefits he may be entitled to under any retirement
plan the Company may then have.
If, on the other hand, at any time during the 180 day period following a
change in control the Company terminates the employee's employment other than
for cause or due to their disability, as these terms are defined in the
agreement, or if the employee terminates his employment during this period for
good reason as defined in the agreement, the Company must pay the employee his
full base salary through the date of termination, any accrued bonus and a lump
sum severance payment equal to his annual salary. Additionally, the Company must
provide life, disability, accident and group health insurance benefits
substantially similar to those provided to the employee prior to termination of
employment for a period of one year after termination, at a cost to the employee
no greater than the cost prior to termination. The employee's rights under any
retirement plan the Company may then have will be governed by the terms of the
plan. The Company must also pay the employee's legal fees and expenses incurred
by him as a result of termination of his employment. The Company must make these
severance payments not later than the fifth day following termination.
Mr. Tortorici's agreement was in effect through December 31, 2003 and is
automatically extended for additional one-year periods unless the Company
provides notice by October 1 of the preceding year that the Company does not
wish to extend the agreement, and provided that if a change in control occurs
during the original or extended term of the agreement, the agreement will
continue in effect for not less than 180 days after the last day of the month in
which the change in control occurred.
Compensation Committee
The Compensation Committee discharges the Board's responsibilities relating
to compensation of the Company's executives and directors and provides general
oversight of the Company's compensation structure, including the Company's
equity compensation plans and benefits programs. Other specific duties and
responsibilities of the Compensation Committee include: evaluating human
resources and compensation strategies and overseeing the Company's total
incentive compensation program; reviewing and approving objectives relevant to
executive officer compensation and evaluating performance and determining the
compensation of executive officers in accordance with those objectives;
approving and amending the Company's incentive compensation and stock option
programs; recommending director compensation to the Board; monitoring director
and executive stock ownership; and annually evaluating its performance and its
charter.
The Company's securities are not listed on any national securities exchange
or national securities association. The compensation committee of the Company's
board of directors consists of Mr. Earl W. Powell and Mr. Michael J. Fourticq.
Board Compensation Committee Report on Executive Compensation
Executive officers of the Company with employment contracts, including the
Chief Executive Officer, are compensated pursuant to the terms of such
contracts. Executive officers of the Company that do not have employment
contracts are compensated in accordance with their employment offer letters,
plus adjustments to their compensation based upon performance.
April 28, 2004 Earl W. Powell
Michael J. Fourticq
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2003, the Company has outstanding 1,000 shares of common stock. 100% of this stock is issued
to WLFI Holdings, Inc. (See Note 1 of Notes to Consolidated Financial Statements.)
The Following is New Disclosure
Securities Authorized for Issuance Under Equity Compensation Plans
(C)
Number of Securities
(A) Remaining Available Number of
Securities (B) for Future Issuance
Outstanding Weighted Avg. Under Equity
to be Issued Upon Exercise Price of Compensation Plans
Exercise of Outstanding (excluding securities
Plan Category Outstanding Options Options reflected in col. A)
- ------------- -------------------- ------- --------------------
Equity compensation
plans approved by
security holders 52,269 $105.00 3,839
In 2001, Holdings established a Stock Option Plan (the "Plan") as a means
to provide incentives to key employees and directors of the Company. Options are
granted under the Plan on such terms and at such prices as determined by the
Compensation Committee, except that the per share exercise price of incentive
stock options cannot be less than the fair market value of Holdings' common
stock on the date of grant. Holdings have reserved 56,108 shares of common
stock, (representing approximately 4.7% of Holdings' outstanding common stock on
a diluted basis) for issuance upon exercise of stock options. All options which
have been granted generally have a term of ten years and vest ratably over three
or five years. As of December 31, 2003, Holdings had issued 52,269 options to
employees of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investment Services Agreement with Trivest
In December 1994, the Company entered into a ten-year investment services
agreement with Trivest, pursuant to which Trivest provided the Company with
corporate finance, strategic and capital planning and other management advice,
including (1) conducting relations on BJI's behalf with accountants, attorneys,
financial advisors and other professionals, (2) providing reports with respect
to the value of the Company's assets, and (3) rendering advice with respect to
acquisitions, dispositions, financing and refinancing. Under the investment
services agreement, Trivest received a base annual fee of $0.5 million in 1994,
subject to annual cost-of-living increases. In addition, for each additional
business we acquired, Trivest's base compensation generally increased by the
greater of (1) $0.1 million, and (2) the sum of 5% of the additional business'
projected annual earnings before income taxes, interest expense and amortization
of goodwill, or EBITA, for the fiscal year in which it was acquired, up to $2.0
million of EBITA, plus 3.5% of EBITA in excess of $2.0 million. Moreover,
subject to the approval of the board, including a majority of disinterested
directors, for each acquisition or disposition of any business operation by the
Company, introduced or negotiated by Trivest, the Company generally paid Trivest
a fee of up to 3% of the purchase price. As a result of acquisitions during
2000, the annual base compensation was increased to $400,000. In 2001, as a
result of acquisitions, the annual base compensation was increased to $750,000.
For the years ended December 31, 2003, 2002 and 2001, the amount expensed was
$770,000, $764,000 and $651,000, respectively. These amounts include the annual
base compensation and reimbursement of certain expenses. Pursuant to the Second
Amendment to the Senior Credit Facility the Company will continue to expense the
management fee, but is restricted to paying only $350,000 during the period of
the Second Amendment. As of December 31, 2003, the Company had a liability of
$420,000 to Trivest as a result of this restriction on paying management fees.
During 2000, the Company paid Trivest $631,000 in connection with the
Wabash Valley acquisition and $478,000 in connection with the Charter
acquisition. Trivest and its affiliates made additional equity investments into
Holdings of approximately $48.0 million in 2001, in support of the Former Brown
Jordan acquisition. In addition, Trivest and its affiliates contributed
approximately $6.1 million in support of acquisitions in 2000. Under the
agreement, during 2001, the Company also paid Trivest $1,300,000 in connection
with the acquisition of Former Brown Jordan.
On March 31, 2004, in connection with the Company's new financing
arrangements, the Investment Services Agreement with Trivest was amended to (i)
provide for the payment of accrued, unpaid management fees, (ii) provide for an
additional incentive fee of $0.8 million for services provided in connection
with the new financing arrangements, (iii) reduce the annual base compensation
to $350,000 and (iv) provide for a component of compensation that is based on
the Company's performance ("Performance Compensation"), as defined in the
amendment to the Investment Services Agreement. The Performance Compensation is
not to exceed $400,000 in any year. The annual base compensation will be
adjusted annually to reflect any increase from the prior year in the Consumer
Price Index, with the first such adjustment to occur as of January 1, 2005.
As a condition to the extension of the forbearance period under the
Company's former senior credit facility, Trivest provided the Company with an
advance for the financing of the interest payment due in February 2004 to
holders of the Senior Subordinated Notes ($6.9 million). In addition, on March
5, 2004, Trivest made a payment, under a guaranty in favor of the Company's
lenders, of $3.5 million to the Company's lenders under the Amended Facility on
the Company's behalf. The Company repaid Trivest for the advance of the interest
payment, the $3.5 million guaranty, plus a guarantee fee and interest of $0.4
million, paid management fees accrued as of December 31, 2003, as well fees
earned and accrued through March 31, 2004 ($0.5 million in total) and paid a fee
of $0.8 million in connection with the Company's new financing arrangements out
of the proceeds from the new financings. See Notes 6 and 15 to the Consolidated
Financial Statements for additional discussion.
Merger with Trivest Furniture Corporation
In August 1999, Trivest Furniture Corporation merged with and into the
Company. The Company is the surviving corporation of the merger. Trivest
Furniture Corporation was a newly formed corporation organized by an investor
group led by Trivest. The members of the Company's senior management have
retained the positions they held prior to the merger. See "Management." Pursuant
to the merger agreement, each holder of previously outstanding shares of
WinsLoew common stock, other than Trivest Furniture Corporation, received $34.75
per share in cash, without interest, and the holder of each outstanding option
received a cash payment equal to the difference between $34.75 and the exercise
price of the option. The cash merger consideration, option cancellation payments
and related fees and expenses, which totaled approximately $282.6 million, were
provided by (1) an aggregate of $78.0 million in cash and rollover equity
contributions valued at $34.75 per share, to Trivest Furniture Corporation from
two private investment partnerships affiliated with Trivest, individuals
affiliated with Trivest, members of the Company's senior management team, other
employees and additional investors, (2) aggregate borrowings of approximately
$95.0 million under the senior credit facility, (3) the proceeds from the sale
of the units consisting of original notes and warrants of approximately $102.5
million and (4) cash on hand of approximately $7.1 million. The members of the
Company's board of directors and senior management team received cash payments
in respect of common stock and options they held prior to the merger and
contributed cash and shares of the Company's common stock to Trivest Furniture
Corporation.
Tax Sharing Agreement with Holdings
Pursuant to a tax sharing agreement between Holdings and the Company and
its subsidiaries, the Company was included in the consolidated federal income
tax return and certain consolidated state income tax returns of Holdings for all
taxable periods ended on or prior to December 31, 2002. The Company expects to
file in the same manner for 2003. For all periods presented, federal and state
income taxes are provided for as if the Company filed its own tax returns. The
accompanying consolidated balance sheet as of December 31, 2003 includes $2.6
million payable in "Other accrued liabilities" to Holdings as a result of the
benefit to the consolidated tax returns of Holdings' taxable net losses. See
Note 9 to the Consolidated Financial Statements.
Leisure Garden
As a result of the acquisition of Former Brown Jordan, the Company acquired
approximately 20% ownership of Lexman Holdings, Limited, ("Lexman"). Lexman is
the sole equity holder of Leisure Garden, a furniture manufacturer in the
People's Republic of China. The Company has a long-term supply agreement with
Lexman providing for the Company to purchase a minimum of $10,000,000 of
furniture per year. In calendar 2002 the Company purchased approximately
$92,000,000 from Leisure Garden. The agreement with Leisure Garden expired in
2001. In addition, the Company reported dividend income from Leisure Garden of
$1.0 million in 2002 and $700,000 in 2001.
Prices are negotiated on an item or furniture group basis. Although the
prices are agreed upon through a rigorous negotiating process, the Company does
not believe the negotiations are at "arms length." Further, the Company believes
it purchases furniture from Leisure Garden at prices that are lower than those
that would be negotiated with an unrelated third party. As a result, the Company
could be adversely impacted by its inability to purchase from Leisure Garden if
comparable alternative sources were not available.
In December 2002 the Company divested its interest in Lexman for $4.3
million in cash and the return of the shares owned by the principals of Lexman
and Leisure Garden in Holdings. The Company did not realize any gain or loss
from the sale of this asset.
Investor's Agreement with Certain Investors
Effective upon the consummation of the merger, all of the Company's
shareholders became shareholders of Holdings and the Company became a wholly
owned subsidiary of Holdings. The stockholders of Holding, including several
individuals affiliated or associated with Trivest, entered into an investors'
agreement with Holdings in connection with the merger and acquisition of the
Company's common stock. The investors' agreement includes "right of first
offer," "right of first refusal" and other restrictions on the ability of the
investors to transfer common stock. The investors' agreement generally provides
that Trivest Fund II Group, Ltd., one of the Company's new Trivest investors,
will afford to the other investors the right to proportionally participate in
proposed transfers of common stock. In addition, all the other investors agree
to participate in sales of common stock and other significant corporate
transactions entered into by Trivest Fund II Group, Ltd., provided that all
investors receive the same consideration for their common stock. All of the
foregoing restrictions will terminate on the date of an underwritten public
offering of common stock in which the aggregate gross proceeds we receive are at
least $20.0 million at a price per share of not less than $10.00. The investors'
agreement also provides that if, subsequent to a qualified public offering,
Holdings determines to effect the registration of any equity securities under
the Securities Act, other than in connection with employee benefit plans or
certain reclassifications, mergers, consolidations or acquisitions, Holdings
will be required to include in the filing, and to use all our commercially
reasonable efforts to register, all or any specified portion of the registrable
shares of common stock held by the investors or their successors or assigns. The
registration rights are subject to certain conditions and limitations, including
our right to reduce pro rata the amount of such registrable shares included in
an underwritten public offering if the underwriter determines that the aggregate
requested participation will adversely affect the marketing of the securities to
be sold. Holdings also agrees that, upon the request of holders of at least 20%
of the then outstanding registrable shares of our common stock, so long as we
are able to file a registration statement on Form S-3 or a successor form,
Holdings will use all commercially reasonable efforts to effect the registration
on Form S-3 or any successor form of all or any specified portion of the common
stock held by such requesting shareholders. The investors' agreement also
provides board observation rights for individuals designated by the Trivest
partnerships, as well as their limited partners, which will terminate upon a
qualified public offering.
Shareholders Agreements with Each Shareholder
In addition, each of Holdings' other shareholders, which are comprised of
employees and independent sales representatives, entered into separate
shareholders' agreement with Holdings in connection with the merger and his or
her acquisition of common stock. Under the shareholders' agreements, Holdings
has the right to repurchase all common stock owned by the shareholder upon the
termination of his or her employment, which right may be exercised by Trivest
Fund II Group, Ltd. if Holdings does not do so. The shareholders' agreements
include certain "right of first offer," "right of first refusal" and other
restrictions on the ability of the shareholders to transfer common stock, all of
which restrictions will terminate upon (1) a sale of all or substantially all of
Holdings' assets, (2) the sale of Holdings common stock in a transaction or
series of transactions resulting in any person or group of affiliated persons
other than the current shareholders owning more than 50% of the Company's common
stock outstanding, (3) the registered public sale of common stock the net
proceeds of which are at least $15.0 million, or (4) Holdings merger or
consolidation with or into another corporation if, after giving effect to the
merger or consolidation, holders of the Company's voting securities immediately
prior thereto own voting securities of the surviving corporation representing
less than a majority of ordinary voting power to elect directors. The
shareholders' agreements also provide that the shareholders will participate in
sales of the Company's common stock to an independent third party approved by
holders of a majority of the Company's outstanding common stock, as well as
other significant corporate transactions, and agree to consent to and raise no
objections against the sale, as long as all shareholders receive the same
consideration for their common stock.
Trivest Agreements in Connection with the Second Amendment to the Senior
Credit Facility
In connection with the Second Amendment to the Senior Credit Facility
entered into by the Company in March 2003, Trivest entered into a Guaranty
Agreement with the senior bank group, which provides for Trivest to advance
monies to the Company in the event certain financial covenants are not met at
the end of the second and fourth quarters of 2003. The maximum amount of the
additional investment is $13.4 million. As part of the Second Amendment, Trivest
agreed to the terms of a Subordination Agreement which subordinated the
indebtedness of the Company to Trivest under the terms of the Reimbursement
Agreement. Under the terms of the Reimbursement Agreement should Trivest be
required to fund the additional monies the Company would be indebted to Trivest
subordinate to the senior lenders. Additionally, the Subordinated Note Indenture
was amended by a vote of the holders to allow the Company to become indebted to
Trivest for the amount advanced to the Company under the Guaranty Agreement.
PART IV
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Ernst & Young LLP has served as the Company's principal accountant and
independent auditor since 1989. Below is a summary of the fees for each of the
least two fiscal years.
Audit Fees Ernst & Young LLP charged the Company fees aggregating
approximately $400,000 and $299,000 for professional services rendered in
connection with the audits of the Company's financial statements for the fiscal
years ended December 31, 2003 and 2002, respectively, included in the Company's
Annual Reports on Form 10-K, the reviews of the financial statements included in
each of the Company's Quarterly Reports on Form 10-Q and the filing of SEC
registration statements.
Tax Fees Ernst & Young LLP billed the Company an aggregate of $52,000 and
$87,000 in fees in fiscal years 2003 and 2002, respectively, for professional
services related to tax compliance, tax planning and tax advice. Tax compliance
services consisted of preparation of original and amended income tax returns;
claims for refunds; and tax payment planning services. Tax advisory services
consisted of tax advice related to mergers and acquisitions.
All Other Fees Ernst & Young LLP billed the Company an aggregate of $10,000
and $32,000 in fees for the years ended December 31 2003 and 2002, respectively,
for other permissible services rendered to the Company and its affiliates.
Pre-Approval of Services by Independent Auditor The Audit Committee has
adopted a policy governing the provision of audit and non-audit services by the
Company's independent auditor. Pursuant to this policy, the Audit Committee will
consider annually and, if appropriate, approve the provision of audit services
(including audit review and attest services) by its independent auditor and
consider and, if appropriate, pre-approve the provision of certain defined
permitted non-audit services within a specified dollar limit. It will also
consider on a case-by-case basis and, if appropriate, approve specific
engagements that do not fit within the definition of pre-approved services or
established fee limits.
The policy provides that any proposed engagement that does not fit within
the definition of a pre-approved service or is not within the fee limits must be
presented to the Audit Committee for consideration at its next regular meeting
or to the Chairman of the Audit Committee in time sensitive cases. The Audit
Committee will regularly review summary reports detailing all services (and
related fees and expenses) being provided to the Company by the independent
auditor.
All of the services provided under Audit Related Fees, Tax Fees and All
Other Fees were approved by the Audit Committee.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
Reference is made to the index set forth on page 27 of this Annual Report
on Form 10-K
(2) Financial Statement Schedule:
The following consolidated financial statement schedule is filed herewith:
Schedule II - Valuation and Qualifying Accounts
Any required information not included in the above-described schedule is
included in the consolidated financial statements and notes thereto contained
herein. All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions are otherwise not applicable and
therefore have been omitted.
(3) Exhibits: (An asterisk to the left of an exhibit number denotes a
management contract or compensatory plan or arrangement required to be
filed as an exhibit to the Annual Report on Form 10-K.)
EXHIBIT
EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
Exhibit
Number Exhibit Description
2.1 Articles of Merger By and Among WinsLoew Furniture, Inc., WFLI
Holdings, Inc. and WLFI Merger Inc. dated as of April 27, 2001 (2) (5)
3.1.1 Registrant's Restated Articles of Incorporation (3.1) (1)
3.2 Registrant's Bylaws (3.2) (1)
4.1 Indenture dated as of August 24, 1999 between WinsLoew Escrow Corp.
(whose obligations have been assumed by the Registrant) and American
Stock Transfer & Trust Company, including form of 12 _% Senior
Subordinated Note Due 2007 (4.1)(1)
4.2 Supplemental Indenture dated as of August 27, 1999 among Trivest
Furniture Corporation, the Registrant, the Registrant's domestic
subsidiaries and American Stock Transfer & Trust Company (4.2) (1)
4.3 Amendment to Indenture, dated as of March 17, 2003, between the Company
and American Stock Transfer & Trust Company, as trustee (9)
4.4 Amendment to Indenture, dated as of March 16, 2004, between the Company
and American Stock Transfer & Trust Company, as trustee (12)
4.5 Registration Rights Agreement dated as of August 24, 1999 among
WinsLoew Escrow Corp. (whose obligations have been assumed by the
Registrant) and Bear, Stearns & Co., Inc. Banc Boston Robertson
Stephens Inc. and First Union Capital Markets Corp. (4.3) (1)
4.6 Form of Registered Note (included in Exhibit 4.1) (4.4) (1)
10.1 * Form of Indemnification Agreement entered into between the
Registrant and each of the registrant's executive officers and
directors (10.1) (1)
10.2 Agreement dated August 1, 1996 between Winston Furniture Company of
Alabama, Inc. and the Retail, Wholesale and Department Store Union,
AFL-CIO (10.6) (1)
10.3 Purchase Agreement dated August 19, 1999 among WinsLoew Escrow Corp.,
Trivest Furniture Corporation (each of whose obligations have been
assumed by the Registrant) and Bear, Stearns & Co. Inc., BancBoston
Robertson Stephens Inc. and First Union Capital Markets Corp.(10.17)(1)
10.4 Warrant Agreement dated as of August 24, 1999 between WinsLoew Escrow
Corp. (whose obligations have been assumed by the Registrant) and
American Stock Transfer & Trust Company (10.18) (1)
10.5 Investors Agreement dated August 27, 1999 among Trivest Furniture
Corporation, Trivest Furniture Partners, Ltd., Trivest Fund II Group,
Ltd., and various investors identified therein (10.20) (1)
10.6 Exchange and Subscription Agreement dated August 27, 1999 among Trivest
Furniture Corporation and various investors identified
therein (10.21) (1)
10.7 * WinsLoew 1999 Key Employee Equity Plan (10.22) (1)
Exhibit
Number Exhibit Description
10.8 Form of Subscription Agreement (included in Exhibit 10.22) (10.23) (1)
10.9 Form of Shareholders' Agreement (included in Exhibit 10.22) (10.24) (1)
10.10 * Management Agreement dated August 27, 1999 between the Registrant and Trivest II, Inc. (10.25) (1)
10.11 * Employment Agreement dated August 27, 1999 between the Registrant and Vincent A. Tortorici,
Jr.(10.28) (1)
10.12 * Employment Agreement dated February 12, 2001 between the Registrant and William I. Echols.(15)
10.13 * Severance Agreement dated August 27, 1999 between the Registrant and Vincent A. Tortorici, Jr.(10.30)
(1)
10.14 Subscription and Shareholder Agreement dated March 31, 2000 between Michael Shilling and WinsLoew
Furniture, Inc. (2.4) (2)
10.15 Subscription and Shareholder Agreement dated March 31, 2000 between Jerry Schilling and WinsLoew
Furniture, Inc. (2.5) (2)
10.16 * Employment Agreement dated March 31, 2000 between Jerry Shilling and Wabash Valley Manufacturing,
Inc. (2.2) (2)
10.17 Subscription and Shareholder Agreement dated June 16, 2000 between Donald N. Clark and WinsLoew
Furniture, Inc. (10.37) (3)
10.18 Trust Indenture dated May 1, 2000 between The Industrial Development Board Of The City Of Haleyville,
Alabama and First Commercial Bank (As Trustee) (10.45) (3)
10.19 Lease Agreement dated May 1, 2000 by and between The Industrial Development Board Of The City Of
Haleyville, Alabama and Winston Properties, Inc.(10.44) (3)
10.20 Stock Purchase Agreement by and among Loewenstein, Inc., The Woodsmiths Company, Inc. and Raynor E.
Baldwin dated as of March 9, 2001 (10.1) (4)
10.21 Stock Purchase Agreement by and among WLFI Holdings, Inc., WinsLoew Furniture, Inc., Brown Jordan
International, Inc. and The Stockholders Brown Jordan International, Inc. dated as of May 8, 2001 (1) (5)
10.22 Credit Agreement By and Among WinsLoew Furniture, Inc. and Canadian and Imperial Bank Of Commerce and
other lenders and CIBC World Markets Corp dated as of May 8, 2001 (10.2) (6)
10.23 Interest Rate Swap Agreement among WinsLoew Furniture, Inc. and Canadian Imperial Bank of Commerce,
dated as of August 6, 2001 (10.2) (7)
10.24 First Amendment To Credit Agreement entered into by and among WinsLoew Furniture, Inc., and the Lenders
and Canadian and Imperial Bank of Commerce, as Administrative agent for the Lenders, dated as of
December 14, 2001 (1) (8)
10.25 Limited Waiver Regarding Financial Covenants among WinsLoew Furniture, Inc., certain financial
institutions known as Lenders, Canadian Imperial Bank of Commerce, as administrative agent for Lenders,
CIBC, INC., as Swing Line Lender, Antares Capital Corporation and Heller Financial, Inc., as
Co-Syndication Agents and General Electric Capital Corporation, as Documentation Agent for Lenders dated
as of October 12, 2001 (10.46) (9)
10.26 Guaranty Reimbursement Agreement, dated as of March 19, 2003, among the Company, Holdings, the
"Subsidiary Obligors" named therein, and Trivest. (10.53) (10)
Exhibit
Number Exhibit Description
10.27 Security Agreement, dated as of March 19, 2003, among the Company,
Holdings, the "Subsidiary Grantors" named therein, and Trivest (10.54)
(10)
10.28 Intercreditor and Subordination Agreement, dated as of March 19, 2003,
among Canadian Imperial Bank of Commerce, as Administrative Agent,
Trivest, the Company, Holdings and the other "Loan Parties" named
therein (10.55) (10)
10.29 * Amendment to Management Agreement between the Company and Trivest Partners LP dated March 19, 2003
(11)
10.30 * Amendment to Management Agreement between the Company and Trivest Partners LP dated March 31, 2004
(15)
10.31 * Employment Agreement between the Company and Bruce R. Albertson dated January 25, 2002 (11)
10.32 Second Amendment to the Credit Agreement and Limited Waiver dated March 19, 2003 (11)
10.33 Forbearance Agreement dated January 9, 2004 by and among Brown Jordan International, Inc., WLFI
Holdings, Inc., certain subsidiary guarantors, the lenders party thereto and Canadian Imperial Bank of
Commerce, as Administrative Agent (4.1) (12)
10.33 Forbearance Agreement dated February 11, 2004 by and among Brown Jordan International, Inc., WLFI
Holdings, Inc., certain subsidiary guarantors, the lenders party thereto and Canadian Imperial Bank of
Commerce, as Administrative Agent (4.1) (13)
10.34 Extension Agreeement dated February 16, 2004 by and among Brown Jordan International, Inc., WLFI
Holdings, Inc., certain subsidiary guarantors, the lenders party thereto and Canadian Imperial Bank of
Commerce, as Administrative Agent (4.2) (13)
10.35 Forbearance Agreement dated March 16, 2004 by and among Brown Jordan International, Inc., WLFI
Holdings, Inc., certain subsidiary guarantors, the lenders party thereto and Canadian Imperial Bank of
Commerce, as Administrative Agent (15)
10.36 Loan and Security Agreement, GMAC Commercial Finance LLC and the
Lenders with Brown Jordan International, Inc and the Other Loan Parties
dated March 31, 2004 (4.1) (14)
10.37 Purchase and Security Agreement among Brown Jordan International, Inc,, WLFI Holding, Inc., the
Guarantors, the Purchasers, and the Bank of New York, dated as of March 31, 2004 (4.2) (14)
10.38 Supply Agreement between Brown Jordan International, Inc. and Zhejiang Huayue Furniture Industries, Co.,
Ltd., doing business as Leisure Garden (15)
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges (15)
21.1 Subsidiaries of the Registrant (15)
31.1 Rule 13a-14(a) /15d-14(a) Certification of Principal Executive Officer (15)
31.2 Rule 13a-14(a) /15d-14(a) Certification of Principal Financial Officer (15)
32.1 Section 1350 Certification of Principal Executive Officer (15)
Exhibit
Number Exhibit Description
32.2 Section 1350 Certification of Principal Financial Officer (15)
(1) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's S- 4 Filed November 18, 1999
(2) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed April 11, 2000
(3) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 10- K Filed March 16, 2001
(4) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 10- Q Filed May 14, 2001
(5) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed May 23, 2001
(6) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 10-Q Filed August 10, 2001
(7) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 10-Q Filed November 8, 2001
(8) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed December 21, 2001
(9) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 10- K Filed March 27, 2002
(10) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed March 21, 2003
(11) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 10- K Filed April 15, 2003
(12) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed January 9, 2004
(13) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed February 17, 2004
(14) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's 8- K Filed April 8, 2004
(15) Filed herewith
(b) Reports on Form 8-K
The Registrant did not file a Form 8-K for the quarter ended
December 31, 2003.
The Registrant filed a Form 8-K on January 16, 2004, February 17,
2004, March 18, 2004 and April 8, 2004
(c) Exhibits required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item 14(a)(3) of this
report and not incorporated by reference follows the "Signatures"
section hereof and is incorporated herein by reference.
d) Financial Statements Schedules required by Regulation S-X
The financial statement schedules required by Regulation S-X are
included herein. See Item 14(a)2 for index.
SIGNATURES
Pursuant to the requirements of the Senior Subordinated Indenture and the Senior
Secured Term Notes, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Brown Jordan International, Inc.
Date: April 28, 2004 By: /s/Bruce R. Albertson
Bruce R. Albertson
President and Chief Executive Officer
Pursuant to the requirements of the Senior Subordinated Indenture and the Senior
Secured Term Notes, this report has been signed below by the following persons
on behalf of the registrant in the capacities, and on the dates indicated.
Signature Title Date
/s/ Bruce R. Albertson President, Chief April 28, 2004
Executive Office and Director
- ------------------------------------
Bruce R. Albertson (Principal Executive Officer)
/s/ Vincent A. Tortorici, Jr. Vice President and April 28, 2004
Chief Financial Officer
- ------------------------------------
Vincent A. Tortorici, Jr. (Principal Financial and
Accounting Officer)
/s/ Earl W. Powell Chairman of the Board April 28, 2004
Earl W. Powell
/s/ Bobby Tesney Vice-Chairman and Director April 28, 2004
Bobby Tesney
/s/ Derek McDowell Director April 28, 2004
Derek McDowell
/s/ Robert Koehn Director April 28, 2004
Robert Koehn
/s/ Richard Meringolo Director April 28, 2004
Richard Meringolo
/s/ Walter J. Olson III Director April 28, 2004
Walter J. Olson III
/s/ Michael J. Fourticq, Sr. Director April 28, 2004
Michael J. Fourticq, Sr.
/s/ Peter Vandenberg, Jr. Director April 28, 2004
Peter Vandenberg, Jr.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BROWN JORDAN INTERNATIONAL, INC.
DECEMBER 31, 2003
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expense Accounts Deductions of Period
----------- --------- ------- -------- ---------- ---------
Year ended December 31, 2001 allowance
for doubtful accounts.............. $3,101,071 $(402,847) $530,972(3) $109,621(1) $3,338,817
Year ended December 31, 2002 allowance
for doubtful accounts.............. 3,338,817 64,397 - (1,138,205)(1) 2,265,009
Year ended December 31, 2003 allowance
for doubtful accounts.............. 2,265,009 2,005,179 - (2,864,083)(1) 1,407,749
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expense Accounts Deductions of Period
----------- --------- ------- -------- ---------- ---------
Year ended December 31, 2001
allowance for excess and obsolete
inventory.......................... $1,083,771 $1,426,909 $3,196,448(3) $(2,279,955)(2) $3,427,173
Year ended December 31, 2002
allowance for excess and obsolete
inventory.......................... 3 ,427,173 2,245,498 - (3,657,143)(2) 2,015,528
Year ended December 31, 2003
allowance for excess and obsolete
inventory.......................... 2,015,528 572,184 - (1,219,089)(2) 1,368,623
(1) Uncollectible accounts receivable written-off
(2) Excess and obsolete inventory written-off
(3) Amounts established as a result of acquisitions
EXHIBIT 12.1
BROWN JORDAN INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31,
(In thousands) 2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Income statement data:
Income (loss) before income taxes,
cumulative effect of change in accounting
accounting principle and extraordinary
items.............................. $(5,068) $ 2,515 $ (974) $13,888 $27,850
Add:
Fixed charges...................... 34,491 34,815 35,277 27,462 9,213
Earnings as defined................... 29,423 37,330 34,303 41,350 37,063
Fixed charges
Interest expense (including
amortization of debt expense)...... 33,146 33,555 34,358 27,114 8,910
Estimated interest portion of rent
expense............................ 1,345 1,260 919 348 303
Total fixed charges................... 34,491 34,815 35,277 27,462 9,213
Ratio of earnings to fixed charges.... 0.9x 1.1x 1.0x 1.5x 4.0x
EXHIBIT 21.1
SUBSIDIARIES OF BROWN JORDAN INTERNATIONAL, INC.
State or Other
Incorporation or
Name Organization
1 Winston Furniture Company of Alabama, Inc............... Alabama
2 Loewenstein, Inc........................................ Florida
3 Charter Furniture Company............................... California
4 Wabash Valley Manufacturing, Inc........................ Indiana
5 BJCLW Holdings, Inc..................................... Delaware
6 BJI Employee Services, Inc.............................. Florida
EXHIBIT 31.1
CERTIFICATION
I, Bruce R. Albertson, certify that:
1. I have reviewed this annual report on Form 10-K 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: April 28, 2004 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 annual report on Form 10- K 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: April 28, 2004 By: /s/Vincent A. Tortorici
Vincent A. Tortorici
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 Annual Report on Form 10-K of Brown Jordan
International, Inc. (the "Company") for the period ended December 31, 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.
Date: April 28, 2004 By: /s/Bruce R. Albertson
Bruce R. Albertson
President and Chief Executive Officer
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 Annual Report on Form 10-K of Brown Jordan
International, Inc. (the "Company") for the period ended December 31, 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.
Date: April 28, 2004 By: /s/Vincent A. Tortorici
Vincent A. Tortorici
Chief Financial Officer