UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 26, 2004
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25246
BROWN JORDAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Florida 63-1127982
(State or other jurisdiction (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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of May 15, 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.
Brown Jordan International, Inc.
INDEX TO ITEMS
Page
PART I
ITEM 1. Financial Statements
o Consolidated Balance Sheets as of March 26, 2004 (unaudited)
and December 31, 2003....................................... 3
o Consolidated Statements of Operations for the three months
ended March 26, 2004 and March 28, 2003 (unaudited)......... 4
o Consolidated Statements of Cash Flows for the three months
ended March 26, 2004 and March 28, 2003 (unaudited)......... 5
o Notes to Unaudited Consolidated Financial Statements........ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 17
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk.......................................................... 23
ITEM 4. Controls and Procedures....................................... 23
PART II
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases
of Equity Securities.......................................... 23
ITEM 4. Submissions of Matters to a Vote of Security Holders.......... 23
ITEM 5. Other information............................................. 24
ITEM 6. Exhibits and Reports on Form 8-K.............................. 24
Signatures.................................................... 25
PART I
ITEM 1. FINANCIAL STATEMENTS
Brown Jordan International, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
(Unaudited)
March 26, December 31,
2004 2003
---------- ------------
Assets
Current assets:
Cash and cash equivalents............................................. $ 6,843 $ 1,910
Accounts receivable, net.............................................. 82,120 84,367
Refundable income taxes............................................... 1,843 4,999
Inventories, net...................................................... 39,405 37,248
Prepaid and other current assets...................................... 10,199 10,679
-------- ---------
Total current assets.................................................. 140,410 139,203
Property, plant and equipment............................................ 24,700 25,376
Customer relationships, net.............................................. 17,428 18,043
Trademarks............................................................... 25,335 25,335
Goodwill................................................................. 91,254 91,254
Other assets, net........................................................ 10,031 7,695
-------- ---------
Total assets............................................................. $309,158 $ 306,906
======== =========
Liabilities and stockholder's deficit Current liabilities:
Current portion of long-term debt..................................... $ 42,806 $ 41,175
Accounts payable...................................................... 29,416 31,177
Accrued interest...................................................... 3,589 5,157
Liability to Trivest.................................................. 11,349 420
Other accrued liabilities............................................. 25,212 23,458
-------- ---------
Total current liabilities............................................. 112,372 101,387
Long-term debt, net of current portion................................... 236,029 239,397
Deferred income taxes.................................................... 4,045 3,811
-------- ---------
Total liabilities........................................................ 352,446 344,595
Commitments and contingencies
Stockholder's deficit
Common stock -- par value $.01 per share 1,000 shares authorized, issued
and outstanding at March 26, 2004 and December 31, 2003 ................. - -
Additional paid in capital............................................... 162,041 162,041
Accumulated deficit...................................................... (203,704) (197,884)
Accumulated other comprehensive loss..................................... (1,625) (1,846)
-------- ---------
Total stockholder's deficit.............................................. (43,288) (37,689)
-------- ---------
$309,158 $ 306,906
======== =========
The accompanying notes are an integral part of these financial statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands)
(Unaudited)
Three Months Ended
March 26, March 28,
2004 2003
---- ----
Net sales................................................................ $ 103,494 $ 103,102
Cost of sales............................................................ 85,688 84,000
----------- -----------
Gross profit............................................................. 17,806 19,102
Selling, general and administrative expense.............................. 13,474 13,646
Amortization............................................................. 801 702
----------- -----------
Operating income...................................................... 3,531 4,754
Interest expense, net.................................................... 9,351 9,024
----------- -----------
Loss before benefit for income taxes..................................... (5,820) (4,270)
Income tax benefit....................................................... - (1,474)
----------- -----------
Net loss $ (5,820) $ (2,796)
=========== ===========
The accompanying notes are an integral part of these financial statements.
Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Three Months Ended
March 26, March 28,
2004 2003
-------- ---------
Operating activities:
Net loss.............................................................. $(5,820) $ (2,796)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization......................................... 1,686 1,622
Non-cash interest charges............................................. 738 660
Provision for allowance for doubtful accounts......................... 28 81
Provision for excess and obsolete inventory........................... 262 236
Loss on disposal of assets............................................ - 177
Changes in operating assets and liabilities:
Accounts receivable................................................. 2,219 (14,905)
Refundable income taxes............................................. 232 4,012
Inventories......................................................... (2,419) (2,544)
Prepaid expenses and other current assets........................... 1,223 266
Other assets........................................................ (1) (330)
Accounts payable.................................................... (1,761) 10,911
Accrued interest.................................................... (1,568) 404
Liability to Trivest................................................ 7,437 420
Other accrued liabilities........................................... 2,209 (4,056)
Deferred income taxes............................................... - (233)
-------- ---------
Net cash provided by (used in) operating activities................. 4,465 (6,075)
Investing activities:
Capital expenditures.................................................. (225) (386)
Cash proceeds from sale of property, plant and equipment, net......... - 931
-------- ---------
Net cash (used in) provided by investing activities................. (225) 545
Financing activities:
Net borrowings under revolving credit agreements...................... 1,632 3,875
Payments on long-term debt............................................ (3,492) (1,875)
Advance from Trivest.................................................. 3,492 -
Financing fees........................................................ (939) -
-------- ---------
Net cash provided by financing activities 693 2,000
Net increase (decrease) in cash and cash equivalents..................... 4,933 (3,530)
Cash and cash equivalents at beginning of period......................... 1,910 7,927
-------- ---------
Cash and cash equivalents at end of period............................... $ 6,843 $ 4,397
======== =========
Supplemental disclosures:
Cash paid for interest................................................ $9,776 $7,667
Cash (refunded)/paid for income taxes................................. (232) 3,962
The accompanying notes are an integral part of these financial statements.
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1 - Business and Organization
Business
Brown Jordan International, Inc. ("BJI" or the "Company") 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
Basis of Presentation
The accompanying unaudited consolidated financial statements of Brown
Jordan International, Inc. and subsidiaries are for interim periods and do not
include all disclosures provided in the annual consolidated financial
statements. These unaudited consolidated financial statements should be read in
conjunction with the annual consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, as filed with the Securities and Exchange Commission.
All material intercompany balances and transactions have been eliminated.
The preparation of the consolidated financial statements requires the use of
estimates in the amounts reported. Actual results may differ from those
estimates.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the results for the interim
periods. The results of operations are presented for the Company's first
quarter, which is from January 1, 2004 through March 26, 2004. The results of
operations for this period are not necessarily indicative of the results to be
expected for the full year.
Reclassification
Certain prior period balances have been reclassified to conform to current
period presentation.
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
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 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 companies
that do not have publicly traded equity.
Pro forma impact on the Company's results is as follows:
(Unaudited)
Three Months Ended
March 26, March 28,
(In thousands) 2004 2003
---- ----
Net loss as reported..................................................... $(5,820) $(2,796)
Pro forma stock based compensation expense, net of tax................... - -
-------- ---------
Pro forma net loss....................................................... $(5,820) $(2,796)
======== ========
Expected dividend yield.................................................. zero zero
Expected stock price volatility.......................................... zero zero
Risk-free interest rate.................................................. 3.77% 5.00%
Expected life of options in years........................................ 8 9
New Accounting Standards
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. The Company completed its evaluation of the effect that
adopting FIN 46 will have on its financial position, results of operations and
cash flows.
Income Taxes
The Company accounts for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards ("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
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 2 - Summary of Significant Accounting Policies - (continued)
Income Taxes - (continued)
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 effective tax rate for the quarters ended March 26, 2004 and March 28,
2003 was 37.2% for both periods. Due to the tax losses recognized by the Company
in recent years, a valuation allowance was recorded related to the additional
net operating losses generated in the first quarter of 2004.
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 and will be included in
the consolidated federal income tax return and certain consolidated state income
tax returns for the year ended December 31, 2003.
Note 3 - Inventories
Inventories consisted of the following:
(Unaudited)
March 26, December 31,
(In thousands) 2004 2003
---- ----
Raw materials................................. $24,709 $23,867
Work in process............................... 2,252 2,234
Finished goods................................ 12,444 11,147
------ ------
$39,405 $37,248
======= =======
Note 4 - 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 Company has determined that its investment in the joint venture does
not meet the criteria set forth in FIN 46 such that consolidation of the results
of operations and assets and liabilities of the joint venture with the Company's
results would be required, accordingly, the joint venture is accounted for using
the equity method of accounting. The carrying value of the investment in the
joint venture was $0 as of March 26, 2004 and December 31, 2003. BJI's share of
the joint venture losses and an investment in the joint venture are not recorded
in the accompanying Consolidated Financial Statements as BJI has not made an
investment in the joint venture and is not required to provide funding.
Note 5 - Long-Term Debt
Senior Credit Facility
As of December 31,2003 and continuing through March 26, 2004, 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
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 5 - Long-Term Debt - (continued)
entered into a forbearance agreement with its lenders under the senior
credit facility that, as amended, (the "Amended Facility") provided for a
forbearance period through March 31, 2004 under which the senior lenders would
not exercise certain rights and remedies that could result from the Company's
default. During the forbearance period, the Company arranged financing with new
lenders and repaid the senior credit facility in full. See Note 12.
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 $34.9 million was repaid as of March 26, 2004). 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 March 26,
2004, the term loan was priced at a rate of 10.0% and the revolving line of
credit was priced at a rate of 9.5%.
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 March 26, 2004, 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 March 26, 2004 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 12.
Under a Guaranty between the senior bank group and Trivest, Trivest agreed
to advance to the Company up to $13.4 million in respect of the Company's
obligations in 2003 to pay interest on the Company's subordinated indebtedness.
A Reimbursement Agreement obligated the Company to reimburse Trivest for any
funds paid by Trivest pursuant to the Guaranty. As of December 31, 2003, 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 7.
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
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 5 - Long-Term Debt - (continued)
on the notes was $3.9 million and is being amortized to interest 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.
Since August 15, 2003, the Company has had the right to 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 when due in
February 2004. The Company subsequently made the interest payment within the
cure period specified in the Notes.
In March 2004, the Indenture was amended to, among other things, 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.
Note 6 - 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 March 26, 2004 and March 28, 2003, the fair value of the swap was
recorded as a liability of $3.1 million and $6.1 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 a reduction in interest expense of $0.1 million during the
three month period ended March 26, 2004 and an increase in interest expense of
$0.2 million in the three month period ended March 28, 2003. The balance of
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 6 - Interest Rate Swap - (continued)
the change in fair value of $0.5 million during the three month period ended
March 26, 2004 is recorded in other comprehensive loss, net of tax.
From the period of January 1, 2004 through March 26, 2004, the 3-month
LIBOR interest rate declined approximately 25 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 2004 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 (including accrued interest of $0.9 million)
and $1.4 million, net of deferred taxes of $0.9 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 12).
Note 7 - 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. The
Investment Services Agreement, as amended from time to time, provides for an
annual base compensation of $750,000, which is to be adjusted annually for
increases in the Consumer Price Index. For the year ended December 31, 2003, the
annual compensation was $770,000. For the quarters ended March 26, 2004 and
March 28, 2003, the amount expensed was $192,500, and $222,400, respectively.
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 March 26, 2004, the
Company had a liability of $0.5 million 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 of $3.5 million to the Company's lenders under
the Amended Facility on the Company's behalf. In the second quarter of 2004, the
Company: (i) repaid Trivest for the advance of the $3.5 million interest
payment, plus a guarantee fee and interest of $0.4 million, (ii) paid management
fees accrued as of December 31, 2003, as referred to above, as well as fees
earned and accrued through March 31, 2004 ($0.5 million in total) and (iii) paid
a fee of $0.8 million in connection with the Company's new financing
arrangements, all out of the proceeds from the new financing. As of March 26,
2004, the amount due to Trivest of $11.3 million is reflected as a current
liability in the accompanying unaudited consolidated balance sheet. See Notes 5
and 12 to the Consolidated Financial Statements for additional discussion.
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 8 - Employee Benefit Plan
In December 2003, the FASB issued revised SFAS No. 132 (revised 2003),
"Employers' Disclosure about Pensions and Other Postretirement Benefits," which
requires the components of net periodic pension cost to be disclosed on an
interim basis as follows:
(Unaudited)
Three Months Ended
March 26, March 28,
(In thousands) 2004 2003
---- ----
Components of net periodic benefit cost:
Service cost ......................................................... $ 29 $ 18
Interest cost......................................................... 26 23
Expected return on plan assets........................................ (25) (20)
Recognized net actuarial loss......................................... 4 1
Net amortization and deferral of prior service cost................... 5 5
------ -------
Net periodic pension cost $ 39 $ 27
====== =======
Note 9 - Operating Segments
The Company has two segments organized and managed based on the market
channel into which the Company's products are sold.
The Company evaluates performance and allocates resources based on gross
profit. The accounting policies for each segment are consistent with those set
forth in the Company's Annual Report on Form 10-K for the year ended December
31, 2003.
There are no intersegment sales or transfers. The Company has no
significant export revenues. Shared assets include assets that relate to both
the Retail and Contract segments.
(In thousands) Retail Contract Shared Consolidated
------ -------- ------ ------------
Three Months Ended March 26, 2004 (Unaudited)
Net sales........................................... $ 78,966 $ 24,528 $ - $103,494
Gross profit........................................ 10,729 7,077 - 17,806
Depreciation and amortization....................... 821 272 593 1,686
Expenditures for long lived assets.................. 4 22 199 225
Segment assets...................................... 158,267 49,843 101,048 309,158
Three Months Ended March 28, 2003 (Unaudited)
Net sales........................................... $ 79,591 $ 23,511 $ - $103,102
Gross profit........................................ 12,647 6,455 - 19,102
Depreciation and amortization....................... 740 285 597 1,622
Expenditures for long lived assets.................. 16 90 280 386
Segment assets...................................... 169,676 52,142 87,051 308,869
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 10 - Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
March 26, March 28,
(In thousands) 2004 2003
---- ----
Net loss................................................................. $(5,820) $(2,796)
Change in fair value of interest rate swap, net of taxes................. 221 277
------- --------
Comprehensive loss....................................................... $(5,599) $(2,519)
======== ========
Note 11- Commitments and Contingencies
Warranty Costs
The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in product quality
programs and processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company's warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in
correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from the Company's estimates, revisions
to the estimated warranty liability would be required. The Company accrues for
warranties based on historical experience and sales. Changes in the product
warranty accrual for the quarter ended March 26, 2004 are summarized below:
Product
Warranty
(In thousands) Cost
----
Balance at December 31, 2003........................... $ 2,065
Accrual for warranties issued ......................... 1,574
Settlements made (in cash or in kind).................. (886)
---------
Balance at March 26, 2004 $ 2,753
=========
Note 12 - Subsequent Events
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 (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 termination
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
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 12 - Subsequent Event
New Financing Arrangements - (continued)
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 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 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 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.
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 12 - Subsequent Event
New Financing Arrangements - (continued)
The Senior Notes are guaranteed by all of the Company's domestic
subsidiaries (the "Guarantors"). The Guarantors have fully, unconditionally,
jointly and severally guaranteed the Company's obligations under the notes. The
Company's subsidiaries other than the Guarantors are minor within the meaning of
Rule 3-10(h)(6) of Regulation S-X of the Securities and Exchange Commission, and
the Company has no independent assets or operations within the meaning of Rule
3-10(h)(5) of Regulation S-X. 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), to 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,
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 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 $5 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.
Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 12 - Subsequent Event (continued)
Consolidation of Manufacturing Operations
In May 2004, the Company announced its intention to close its manufacturing
facility located in Medley, Florida. The Medley facility manufactures furniture
products for both the Retail and Contract operating segments. The Company plans
to move the Medley facility's operations to other Company plants located in
Haleyville, Alabama and Juarez, Mexico. The transition of the manufacturing
operations is expected to be completed by the end of September 2004. This
initiative will result in the elimination of approximately 136 positions during
2004. As a result of this initiative, the Company expects to incur costs
associated with severance and other employee related costs, inventory related
reserves and freight costs associated with relocating inventory in the range of
approximately $0.7 million to $1.0 million. The Company is in the process of
evaluating the ultimate disposition of the operating lease for the building as
well as the fixed assets at the Medley facility. The carrying value of the fixed
assets as of March 26, 2004 approximates $1.6 million. The Company expects to
record charges associated with this initiative during the second and third
quarters of 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
We are a premier designer, manufacturer and marketer of fine luxury retail
and contract furnishings. Our 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. We sell our furniture products in
the retail market to both national and specialty accounts and in the contract
market to commercial and institutional users. Our retail product offerings
include chairs, chaise lounges, tables, umbrellas, cushions and related
accessories, which are generally constructed from aluminum, steel, wood or
fiberglass. Our 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,
our contract line includes a variety of tables, chairs, benches and swings for
the site amenity market. All of our furniture products, excluding Wabash Valley
and Southern Wood Products, are manufactured pursuant to customer orders.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross profit as
a percent of net sales for the three months ended March 26, 2004 and March 28,
2003 for each of our market channels (in thousands, except for percentages):
(Unaudited)
Three Months Ended
March 26, 2004 March 28, 2003
-------------------------------------------- -------------------------------------------
Net Gross Gross Net Gross Gross
Sales Profit Profit % Sales Profit Profit %
-------- -------- -------- -------- -------- --------
Retail $ 78,966 $10,729 13.6% $79,591 $12,647 15.9%
Contract 24,528 7,077 28.9% 23,511 6,455 27.5%
--------- -------- -------- --------
Total $103,494 $17,806 17.2% $103,102 $19,102 18.5%
======== ======= ======== =======
See Note 9 to Consolidated Financial Statements for more information
concerning our reporting segments.
The following table sets forth certain information relating to our
operations expressed as a percentage of net sales.
(Unaudited)
Three Months Ended
March 26, March 28,
2004 2003
-------- ---------
Gross profit............................................................. 17.2% 18.5%
Selling, general and administrative expense.............................. 13.0% 13.3%
Amortization............................................................. 0.8% 0.7%
Operating income......................................................... 3.4% 4.6%
Interest expense......................................................... 9.0% 8.8%
Income tax benefit....................................................... (0.0%) (1.4%)
Net loss................................................................. (5.6%) (2.7%)
COMPARISON OF THREE MONTHS ENDED MARCH 26, 2004 AND MARCH 28, 2003
Net Sales. Consolidated net sales of $103.5 million in the first quarter of
2004 were consistent with net sales for the same period in 2003. Net sales in
the Retail channel were down slightly in the first quarter of 2004 as compared
to the same period in the prior year, while net sales in the contract channel
increased $1.0 million or 4.3% as compared to the first quarter of 2003. Within
the Retail channel, shipments to specialty stores increased 38% in the first
quarter of 2004 compared to the first quarter of 2003, largely due to the
reduced sales levels in the first quarter of 2003, as a result of our customers'
reduction of inventory levels and lower demand due to general economic weakness.
Additionally, sales in the first quarter of 2004 were favorably impacted by our
expanded product offerings, including cast, woven and wrought iron product, a
rejuvenated Winston brand and the introduction of the Tommy Bahama brand. These
increases were offset by lower national account sales in the first quarter of
2004 as compared to the first quarter of 2003, largely due to pricing pressures
and as a result of our primary customer reducing inventory levels. Contract
sales for the first quarter of 2004 increased over the first quarter of 2003 as
a result of higher order levels, primarily attributable to the overall
improvement in the economy.
Gross Profit. Gross profit in the first quarter of 2004 of $17.8 million
represents a decrease of $1.3 million or 6.8% as compared to gross profit of
$19.1 million in the first quarter of 2003. The overall decrease in gross profit
in the first quarter of 2004 was primarily attributable to the Retail channel.
Gross profit in the Retail channel declined in the first quarter of 2004 as
compared to the same quarter in the prior year as a result of (i) pricing
pressures in the national accounts portion of the business, (ii) an unfavorable
product mix within this portion of the business, and (iii) higher returns and
allowances for sourced product. The decline in gross margin within national
accounts was partially offset by improved margins in the specialty retail
business and in the contract market.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the first quarter of 2004 were $13.5
million, representing a $0.1 million, or 1.3% decrease compared to SG&A expenses
during the first quarter of 2003. SG&A spending decreased primarily due to (i)
lower employee related costs in the 2004 period as a result of headcount
reductions that occurred late in the first quarter of 2003 and (ii) lower levels
of spending during the 2004 period for legal and professional services. These
decreases in the 2004 quarter as compared to the same period in the prior year
were substantially offset by higher levels of commissions as a result of the
higher levels of specialty retail and contract sales and higher levels of
advertising.
Amortization. Amortization expense of $0.8 million in the first quarter of
2004 relating to the amortization of certain intangible assets was consistent
with the same period for the prior year.
Operating Income. As a result of the above, operating income decreased from
$4.8 million in the first quarter of 2003 (4.6% of net sales) to $3.5 million
(3.4% of net sales) in the same period of 2004.
Interest Expense. Interest expense increased $0.4 million in the first
quarter of 2004 to $9.4 million from $9.0 million in the same period of 2003.
The higher level of interest expense in the 2004 period is primarily due to an
increase in amortization of deferred financing fees, higher interest rates and a
larger credit spread in the first quarter of 2004 as compared to the same
quarter in 2003. The increase from deferred financing fees and the larger credit
spread resulted from the March 2003 amendment to our existing senior credit
facility. These increases to interest expense are partially offset by a decrease
in the ineffective portion of the interest rate swap in the first quarter of
2004 as compared to the same quarter in 2003.
Benefit for Income Taxes. There are no income taxes reflected for the first
quarter of 2004 as we have recorded a full valuation allowance to offset the
income tax benefit that resulted from the net loss in the first quarter of 2004.
Exclusive of the valuation allowance, the effective tax rate was consistent for
both periods presented.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 us) 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. We do not have any SPEs. We have
completed our evaluation of the effect of adopting FIN 46 and we have concluded
that there is no impact on our financial position, results of operations and
cash flows.
LIQUIDITY AND CAPITAL RESOURCES
New Financing Arrangements
As of December 31, 2003 and continuing through March 26, 2004, we were not
in compliance with certain provisions of its senior credit facility, including
certain financial covenants in that agreement. These violations constituted
events of default. On January 9, 2004, we entered into a forbearance agreement
with our lenders under the senior credit facility that, as amended, provided for
a forbearance period through March 31, 2004. During the forbearance period, we
arranged financing with new lenders and repaid the senior credit facility in
full. The terms of the new financing arrangements are summarized below.
We 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 (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 our 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 termination
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. In addition, approximately $7 million of availability
was used for letters of credit, largely related to our insurance programs and
collateralization of an industrial development obligation. 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, the settlement of the
interest rate swap of $4.3 million and the write-off of $1.4 million, net of
deferred taxes of $0.9 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 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 our election, the applicable
London Interbank Offering Rate ("LIBOR") plus 2.25% per year (the "Eurodollar
Rate"). We also pay 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 our 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 we terminate it earlier. We
must pay a $0.9 million termination fee if we elect 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, we 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 our 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 our and our
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 we must maintain a
minimum of $5.0 million available borrowing capacity at all times, and provided
that we maintain 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, we are 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 our 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. We 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 our accounts receivable, inventory, fixed assets
and intangible assets and a first priority lien on our capital stock as well as
that of all of our domestic subsidiaries. The Senior Notes are guaranteed by all
of our domestic subsidiaries (the "Guarantors"). The Guarantors have fully,
unconditionally, jointly and severally guaranteed the obligations under the
notes. Our subsidiaries other than the Guarantors are minor within the meaning
of Rule 3-10(h)(6) of Regulation S-X of the Securities and Exchange Commission,
and we have no independent assets or operations within the meaning of Rule
3-10(h)(5) of Regulation S-X. Holdings' pledge of our stock is non-recourse to
Holdings. As of March 31, 2004, the interest rate on the outstanding balance was
10.11%.
We may redeem, at our 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, we may, at our option, elect on one
occasion occurring on or prior to the 60 days following the completion of our
audit for the year ended December 31, 2004 (but in any event, no later than June
30, 2005), to 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 our 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 our activities and the activities of our
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 our 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 our
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 our
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 us, and upon such
notice, such principal amount and any accrued and unpaid interest shall be
immediately due and payable.
We paid approximately $5 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.
Cash Flows from Operating Activities. During the first quarter of 2004,
cash provided from operating activities was $4.5 million, compared to $6.1
million of cash used in operations for the same period of 2003. Cash provided
from operating activities in the first quarter of 2004 is primarily attributable
to the increase in the "Liability to Trivest," as discussed in the "Related
Party Transactions" section of this Item 2. During the first quarter of 2004, a
lower amount of cash was required for working capital purposes as compared to
the same period in 2003. Cash provided from accounts receivable during the first
quarter of 2004 was largely attributable to the lower level of national account
sales, as well as the timing of national account shipments, partially offset by
increased specialty retail accounts receivable driven by the higher level of
sales and the "early-buy" program, which provides customers with extended terms
for placing pre-season orders. The increase in cash used for interest is due to
the timing of payments versus the prior year quarter. In the first quarter of
2003, the increase in accounts receivable was predominantly driven by increased
volume in our "early-buy" program in the specialty retail business and the
timing of shipments to national accounts program. The increase in accounts
payable and the decrease in accrued expenses in the first quarter of 2003 are
primarily due to the timing of payments, partially offset by a refund for income
taxes.
Cash Flows from Investing Activities. During the first quarter of 2004
investing activities consisted of capital expenditures of $0.2 million. During
the first quarter of 2003, we spent $0.4 million on capital expenditures and
sold several non-core assets, which generated proceeds of $0.9 million,
resulting in $0.5 million generated by investing activities. Capital spending in
the first quarters of 2004 and 2003 was primarily for replacement machinery and
equipment.
Cash Flows from Financing Activities. Net cash provided by financing
activities during the first quarter of 2004 was $0.7 million compared to net
cash provided by financing activities of $2.0 million for the same period of
2003. During the first quarter of 2004, we made a scheduled term loan principal
payment of $3.5 million, the funding of which was provided by Trivest and had
net borrowings under the revolving line of credit of $1.6 million. In addition,
in the first quarter of 2004, we paid $0.9 million of fees associated with the
new financing arrangements. During the first quarter of 2003 we made scheduled
term loan principal payments of $1.9 million and had net borrowings of $3.9
million against the revolving line of credit, resulting in cash flow from
financing activities of $2.0 million.
During the first quarter of 2004, the senior credit facility consisted of a
$165.0 million term loan of which $133.6 million was outstanding on January 1,
2004. During 2004, principal payments totaling $3.5 million were made against
the term loan leaving an outstanding balance on the loan of $130.1 million as of
March 26, 2004. During 2004, the senior credit also included a $50.0 million
revolving credit facility of which $42.5 million was borrowed and $6.7 million
was allocated to existing letters of credit outstanding at March 26, 2004. The
senior credit facility was terminated on March 31, 2004 in connection with our
entering into new financings, as discussed above.
We believe 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. Our short-term cash needs are primarily
for debt service and working capital requirements. We have historically financed
our 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 our products. A
decrease in demand for our products would impact the availability of these
internally generated funds. We anticipate 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, approximately $0.2 million of which was expended during the three
months ended March 26, 2004.
RELATED PARTY TRANSACTIONS
In December 1994, we entered into a ten-year agreement (the "Investment
Services Agreement") with Trivest. Pursuant to the Investment Services
Agreement, Trivest provides corporate finance, financial relations, strategic
and capital planning and other management advice to us. The Investment Services
Agreement, as amended from time to time, provides for an annual base
compensation of $750,000, which is to be adjusted annually for increases in the
Consumer Price Index. For the year ended December 31, 2003, the annual
compensation was $770,000. For the quarters ended March 26, 2004 and March 28,
2003, the amount expensed was $192,500, and $222,400, respectively. Pursuant to
the Second Amendment to the Senior Credit Facility, we will continue to expense
the management fee, but we are restricted to paying only $350,000 during the
period of the Second Amendment. As of March 26, 2004, we had a liability of $0.5
million to Trivest as a result of this restriction on paying management fees.
On March 31, 2004, in connection with our 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 our
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 our former
senior credit facility, Trivest provided us 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 of
$3.5 million to our lenders under the Amended Facility on our behalf. In the
second quarter of 2004, we: (i) repaid Trivest for the $3.5 million advance of
the interest payment, plus a guarantee fee and interest of $0.4 million, (ii)
paid management fees accrued as of December 31, 2003, as referred to above, as
well as fees earned and accrued through March 31, 2004 ($0.5 million in total)
and (iii) paid a fee of $0.8 million in connection with our new financing
arrangements, all out of the proceeds from the new financing. As of March 26,
2004, the amount due to Trivest of $11.3 million is reflected as a current
liability in the accompanying unaudited consolidated balance sheet.
See Notes 5 and 12 to the Consolidated Financial Statements for additional
discussion.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
We purchase some raw materials from several Italian suppliers. In addition,
we fund some expenses for our Juarez, Mexico manufacturing facility. These
transactions expose us to the effects of fluctuations in the value of the U.S.
dollar versus the Euro and Mexican Peso. If the U.S. dollar declines in value
versus these foreign currencies, we will pay more in U.S. dollars for these
transactions. To reduce our exposure to loss from such potential foreign
exchange fluctuations, we will occasionally enter into foreign exchange forward
contracts. These contracts allow us to buy Euros and Mexican Pesos at a
predetermined exchange rate and thereby transfer the risk of subsequent exchange
rate fluctuations to a third party. During the quarter ended March 26, 2004 we
did not enter into foreign exchange forward contracts and there were no
contracts outstanding at March 26, 2004. We do not speculate in foreign
currency.
Inflation has not had a significant impact on us in the past three years,
and management does not expect inflation to have a significant impact in the
foreseeable future.
CRITICAL ACCOUNTING POLICIES
General
Management's discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on going basis, we evaluate our estimates, including those
related to customer programs and incentives, product returns, bad debts,
inventories, intangible assets, income taxes, warranty obligations, pensions and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
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 filing. 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 Senior Subordinated 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.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this filing. Additionally, we do not undertake any
responsibility to 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," under
the heading "Foreign Exchange Fluctuations and Effects of Inflation."
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this Quarterly Report in accumulating and
communicating to our management, including our Chief Executive Officer and Chief
Financial Officer, material information required to be included in the reports
we file or submit under the Securities Exchange Act of 1934 as appropriate to
allow timely decisions regarding required disclosure.
Based on an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, there has been no change in our internal control over financial
reporting during our last fiscal quarter, identified in connection with that
evaluation, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
In March 2004, the senior subordinated notes indenture was amended to,
among other things, 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 our inventory, plus 85% of
our accounts receivable to an aggregate amount not to exceed $195.0 million, or
the sum of $125 million, plus 60% of our, plus 85% of our accounts receivable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 17, 2004, we obtained the consent from holders of approximately
74% of our outstanding senior subordinated notes to amend the senior
subordinated indenture, as discussed in Item 2. of Part II.
ITEM 5. OTHER INFORMATION
On January 30, 2004, we announced that John W. Frederick joined the
Company as Executive Vice President and Chief Administrative Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.1 Employment Agreement dated January 28, 2004 between the
Registrant and John W. Frederick.
10.2 First Amendment to Loan and Security Agreement entered into by
and among Brown Jordan International, Inc., the subsidiary
guarantors and the Lenders and GMAC Commercial Finance LLC, as
Agent for the Lenders, dated as of May 10, 2004.
31.1 Rule 13a-14(a) /15d-14(a) Certification of Principal
Executive Officer
31.2 Rule 13a-14(a) /15d-14(a) Certification of Principal
Financial Officer
32.1 Section 1350 Certification of Principal Executive Officer
32.2 Section 1350 Certification of Principal Financial Officer
(a) A Form 8-K was filed on January 16, 2004 announcing that the Company
had entered into a forbearance agreement with its senior bank group
with respect to the Company's compliance with certain covenants.
A Form 8-K was filed on February 17, 2004 announcing that the Company
had extended the previously announced forbearance agreement with its
senior bank group with respect to the Company's compliance with certain
covenants through March 16, 2004.
A Form 8-K was filed on March 18, 2004 announcing that the Company had
obtained the requisite consent of the holders of senior subordinated
notes to amend the senior subordinated indenture, enabling the Company
to pay to note holders the unpaid interest payment previously due
February 17, 2004. The Company also announced that it had reached an
agreement in principle with its senior bank group to obtain an
extension of the existing forbearance agreement. Additionally, the
Company announced that it had entered into a proposal letter agreement
with a financial institution for a revolving line of credit and had
received a commitment letter from an investment firm of recognized
standing for a term loan.
A Form 8-K was filed on April 8, 2004 announcing that the Company
completed two financing transactions, which, in the aggregate, provide
the Company with $225 million of new financing.
SIGNATURE
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: June 1, 2004 By: /s/Bruce R. Albertson
Bruce R. Albertson
President and Chief Executive Officer
Date: June 1, 2004 By: /s/Vincent A. Tortorici
Vincent A. Tortorici
Chief Financial Officer
EXHIBIT 31.1
CERTIFICATION
I, Bruce R. Albertson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Brown Jordan
International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) 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: June 1, 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 quarterly report on Form 10- Q of Brown Jordan
International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) 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: June 1, 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 Quarterly Report on Form 10-Q of Brown Jordan
International, Inc. (the "Company") for the period ended March 26, 2004 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: June 1, 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 Quarterly Report on Form 10-Q of Brown Jordan
International, Inc. (the "Company") for the period ended March 26, 2004 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: June 1, 2004 By: /s/Vincent A. Tortorici
Vincent A. Tortorici
Chief Financial Officer