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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended December 31, 2002
[] TRANSACTION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25246
BROWN JORDAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Florida 63-1127982
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1801 NORTH ANDREWS AVENUE, POMPANO BEACH, FLORIDA 33069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(954) 960-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer as defined
in Exchange Act Rule 12b-2). Yes___ No_X_
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of March 31, 2003 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 a requirement under that
certain Indenture related to the 12 3/4% Senior Subordinated Notes due 2007, as
amended.
INDEX TO ITEMS
Page
PART I
ITEM 1. Business 3
ITEM 2. Properties 18
ITEM 3. Legal Proceedings 20
ITEM 4. Submission of Matters to a Vote of Security
Holders 20
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 20
ITEM 6. Selected Financial Data 21
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 36
ITEM 8. Financial Statements and Supplementary Data 37
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 66
PART III
ITEM 10. Directors and Executive Officers of the
Registrant 67
ITEM 11. Executive Compensation 70
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 75
ITEM 13. Certain Relationships and Related Transactions 76
PART IV
ITEM 14. Controls and Procedures 79
ITEM 15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 79
Signatures 85
PART I
ITEM 1. BUSINESS
Prior to the 2001 acquisition of the entity formerly known as Brown Jordan
International, Inc. ("Former Brown Jordan"), WinsLoew Furniture, Inc.
("WinsLoew") completed a recapitalization transaction wherein, WinsLoew became a
wholly-owned subsidiary of a new holding company called WLFI Holdings, Inc.
("Holdings"), a Florida corporation.
In order to accomplish the recapitalization, Holdings was initially formed
as WinsLoew's wholly-owned subsidiary. In addition to Holdings, WinsLoew formed
another company called WLFI Merger, Inc., a Florida corporation, as a
wholly-owned subsidiary of Holdings. Then, immediately prior to the consummation
of Former Brown Jordan acquisition, WinsLoew merged with WLFI Merger, Inc. and
was the surviving corporation of the merger.
As a result of these transactions and as described below, WinsLoew became a
wholly-owned subsidiary of the new holding company, Holdings. All shares of
WinsLoew common stock that were outstanding immediately prior to the merger
(850,497 shares) were converted into shares of common stock of Holdings. In
addition, each warrant or option to purchase shares of WinsLoew's common stock
was converted into a warrant or option to purchase an equivalent number of
shares of common stock of Holdings. 1,000 shares of WinsLoew's common stock was
then issued to WLFI Holdings, Inc. Finally, by operation of the merger, the
separate corporate existence of WLFI Merger ended.
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 WinsLoew's assets
or liabilities.
On April 23, 2002, the Board of Directors voted to change the name of
WinsLoew to Brown Jordan International, Inc. ("BJI or the "Company"). This name
change acknowledges that Brown Jordan is one of the most recognized names in the
industry and expresses the Company's commitment to build upon that image and
fine reputation which Brown Jordan has earned as the preeminent brand in luxury
leisure furniture.
GENERAL
BJI is one of the premier designer, manufacturer and marketer of fine
luxury retail and contract furnishings. Our brand names include Brown Jordan,
Pompeii, Winston, Vineyard, Atlantis, Stuart Clark, Casual Living, Tradewinds,
Loewenstein, Charter, Lodging by Charter, Woodsmiths, Wabash Valley, Texacraft,
and Tropic Craft. Our retail product offerings includes chairs, chaise lounges,
tables, umbrellas, cushions and related accessories, which are generally
constructed from aluminum, wood or fiberglass. Our contract products include
those same type 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, are manufactured pursuant to
customer orders. We sell our furniture products in the retail market to both
specialty and national accounts and in the contract market to commercial and
institutional users.
Business
We market our products focusing on a retail distribution channel and a
contract distribution channel. In the retail channel, we service specialty
stores, traditional furniture stores and national accounts. The specialty
furniture products are distributed under the Brown Jordan, Winston, Pompeii,
Vineyard, Atlantis, Stuart Clark, Casual Living and Tradewinds brand names
through independent sales representatives and to customers, which are primarily
specialty patio furniture stores and traditional furniture stores located
throughout the United States. In addition, we market our casual products to
national accounts under the Casual Living and Samsonite brand names.
In the contract channel our offerings include the Brown Jordan, Pompeii
Texacraft, and Tropic Craft brand names, primarily through our in-house sales
force, to lodging and restaurant chains, country clubs, apartment developers and
property management firms, architectural design firms, municipalities and other
commercial and institutional users. In addition, we market a variety of products
under the Wabash brand name. These products are targeted at educational
facilities, municipality and recreation centers, hotels and motels and other
institutional and corporate users.
Also within the contract channel we market our seating products to a broad
customer base in the contract and hospitality market under the Loewenstein,
Lodging by Charter and Charter brand names through regional independent sales
organizations. Our customers include lodging and restaurant chains,
architectural design firms, professional sports complexes, schools, healthcare
facilities, office furniture dealers, retail store planners and other commercial
and institutional users in the contract and hospitality market. We manufacture
over 300 distinct models of seating products ranging from traditional to
contemporary styles of chairs, as well as reception area love seats, sofas and
stools. We design, assemble and finish our seating products with component parts
from a variety of suppliers, including a number of Italian and Chinese
manufacturers.
Over the past several years, we have undertaken a number of initiatives to
strengthen and grow our core furniture businesses. We have focused resources on
our core business and disposed of non-core or unprofitable operations. In 1997,
we sold our wrought iron furniture business, and in 1998 we discontinued and
sold or liquidated certain of our ready-to-assemble furniture operations. We
also embarked on a focused acquisition program to broaden our core product
offering in both the retail and contract channels that, to date, has resulted in
the acquisitions of Tropic Craft, a manufacturer of casual furniture sold into
the contract markets; Pompeii, a manufacturer of upper-end casual furniture sold
into both the retail and contract markets; Brown Jordan, a manufacturer whose
products serve the premium to unlimited market categories in both retail and
contract markets and Casual Living Worldwide who markets to national retailers
and specialty patio stores under a variety of brand names in the moderate to
lower price points; and Wabash Valley, a manufacturer of site amenities products
in the institutional and corporate markets. Our balanced approach to growth has
also resulted in acquisitions to complement our seating segment. These
acquisitions included Stuart Clark and Charter during 2000, both of which
manufacture upholstered furniture for the hospitality industry. In addition, the
Company purchased The Woodsmiths Company in March 2001. Woodsmiths is a
manufacturer of custom tabletops for the contract and hospitality markets.
We were incorporated in the state of Florida on September 23, 1994. Our
principal executive offices are located at 1801 North Andrews Avenue, Pompano
Beach, Florida, and our telephone number is (954) 960-1100.
History
We were formed in 1994 through the merger of Winston Furniture Company,
Inc., a designer, manufacturer and distributor of casual furniture for both the
residential and contract and hospitality markets, and Loewenstein Furniture
Group, Inc., a manufacturer of seating products for the contract and hospitality
markets and of ready-to-assemble furniture products, with and into WinsLoew
Furniture, Inc., a newly-formed corporation that was organized for the purpose
of the merger. Prior to that merger, Winston and Loewenstein were publicly held
corporations whose common stock traded on the NASDAQ National Market. From
December 1994 through August 1999, we were a publicly held corporation, and our
common stock traded on the NASDAQ National Market.
During the fourth quarter of 1995, we disposed of the assets of our office
seating business. During the third quarter of 1997, we disposed of certain
assets of our wrought iron furniture manufacturing business in the casual
furniture product line. During 1997, we adopted a plan to dispose of our three
ready-to-assemble furniture businesses and recorded a pretax non-cash charge
totaling $12.4 million in the fourth quarter of 1997 relating to the disposal of
our ready-to-assemble operations. During 1998, we sold one of the businesses,
completed the liquidation of a second, our futon business, and decided to retain
the third ready-to-assemble business, Southern Wood, due to improved
profitability and, accordingly, have reclassified our Southern Wood results to
continuing operations.
During the third quarter of 1998, we acquired the stock of Tropic Craft, a
manufacturer of aluminum casual outdoor furniture sold into contract markets.
In July 1999, we acquired all of the stock of Pompeii, a manufacturer of
upper-end aluminum casual furniture sold into the contract and residential
markets.
In March 2000, we acquired all of the stock of Wabash Valley Manufacturing,
a manufacturer of site amenity furniture sold into the institutional and
corporate markets.
On June 16, 2000 the Company purchased certain assets of Stuart Clark, Inc.
and its affiliates. Stuart Clark is a manufacturer of mid price point
upholstered furniture for the hospitality industry
On August 11, 2000 the Company purchased all of the stock of Charter
Furniture. Charter provides high quality upholstered furniture for rooms, suites
and common areas of premier hospitality companies.
On March 9, 2001 the Company purchased all of the outstanding stock of The
Woodsmiths Company. Woodsmiths, a manufacturer of custom tabletops for the
contract and hospitality industry, is located in Pompano Beach, Florida.
On May 8, 2001 WinsLoew Furniture, Inc. and its parent WLFI Holdings, Inc.
acquired all of the outstanding stock of Brown Jordan International, Inc. a
manufacturer whose products serve the premium to unlimited market categories in
both retail and contract markets and Casual Living Worldwide who markets to
national retailers and specialty patio stores under a variety of brand names in
the moderate to lower price points have rounded out our product offering in the
both retail and contract segments.
Recent Developments
In January of 2002, Bruce Albertson was named the Company's President and
Chief Executive Officer replacing Bobby Tesney. Mr. Albertson joined GE
Appliances in 1976 as a sales counselor, advancing over the course of the next
25 years to become, in succession, General Manager of Brand Management &
Distribution Strategy, President of GE Appliances in Hong Kong, and Vice
President for Global Marketing and Product Management in Louisville. Most
recently, Mr. Albertson was the President and CEO of Iomega Corporation, based
in Utah.
Mr. Albertson reorganized the Company's management to focus on the market
channels served by the Company's products, the retail and contract channels. He
functionally reorganized the support functions of operations, marketing,
information technology, human resources, finance, and purchasing and logistics.
On April 23, 2002, the Board of Directors voted to change the name of the
Company to Brown Jordan International, Inc. This name change acknowledges that
Brown Jordan is one of the most recognized names in the industry and expresses
the Company's commitment to build upon that image and fine reputation which
Brown Jordan has earned as the preeminent brand in luxury leisure furniture.
On December 20, 2002 we signed an agreement with Shian Industry [Hong Kong]
Company Limited, allowing them to develop a state-of-the-art manufacturing
facility in Jiaxing, China that will exclusively develop and produce BJI
products. This innovative manufacturing facility will utilize leading edge
technologies and the latest manufacturing processes and quality control
techniques to develop selected BJI furniture products. The facility will support
the manufacturing of furniture made in various materials, including extruded
aluminum, combination metals, and woven materials. Although the factory will be
solely owned by Shian Industry, BJI's management team will play an integral role
in developing the facility from its inception. The management teams of both
companies will work closely in its development, which began in January 2003.
We also executed a joint venture with Shian Industry [Hong Kong] Company
Limited to build a "Center of Excellence" in Shanghai, China, which will be a
state-of-the-art research, design, and showcase facility dedicated exclusively
to BJI products.
The Center of Excellence will be a facility that houses ground-breaking
research and creative design as well as a model showroom, displaying BJI's
latest in luxury furnishings. Furthermore, the Center of Excellence will be
dedicated to exploring and developing the latest global design trends and will
serve as a front arm in global sourcing. Designers will utilize cutting-edge
Computer Aided Design (CAD) technologies, allowing for a seamless transmission
of information to BJI's DesignResource in Long Beach, CA Pompano Beach, Fl and
Birmingham, AL. Its convenient location in Shanghai will also serve as a hosting
facility for BJI's international customers while they are traveling throughout
Asia.
Also in December 2002, BJI and Hanamint Corporation, the leading
manufacturer and designer of cast aluminum outdoor furniture, signed an
agreement giving BJI exclusive rights to distribute cast aluminum products from
Hanamint to the U.S. national account retail market. This line will be
distinctive from Hanamint's current offerings. Initiating a strategic alliance
with Hanamint allows us to now offer our customers the highest quality, cost
competitive product with the most attractive collections offered in the
industry.
Under the agreement BJI will exclusively brand and market Hanamint's cast
aluminum outdoor furniture to national account clients under BJI's brand names
and through private label programs. Hanamint will continue to manufacture its
own exclusive collections of cast aluminum products under the well-known
Hanamint brand name to the U.S. specialty retail channel. As part of the
agreement, the companies will combine expertise and resources in the areas of
product design and development for the new BJI cast collections to ensure an
innovative, aggressive product mix for BJI's premier brands distributed through
the specialty channel.
The alliance with BJI, combined with the popularity of the Hanamint branded
products, requires additional capacity for Hanamint. Accordingly, Hanamint is
building a new 600,000 sq. ft. manufacturing facility for cast aluminum products
in Jiaxing, China, in addition to its current facilities in Shanghai.
In addition in December 2002, BJI and Suzhou Industrial Park Gold Mantis
Furniture Design and Manufacture Co., Ltd, one of China's leading contract
furniture designers and manufacturers, signed an agreement giving BJI exclusive
rights to distribute Gold Mantis products to BJI's contract accounts in the U.S.
market under various brands owned by BJI.
Under the agreement BJI will exclusively brand and market Gold Mantis
contract furnishings to U.S. commercial, hospitality, retail, healthcare, and
restaurant industries. The companies will combine expertise and resources in the
areas of design and product development to ensure leading edge products to their
customers. Together with its sister company, Gold Mantis Construction Decoration
Co. Ltd, a leading full service interior and exterior design and construction
firm for upscale hotels, offices, retail and entertainment facilities, Gold
Mantis' design facility in Suzhou, China, which houses over 200 designers, will
work directly with BJI's DesignResource in Long Beach, CA, Pompano Beach, FL and
Birmingham, AL both utilizing the latest technologies in Computer Aided Design
(CAD).
This agreement further emphasizes BJI's ongoing commitment to our global
core competency in design. BJI is also committed to growing its Contract
Channel, and this strategic alliance will figure significantly in this
initiative.
COMPETITIVE STRENGTHS
We believe that we have achieved our leading market position by
capitalizing on the following key competitive strengths.
Reputation for Producing High Quality Products. Our reputation for
providing customers with high quality products is built upon our use of superior
structural designs, aesthetic styling, sophisticated manufacturing techniques
and strict quality control standards. Our dedication to quality begins with a
customer-oriented design process that is based upon the involvement of senior
management, independent designers, sales representatives, dealers, our
engineering department and suppliers. We also employ a number of sophisticated
manufacturing processes that increase the quality of our products and
differentiate them from those of our competitors. For example, we use an
electrostatically applied ultraviolet cured wood finishing system that produces
one of the most consistent, durable and vibrant finishes in the industry.
Further, to ensure that only the highest quality products are shipped to our
customers, we have established numerous checkpoints where the quality of all of
the products is examined during the manufacturing process. Our focus on quality
is evidenced by our low level of actual warranty claims. Our reputation for
producing high quality products is further evidenced by our receipt of the
Casual Furniture Retailer Association's prestigious "Manufacturer's Leadership
Award" four times, most recently for 2000, and being recognized as a finalist
every year since the award was first given in 1990. The criteria for this award
include quality, design, merchandising, customer service and ethics.
Unique Delivery Capabilities. We have tailored our operations to meet the
unique delivery requirements of our customers. On time delivery is critical to
our casual furniture retailers because of their short selling season, general
desire to minimize inventory levels and need to offer their customers products
that will be available at the time of or soon after their purchase. Our ability
to deliver "in time, on time" is also important to our contract market
customers, who must receive our casual furniture or seating products on a timely
basis to meet their own construction or operating deadlines. We believe that our
ability to deliver our products "in time, on time" are unique in the furniture
manufacturing industry and distinguish us from our competitors.
Continual Focus on Customer Service. We are dedicated to providing the
highest level of customer service through our focus on complete customer
satisfaction. We provide a variety of services, which are geared towards
assisting our customers to improve the profitability of their business while
strengthening their loyalty to our products. For example, in our casual
furniture segment, we provide retailers with improved terms and extended payment
plans for products ordered prior to the main selling season that ensures them
product availability and slightly lower costs.
Since our seating customers require unique product features, we work
closely with them to provide customized seating products that meet their
particular needs. We offer these customized products quickly and cost
effectively through our flexible manufacturing processes and trained sales staff
knowledgeable in the design, manufacture, variety and decor applications of our
products. We also have a customer service department at each manufacturing plant
to respond directly to customer inquiries.
Efficient Operations and Variable Cost Structure. We continually review our
operations to identify ways to streamline our manufacturing process and reduce
our costs in order to further increase efficiencies and profitability. Over the
past few years, we have:
improved our manufacturing capabilities through the use of technologically
advanced systems,
optimized our use of vertical integration and outsourcing, as appropriate,
exited non-core businesses, and
extensively reconfigured manufacturing processes within our principal
manufacturing facilities.
We operate our business with a highly variable cost structure so we can
react quickly to significant changes in market conditions. Our manufacturing and
other operations can be rapidly adjusted, as appropriate, to reduce labor, raw
materials, general administrative and other costs. These variable costs
represent the majority of our total operating expenses. Historically, our
variable cost structure, combined with our flexible manufacturing capabilities,
has allowed us to maintain our profit margins during periods of market weakness.
Experienced Management Team with Significant Ownership. Our experienced and
dedicated management team has been instrumental in our success and represents
one of our key competitive advantages. Bruce Albertson, our President and CEO,
brings extensive marketing, international and management expertise to our
organization. We also benefit from the experience and expertise of Trivest
Partners, L.P., a private investment firm specializing in acquisitions,
recapitalizations and other principal investing activities, which have been an
investor in BJI and its predecessors since 1985. Trivest provides strategic
consulting, acquisition and other advice to us. Earl Powell, president and chief
executive officer of Trivest, has served as Chairman of the Board of WinsLoew
and its predecessors for over 15 years.
BUSINESS STRATEGY
Our strategic objective is to further enhance our leading market position
in the residential and contract and hospitality furniture markets. We plan on
achieving this objective through the continued implementation of the following
strategies:
Increase Penetration of Existing Customers. We are constantly working on
ways to increase our sales to our existing customer base. We believe that we can
increase our penetration of existing customers by continuing to emphasize high
quality products, timely delivery and customer service together with
innovatively styled new product designs. For example, through these focused
efforts our specialty retail customers are dedicating increased retail floor
space to our casual furniture products, which generates increased sales for our
products. Similarly, we began selling seating products to a single Marriott
lodging chain in the early 1990's, and today, due to our consistently superior
performance, we are a preferred provider of seating products to Marriott and
several of its affiliated lodging chains.
Attract New Customers. We have undertaken a number of programs to expand
our customer base in existing and new markets. Examples of these efforts include
the use of specific market focused sales personnel, private labeling and the
targeting of national specialty stores. In our seating business, we are in the
process of establishing dedicated sales groups to focus on attractive specialty
end markets. We established our first such group to focus exclusively on selling
seating products in the lodging industry. Through our private labeling program,
we are seeking to take advantage of the trend towards outsourcing by selling our
seating products to several nationally recognized designers of office furniture
systems who in turn sell our products under their own brand name. In the
residential market, we are targeting national specialty stores that offer home
design products, including casual furniture. The penetration of these national
specialty retailers allows us to take advantage of new, expanding distribution
channels and capitalize on the significant marketing clout of these retailers
without significantly increasing our selling and marketing expenses or
cannibalizing our existing customer base.
Selectively Introduce New Products. We annually update and expand our
product line with new designs and styles, as well as periodically introduce
complementary products. Each year we undergo a design process that results in
the introduction of newly designed products that make up a meaningful portion of
our product offering. Our design process involves personnel from all areas of
the Company including senior management, manufacturing and sales, as well as our
distributors and sales representatives in an effort to design new furniture
styles that are attractive and innovative while cost effective to manufacture
and have a higher likelihood of success. We also periodically add new products
that complement our existing product offering. For example, we recently expanded
our product line to include tables for lobbies and other common areas in the
hospitality industry.
Selectively Pursue Complementary Acquisitions. We continually review
acquisition opportunities that augment or complement our existing operations or
provide entry into new geographic markets. We also seek to improve the
efficiency of our recent acquisitions by reducing overhead, leveraging sales and
distribution, achieving raw material purchasing savings and improving
manufacturing operations. Tropic Craft for example, which was acquired in 1998,
provided us with an increased presence in the contract market for casual
furniture. Pompeii, which we acquired on July 30, 1999, provides us with a
leading brand in the upper end of the casual furniture market and a significant
opportunity to achieve operating efficiencies. In addition, the acquisitions of
Wabash, Stuart Clark and Charter Furniture in 2000 have broadened our product
offering and placed us in a position to service all price points in the lodging
market. In 2001 we again complemented our contract and hospitality segment with
the acquisition of The Woodsmiths Company- a manufacturer of custom tabletops.
Finally, our most recent acquisitions of Brown Jordan, a manufacturer whose
products serve the premium to unlimited market categories in both retail and
contract markets and Casual Living Worldwide who markets to national retailers
and specialty patio stores under a variety of brand names in the moderate to
lower price points have rounded out our product offering in the both retail and
contract segments of the casual business.
PRODUCTS AND MARKETS
We design, manufacture and distribute to two channels: retail and contract.
Our products include casual furniture designed for residential, commercial and
institutional use; seating products designed for commercial and institutional
use; and ready-to-assemble furniture designed for household use. For the year
ending December 31, 2002, our retail channel and contract channel products
accounted for 69% and 31%, respectively, of our net sales. The following is a
summary of our principal products, customers and markets:
Brand Principal Products Principal Customers
and Markets
Winston Casual outdoor furniture, Specialty patio stores,
and including chairs, chaise full-line furniture
Brown lounges, tables, umbrellas retailers and department
Jordan and related accessories, stores in the residential
constructed of extruded market.
and tubular aluminum.
Texacraft Casual outdoor furniture, Lodging and restaurant
and including chairs, chaise chains, country clubs,
Tropic lounges, tables, umbrellas apartment developers and
Craft and related accessories, managers, architectural
constructed of aluminum, design firms, municipalities
wrought iron, wood and and other commercial and
fiberglass. institutional users in the
contract market.
Pompeii Casual indoor and outdoor Specialty patio stores, fine
furniture, including chairs, furniture stores, design
chaise lounges, tables, showrooms and residential
umbrellas and related, and designers in the residential
accessories constructed of market; and architectural
extruded tubular aluminum. design firms, commercial
design firms and specifiers
and purchasing agents in the
contract market.
Wabash Site amenity products Educational facilities,
including: tables, chairs, municipality and recreation
benches, swings and related centers, hotels, motels and other
accessories constructed of institutional and corporate users.
sheet steel or expanded steel
mesh that is coated with heat
fused plastisol.
Loewenstein Contemporary to traditional Lodging and restaurant chains,
seating products, such as architectural design firms,
wood, metal and upholstered sports facilities, schools,
chairs, sofas and loveseats. healthcare facilities, office
furniture dealers, retail store
planners and other commercial and
institutional users in the
contract and hospitality market.
Charter, Custom and semi-custom Hotel and other
Lodging By upholstered furnishings such hospitality markets.
Liberty, as, sofas, benches, chaises,
Stuart Clark chairs, lounge chairs and
ottomans.
PRODUCTS AND MARKETS-Continued
Brand Principal Products Principal Customers
and Markets
Southern Ready to assemble furniture National accounts and
Wood products, such as book shelves, catalog wholesalers.
Products entertainment centers, coffee
tables, end tables, computer
stations and wall units,
as well as case goods, such as
chest of drawers, changing towers
and hutches, all of which are
constructed of wood.
Samsonite Extruded and cast aluminum, Specialty patio
and The and wrought iron, steel, all- furnishings stores and
Vineyard weather wicker and wood department stores
Collection casual furnishings
Casual Living, Casual outdoor furniture, National accounts
And Samsonite including, chairs, chaise
lounges, tables, umbrellas
and related accessories
constructed of extruded and
tubular aluminum.
Woodsmiths Custom table tops, bases and Restaurants, hotels,
conference room furnishings country clubs, health
care facilites,
universities and
government agencies.
We market our casual furniture products, consisting principally of medium
to upper-end casual indoor and outdoor furniture, under the Winston, Texacraft,
Tropic Craft, Pompeii, Brown Jordan, and Vineyard brand names. In addition we
target the value priced market under the Casual Living and Samsonite brand
names. We currently manufacture and sell numerous separate style collections of
casual furniture products that include traditional, European, and contemporary
design patterns. Within each style collection there are multiple products
including chairs, tables, chaise lounges, umbrellas and cushions and accessory
pieces such as ottomans, cocktail tables, end tables and tea carts constructed
of extruded, tubular and cast aluminum, steel, wrought iron, wood and
fiberglass. We offer chairs with glider action, adjustable positions and rocking
and swivel motions, as well as a selection of restaurant and indoor and outdoor
seating. Our casual seating products feature cushions and vinyl strapping in a
variety of colors and patterns. All of our casual furniture products feature a
durable painted finish, which is also offered in a wide selection of colors. The
suggested retail prices for a residential table and four chairs currently range
from approximately $700 to $10,000 for our medium to upper-end segment and $150
to $800 for the promotionally priced market. Our casual furniture is generally
used by residential customers indoors and on patios, decks and poolsides, while
our contract customers generally use our products in restaurants and lodging, as
well as for outdoor purposes.
Our contract channel also includes site amenity products under the Wabash
Valley brand name. The Wabash product line includes a wide variety of tables,
chairs, benches and swings as well as accessory items such as tree grates,
basket trucks, bike loops, planters, ash urns, and litter receptacles. All of
these products are constructed of either expanded steel mesh, welded wire or
sheet steel, which provide the highest degree of strength and durability.
Components are covered with a 1/4" of homogeneous heat fused plastisol or in the
case of framework, a baked-on polyester dry powder, which provides a superior
coating and appearance. Our amenity products are generally used by governmental,
healthcare, educational, recreational and corporate customers.
Our seating products are marketed under the Loewenstein, Lodging By
Liberty, Stuart Clark, Charter and Woodsmiths brand names and include over 600
distinct models, ranging from contemporary to traditional styles, of wood, metal
and upholstered chairs, reception area love seats, sofas, ottomans, chaises,
stools and tables. We assemble wood frames and finish them with one of our
numerous standard colors or, if requested, to the customer's specification. Our
metal chairs are available in chrome or in a selection of standard powder coat
finishes. For upholstered products, the customer may select from a number of
catalog fabrics, vinyls and leathers or may specify or supply its choice of
materials. We maintain an inventory of unassembled chair components that enables
us to respond quickly to large quantity orders in a variety of finish and fabric
combinations. Our seating products have a number of commercial and institutional
uses, including seating for in-room lodging and common areas, stadium luxury
skyboxes, restaurants, lounges and classrooms. We have excellent and in many
instances long-term relationships with our diverse customer base, which
includes, for example, Marriott International. We entered into a contract with
Marriott under which we are a preferred supplier of upholstered seating products
for certain of its affiliates. We also provide seating for various retailers, as
well as commercial and institutional construction projects, such as professional
sports stadiums and arenas.
We sell our ready-to-assemble products under the Southern Wood Products
brand name to mass merchandisers and catalog wholesalers. Our ready-to-assemble
products include promotionally priced traditional ready-to-assemble "flatline"
and "spindle" furniture and a new line of fully assembled case goods furniture
products designed for household use. "Flatline" products include
ready-to-assemble items that are constructed of flat pieces of wood, such as
book shelves, entertainment and computer centers and tape storage units. Our
"spindle" products include ready-to-assemble items that are constructed of flat
pieces of wood connected by decorative joints and brackets, such as coffee
tables, end tables, wall units and rolling carts. Case goods products include
fully assembled four drawer chests and three-drawer chest and changing towers,
with an optional hutch.
MANUFACTURING
We produce our products at ten manufacturing facilities located throughout
the United States and one facility in Mexico. See "Properties." We have tailored
our manufacturing processes to each business to maximize efficiencies, create
high quality products and maintain operating flexibility. Our casual furniture
facilities are vertically integrated - we manufacture our residential and
contract casual furniture products from basic raw materials such as aluminum rod
and fabric. In contrast, our seating facilities take advantage of outsourcing
opportunities - we assemble our seating products from wood components received
from our Italian and other suppliers. In both cases, we maintain flexible
manufacturing processes that enable us to:
minimize finished goods inventory and warehousing costs;
efficiently expand our product lines to meet the demands of
a diverse customer base; and
effectively control the cost, quality and production time
of our products.
We believe that our facilities are among the most modern in the furniture
industry and that the efficiencies attributable to these plants are a
significant factor in our relatively low manufacturing costs.
Casual Furniture
We market our casual furniture to both the retail and contract segments. In
the manufacturing process for our casual furniture products, we cut extruded
aluminum tubes to size and shape or bend them in specially designed machinery.
The aluminum is then welded to form a solid frame, and the frame is subjected to
a grinding and buffing process to eliminate any rough spots that may have been
caused during welding. After this process is completed, the frame is cleaned,
painted in a state-of-the-art powder coating system and heat cured. We then add
vinyl strapping, cushions, fabric slings, or other accessories to the finished
frame, as appropriate. We then package the product with umbrellas, tempered
glass and other accessories, as applicable, and ship it to the customer.
We believe that we manufacture the highest quality aluminum casual
furniture in our price range. Unlike manufacturers of lower-end products that
rivet or bolt major frame components, we weld the major frame components of our
aluminum furniture, thereby increasing the durability and enhancing the
appearance of the aluminum product line. Our state-of-the-art powder coated
painting process results in an attractive and durable finish. To ensure that
only the highest quality products are shipped to customers, our quality control
department has established numerous checkpoints where the quality of all of our
aluminum products is examined during the manufacturing process.
Wabash Valley acts as designer, manufacturer and finisher of all our site
amenity products. The fabrication process includes cutting, punching, forming,
bending, sawing, welding and grinding. We have invested heavily in our
fabrication capabilities in the past few years, with focus in Computer Numerical
Control ("CNC") technology. This includes a roll forming line, robotic welding,
CNC plasma, CNC punching and cutting as well as CNC tube bending. All CNC
equipment instructions are downloaded from our on-site drafting and engineering
department.
All fabricated weldments enter into a grinding area for inspection and
deburring. After this process is completed the parts enter a wash, rinse and
prime cycle. Upon exiting this phase of the manufacturing process the parts flow
either to powder coating booths or our plastisol dip tanks. Throughout the
manufacturing process all parts and components are carefully inspected to ensure
the highest degree of quality.
Contract Seating
We assemble most of our contract and hospitality products to order, but do
not generally have the same level of vertical integration as is present in the
manufacture of our casual product lines. Instead, we purchase component parts
from a variety of suppliers, including a number of Italian suppliers. We utilize
these component parts because they enable us to offer sturdy and aesthetically
appealing products, which incorporate unique designs and sophisticated
manufacturing techniques that are generally unavailable or are not cost
effective in the United States. The principal elements of wood chair assembly
include:
frame glue-up;
sanding;
seat assembly (in which upholstered seats are constructed
from component bottoms, foam padding and cloth coverings);
and
painting/lacquering.
To provide consistency and speed in this finishing process, we utilize a
state-of-the-art conveyorized paint line with electrostatic spray guns and a
three-dimensional ultraviolet drying system. In particular, Loewenstein's
finishing system applies specially formulated materials via robotic
reciprocators and utilizes three advanced technologies:
electrostatic finish application, which is designed to ensure that a
significantly higher percentage of the actual finishing material will
adhere to the product, thereby reducing raw material costs;
ultraviolet finishing materials, which allow a much higher solids
content, thereby reducing environmental concerns and enhancing finish
quality; and
high-powered ultraviolet light, which can cure chairs in less than 60
seconds, thereby speeding inventory turn-over and reducing warehouse
requirements.
For upholstered products, the specified fabric cloth is stretched to the
chair frame over foam padding. We generally assemble our metal chairs from
imported components. After rework and leveling, we carton our chairs to prevent
damage in transportation. The manufacturing process also includes a number of
product inspections and other quality control procedures.
Ready-to-Assemble Furniture
For the manufacture of our ready-to-assemble products, which include
"spindle," "flatline" and case goods products, we use high-density
particleboard, which we laminate with a variety of wood grains and solid colors.
For our "spindle" products, we turn, stain and lacquer all of the spindles and
then individually box the products with spindles and board, along with any
necessary hardware and assembly instructions. For our "flatline" products we
individually box the cut laminated particleboard, along with necessary hardware
and assembly instructions. For our case goods products, the edges of the cut
laminated particleboard may be "soft formed" for aesthetic value. We then
assemble the unit using glue, screws and hardware, such as self-closing drawer
runners, on all units.
Manufacturing Capacity
Management believes that the Company's manufacturing facilities in the
casual and contract and hospitality product lines are currently operating, in
the aggregate, at approximately 65% of capacity, assuming a one-shift basis.
Management considers the Company's present manufacturing capacity to be
sufficient for the foreseeable future and believes that, by adding multiple
shift operations, the Company can significantly increase the total capacity of
its facilities to meet growing product demand with minimal additional capital
expenditures. In addition, the Company engages in an ongoing maintenance and
upgrading program, and considers its machinery and equipment to be in good
condition and adequate for the purposes for which they are currently used.
MARKETING AND SALES
We sell our products through both independent manufacturers'
representatives and internal sales staff. We sell our retail casual furniture
and contract and hospitality products through approximately independent sales
representatives. We have strong relationships with our independent sales
personnel. We primarily use an internal sales staff to sell our casual furniture
products into the contract market. Our site amenity and ready-to-assemble
products are sold exclusively by independent sales representatives. Senior
management is also involved in the sales process for all of our furniture
products.
Each independent representative:
promotes, solicits and sells our products in an assigned territory;
assists in the collection of receivables; and
receives commissions based on the net sales made in his or her
territory.
We determine the prices at which our products will be sold and may refuse
to accept any orders submitted by a sales representative for credit-worthiness
or other reasons. Our independent representatives do not carry directly
competing product lines.
We have developed a comprehensive marketing program to assist our
representatives in selling our products. Key elements of this program include:
holding exhibitions at national and regional furniture markets and
leasing year-round showrooms at the Merchandise Mart in Chicago,
Illinois and High Point, North Carolina;
providing retailers with annual four-color catalogs of our products,
sample materials illustrating available colors and fabrics, point of
sale materials and special sales brochures;
providing information directly to representatives at annual sales
meetings attended by senior management and manufacturing personnel;
maintaining a customer service department at each of our manufacturing
facilities which ensures that we promptly respond to the needs and
orders of our customers;
maintaining regular contact with key retailers; and
conducting ongoing surveys to determine dealer satisfaction.
BACKLOG
As of December 31, 2002, our backlog of orders was approximately $101.7
million, compared to $96.1 million at December 31, 2001. Our backlog is defined
as committed purchase orders with future ship dates. Management, in accordance
with industry practice, generally permits orders to be canceled prior to
shipment without penalty. Further, management does not consider backlog to be
predictive of future sales activity because of our short manufacturing cycle and
delivery time in both our casual and seating segments and, especially in the
case of casual furniture, the seasonality of sales.
RAW MATERIALS AND SOURCING
Our principal raw materials consist of extruded aluminum tubes, expanded
mesh steel, sheet and tube steel, woven vinyl fabrics, paint/finishing
materials, vinyl strapping, cushion filler materials, cartons, glass table tops,
component parts for seating, particle board and other lumber products and
hardware. Although we have no long-term supply contracts, we generally maintain
a number of sources for our raw materials and have not experienced any
significant problems in obtaining adequate supplies for our operations. In
addition, increases in the cost of our raw materials, such as fluctuations in
the costs of aluminum, lumber and other raw materials have not historically had
a material adverse effect on our results of operations because we are generally
able to pass through such increases in raw material costs to our customers over
time through price increases. We believe that our policy of maintaining several
sources for most supplies and our large volume purchases contribute to our
ability to obtain competitive pricing. Nevertheless, the market for aluminum is,
from time to time, highly competitive, and its price, as a commodity, is subject
to market conditions beyond our control. Accordingly, future price increases
could have a material adverse effect on our business, financial condition, and
results of operations or prospects.
A significant portion of the Loewenstein raw materials consist of component
chair parts purchased from several Italian manufacturers. We view our suppliers
as "partners" and work with such suppliers on an ongoing basis to design and
develop new products. We believe that these cooperative efforts, our
long-standing relationships with these suppliers and our experience in
conducting on-site, quality control inspections provide us with a competitive
advantage over many other furniture manufacturers, including a competitive
purchasing advantage in times of product shortages. In addition, in the case of
our Italian suppliers, we generally contract for our purchases of such component
parts in such manner as to minimize our exposure to foreign currency
fluctuations. We have close working relationships with our foreign suppliers and
our future success may depend, in part, on maintaining these or similar
relationships. Given the special nature of the manufacturing capabilities of
these suppliers, in particular certain wood-bending capabilities, and sources of
specialized wood types, our Loewenstein division could experience a disruption
in operations in the event of any replacement of such suppliers. Situations
beyond our control, including political instability, significant and prolonged
foreign currency fluctuations, economic disruptions, the imposition of tariffs
and import and export controls, changes in government policies and other factors
could have a material adverse effect on our business, financial condition,
results of operations or prospects.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies that
compete directly with us may have greater financial and other resources than we
do. Based on our extensive industry experience, we believe that competition in
retail and contract markets are generally a function of product design,
construction quality, prompt delivery, product availability, customer service
and price. Similarly, management believes that competition is based primarily on
price, product availability, prompt delivery and customer service.
We believe that we successfully compete in the furniture industry primarily
on the basis of our innovatively styled product offerings, our unique delivery
capabilities, the quality of our products, and our emphasis on providing high
levels of customer service. We believe that our residential casual product line
has a leading share of the casual furniture market in the geographic region east
of the Mississippi River.
Sales of imported, foreign-produced furniture has increased in recent
years. During 2001 we moved to address this share of the market through
acquisitions. The Company now has a manufacturing facility in Mexico and joint
ventures with furniture manufacturers located in China. This move has opened up
new furniture markets that were previously not targeted by the Company.
In the contract segment, we compete with many manufacturers, ranging from
large, national, publicly traded entities to small, one-product firms selling to
small, geographic markets.
TRADEMARKS AND PATENTS
We have registered the Winston, Loewenstein, Pompeii, Southern Wood
Products, Wabash Valley trademarks with the United States Patent and Trademark
Office, in addition to numerous trademarks under Brown Jordan Company and BJIP,
Inc. We believe that our trademark position is adequately protected in all
markets in which we do business. We also believe that our various trade names
are generally well recognized by dealers and distributors, and are associated
with a high level of quality and value.
We hold several design and utility patents and the Company's policy is to
apply for design and utility patents
EMPLOYEES
At December 31, 2002, we had approximately 1,973 full-time employees, of
whom 128 were employed in management, 207 in sales, general, and administrative
positions, and 1,638 in manufacturing, shipping, and warehouse positions.
The Company has two manufacturing locations whose employees are subject to
collective bargaining agreements. Approximately 130 of our hourly employees in
Haleyville, Alabama, are represented by the Retail, Wholesale, and Department
Store Union. The labor agreement between the Company and such union, which
expires in July 2006, provides that there shall be no strikes, slowdowns or
lockouts.
In addition, approximately 120 of our hourly employees in El Monte,
California are represented by the Paper, Allied-Industrial, Chemical and Energy
Workers International Union. The labor agreement between the Company and the
union expires in September 2006. The contract provides that there shall be no
strikes, slowdowns or lockouts.
Management considers its employee relations to be good.
ENVIRONMENTAL MATTERS
We believe that we comply in all material respects with all applicable
federal, state and local provisions relating to the protection of the
environment. The principal environmental regulations that apply to us govern air
emissions, water quality and the storage and disposition of solvents. In
particular, we are subject to environmental laws and regulations regarding air
emissions from paint and finishing operations and wood dust levels in our
manufacturing operations. As is typical of the furniture manufacturing industry,
our finishing operations use products that may be deemed hazardous and that pose
an inherent risk of environmental contamination. Compliance with environmental
protection laws and regulations has not had a material adverse impact on our
financial condition or results of operations in the past and we do not expect
compliance to have a material adverse impact in the future.
SEASONALITY
Sales of retail specialty products are typically higher in the second
quarter of each year as a result of high retail demand for casual furniture
preceding the summer months. Sales of retail specialty products are also higher
in the fourth quarter as a result of the Company's merchandising programs with
its dealers. Sales of casual products to national account are typically higher
in the fourth and first quarters as the national accounts warehouse product in
preparation for the spring season. Weather conditions during the peak retail
selling season and the resulting impact on consumer purchases of outdoor
furniture products can also affect sales of our casual products.
ITEM 2. PROPERTIES
Properties
The following table provides information with respect to each of our properties:
- ------------------- -------------------------------------------------- ----------------------- -----------------------
Location Primary Use Approx. Sq. Ft. Leased/Owned
- ------------------- -------------------------------------------------- ----------------------- -----------------------
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Birmingham, AL Retail channel sales office 13,000 Leased (1)
- ------------------- -------------------------------------------------- ----------------------- -----------------------
- ------------------- -------------------------------------------------- ----------------------- -----------------------
Haleyville, AL Manufacturing and offices 155,000 Owned
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Haleyville, AL Manufacturing and offices 218,000 Owned
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Haleyville, AL Warehouse 20,000 Owned
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Haleyville, AL Warehouse 30,000 Owned
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- ------------------- -------------------------------------------------- ----------------------- -----------------------
Medley, FL Manufacturing and offices 173,000 Leased (2)
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- ------------------- -------------------------------------------------- ----------------------- -----------------------
Pompano Beach, FL Manufacturing, plant and corporate offices 100,000 Owned
Pompano Beach, FL Warehouse 10,000 Leased (3)
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Pompano Beach, FL Manufacturing and offices 45,000 Leased (4)
- ------------------- -------------------------------------------------- ----------------------- -----------------------
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Liberty, NC Warehouse 5,000 Leased (5)
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Liberty, NC Manufacturing and offices 126,000 Owned
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Chicago, IL Showroom 5,500 Leased (6)
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Sparta, TN Manufacturing and offices 94,300 Owned
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Sparta, TN Manufacturing and offices 63,300 Owned
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Silver Lake, IN Manufacturing and offices 240,000 Owned
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El Monte, CA Manufacturing and offices 55,000 Leased (7)
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El Monte, CA Manufacturing 19,450 Leased (8)
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Washington, DC Showroom 3,500 Leased(9)
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Chicago, IL Showroom 7,049 Leased (10)
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Dallas TX Showroom 4,916 Leased (11)
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San Francisco, CA Showroom 3,889 Leased (12)
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Los Angeles, CA Showroom 10,674 Leased (13)
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High Point, NC Showroom 4,761 Leased (14)
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Miami, FL Showroom 5,178 Leased (15)
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New York, NY Showroom 6,316 Leased (16)
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Laguna, CA Showroom 3,888 Leased (17)
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El Monte, CA Manufacturing and offices 29,232 Leased (18)
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Long Beach, CA Furniture design center 2,182 Leased( 19)
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Juarez, MX Manufacturing and offices 259,800 Leased (20)
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El Monte, CA Manufacturing and offices 211,140 Owned
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Newport, AK Warehouse 119,324 Owned
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Chicago, IL Showroom 9,485 Leased (21)
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Oxnard, CA Manufacturing, warehouse and offices 200,000 Leased (22)
Ocala, FL Contract sales office 3,000 Leased (23)
- ------------------- -------------------------------------------------- ----------------------- -----------------------
(1) Lease expires September, 2003.
(2) Lease expires March, 2012.
(3) Lease expires February, 2003.
(4) Lease expires June, 2003.
(5) Lease expires December, 2003.
(6) Lease expires March, 2009.
(7) Lease expires March, 2004.
(8) Lease expires March, 2004.
(9) Lease expires February, 2007.
(10) Lease expires December, 2004.
(11) Lease expires December, 2006.
(12) Lease expires December, 2006.
(13) Lease expires April, 2007.
(14) Lease expires October, 2005.
(15) Lease expires December, 2003.
(16) Lease expires September, 2011.
(17) Lease expires October, 2004.
(18) Lease expires September, 2004.
(19) Lease expires January, 2004.
(20) Lease expires March, 2004.
(21) Lease expires August, 2007.
(22) Lease expires December, 2007.
(23) Lease expires August, 2004.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings and other claims
arising in the ordinary course of our business. We maintain insurance coverage
against potential claims in an amount that we believe to be adequate. We believe
that we are not presently a party to any litigation, the outcome of which would
have a material adverse effect on our business, financial condition, results of
operations or future prospects.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Not applicable. None of our securities are registered pursuant to Sections
12 (b) or 12(g) of the Exchange Act and there is no established public trading
market for our securities.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
years ended December 31, 2002 are derived from the audited Consolidated
Financial Statements of BJI. The following selected consolidated financial data
should be read in conjunction with BJI's Consolidated Financial Statements and
related Notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included herein.
Years Ended December 31,
(In thousands) 2002 2001 2000 1999 1998
Net Sales $ 354,670 $286,154 $188,963 $162,139 $141,360
Cost of Sales 262,913 199,568 110,941 96,384 87,232
--------------- -------------- -------------- ------------- -------------
Gross Profit 91,757 86,586 78,022 65,755 54,128
Selling, general and Admin Expenses 52,898 44,124 30,063 25,674 23,124
Amortization 2,789 9,078 6,957 3,321 1,122
--------------- -------------- -------------- ------------- -------------
Operating Income 36,070 33,384 41,002 36,760 29,882
Interest expense 33,555 34,358 27,114 8,910 635
--------------- -------------- -------------- ------------- -------------
Income (loss) from continuing
operations before provision for
income taxes, discontinued
operations and cumulative effect of
a change in accounting principle 2,515 (974) 13,888 27,850 29,247
Provision for income taxes 990 2,990 7,151 11,339 10,947
--------------- -------------- -------------- ------------- -------------
Income (loss) from continuing
operations before discontinued
operations and cumulative
effect of a change in accounting
principle 1,525 (3,964) 6,737 16,511 18,300
Gain on sale of discontinued
operation, net of tax - - - 755 2,031
Cumulative effect of a change in
accounting principle 201,247 - - - -
--------------- -------------- -------------- ------------- -------------
Net income (loss) $(199,722) $ (3,964) $ 6,737 $ 17,266 $ 20,331
=============== ============== ============== ============= =============
Other Financial Data 2002 2001 2000 1999 1998
Depreciation and Amortization $9,191 $17,609 $10,561 $4,845 $2,618
Capital expenditures $1,440 $5,165 $5,966 $3,265 $942
Ratio of earnings to fixed charges 1.1x 1.0x 1.5x 4.0x 34.1x
(In thousands)
Working capital $67,038 $63,972 $26,721 $26,721 $25,924
Total assets $302,093 $544,609 $308,062 $308,062 $84,553
Long-term debt (less current portion) $273,329 $287,878 $198,258 $198,258 $1,400
Total debt $283,029 $295,078 $201,958 $201,958 $1,447
Stockholder's equity (deficit) $ (35,626) $168,365 $81,711 $81,711 $66,226
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On April 23, 2002, the Board of Directors voted to change the name of
WinsLoew Furniture, Inc. ("WinsLoew") to Brown Jordan International, Inc. ("BJI"
or the "Company").
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 common stock that were outstanding immediately prior to the
merger (850,497 shares) were converted into shares of common stock of Holdings.
Affiliates of Trivest Partners, L. P. ("Trivest") are majority shareholders of
Holdings. Trivest, Holdings and the Company have certain common shareholders,
officers and directors. In addition, each warrant or option to purchase shares
of WinsLoew's common stock was converted into a warrant or option to purchase an
equivalent number of shares of common stock of Holdings. 1,000 shares of
WinsLoew's common stock were then issued to Holdings.
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.
GENERAL
BJI is comprised of companies engaged in the design, manufacture and
distribution of casual, contract and hospitality and ready-to-assemble ("RTA")
furniture to the retail and contract channel. BJI's furniture products are
distributed primarily through independent manufacturer's representatives, and
are constructed of extruded and tubular aluminum, wrought iron and cast
aluminum. These products are distributed through fine patio stores, department
stores, national accounts and full line furniture stores nationwide. Our site
amenity products are constructed of expanded mesh and sheet steel and marketed
through representatives and catalog distribution. BJI's contract and hospitality
seating products are distributed through the contract channel to a customer
base, which includes architectural design firms, restaurant and hospitality
chains. BJI's RTA products include promotionally priced coffee and end tables,
wall units and rolling carts. Distribution of RTA furniture products is through
the retail channel to national accounts, catalog wholesalers and specialty
retailers. The Company performs periodic credit evaluations of its customers'
financial condition and determines if collateral is needed on a customer by
customer basis.
ACQUISITIONS
Purchase of Wabash. In March of 2000, the Company acquired all of the stock
of Wabash Valley Manufacturing, a manufacturer of site amenity furniture sold
into the institutional and corporate markets. The purchase price of
approximately $35.5 million was paid in cash and financed with $7.1 million of
equity investment from the sellers and Trivest Furniture (a shareholder of the
Company), borrowings of $20.0 million under the acquisition loan and $8.4
million under the revolving credit facility. The acquisition was accounted for
under the purchase method of accounting and resulted in goodwill of $22.5
million.
Purchase of Stuart Clark. On June 16, 2000 the Company purchased certain
assets of Stuart Clark, Inc. and its affiliates. Stuart Clark is a manufacturer
of mid price-point upholstered furniture for the hospitality industry. The
purchase price of approximately $3.1 million was paid in cash and financed with
$0.3 million of equity investment from the sellers and borrowings of $2.8
million under the Company's revolving credit facility. The assets and operations
of Stuart Clark were merged into our existing seating facility in Liberty, North
Carolina. The acquisition was accounted for under the purchase method of
accounting and resulted in goodwill of approximately $2.8 million.
Purchase of Charter Furniture. On August 11, 2000 the Company purchased all
of the stock of Charter Furniture. Charter provides high quality upholstered
furniture for rooms, suites and common areas of premier hospitality companies.
The purchase price of approximately $18.5 million was paid in cash and financed
with $3.3 million of equity investment from the sellers and Trivest Furniture
and $15.2 million under the revolving credit facility. The acquisition was
accounted for under the purchase method of accounting and resulted in goodwill
of $18.7 million.
Purchase of The Woodsmiths Company. On March 9, 2001 the Company purchased
all of the assets of The Woodsmiths Company ("Woodsmiths"). Woodsmiths, a
manufacturer of custom tabletops for the contract and hospitality industry, is
located in Pompano Beach, Florida. The purchase price of approximately $2.8
million was paid in cash of approximately $0.3 million and a $2.5 million note
payable to the sole shareholder of Woodsmiths. In addition, the stock purchase
agreement provided for an additional contingent deferred payment of up to
$1,000,000 based upon Woodsmiths' earnings before interest, taxes, depreciation,
amortization and management fees. The maximum contingent payment amount of
$1,000,000 was recorded at the time of purchase as an addition to goodwill and
an accrued liability of the Company. The amount of any such contingent payment
would have been made directly to the former sole shareholder and serves as a
financial incentive. The acquisition was accounted for under the purchase method
of accounting resulted in goodwill of approximately $3.4 million. The operating
results of Woodsmiths have been included in the consolidated operating results
beginning with the month of March 2001.
Purchase of Former Brown Jordan. On May 8, 2001 the Company and its parent,
Holdings, acquired all of the outstanding stock of Former Brown Jordan at a
purchase price of $78.6 million. The Stock Purchase Agreement by and among
Holdings, the Company, Former Brown Jordan and the Stockholders of Former Brown
Jordan also called for the repayment of outstanding Former Brown Jordan
indebtedness at closing, which approximated $44.6 million. The amount of
consideration paid by the Company for Former Brown Jordan stock was determined
through an arm's length negotiation between representatives of the Company and
Former Brown Jordan.
The total purchase price of $123.2 million, including estimated transaction
costs and funded indebtedness, was allocated to the assets acquired using
management's estimate of the fair value of the assets and liabilities acquired.
Pursuant to the purchase method of accounting, the excess of the purchase price
over the $44.6 million fair value of net assets after payment of Former Brown
Jordan indebtedness at closing was recorded as goodwill in the amount of $78.6
million.
The Company's balance sheet as of December 31, 2001 has been restated to
correct the previously recorded purchase price allocations related to the 2001
acquisitions of Woodsmiths and the Former Brown Jordan. The principal effects of
this revision resulted in increases in customer relationships, trademarks and
deferred tax liabilities of $23.0 million, $25.3 million and $18.3 million,
respectively, and decreases in goodwill and accrued liabilities of $31.5 million
and $1.7 million, respectively.
During 2002 the Company adjusted the purchase price for Former Brown Jordan
reducing the principal amount of the Holdings notes payable to the stockholders
of the Former Brown Jordan as a result of the settlement of certain indemnity
claims under the purchase contract. As a result the Company reduced goodwill
recorded in connection with the purchase and reduced additional paid in capital
by $2.5 million.
In order to complete the acquisition, Holdings raised $50.9 million of
equity and issued $22 million of subordinated notes to the sellers for Former
Brown Jordan stock. Holdings contributed the cash of $50.9 million to the
Company as additional equity. The stock of Former Brown Jordan, obtained in the
exchange for subordinated notes, was also contributed to the Company. The
balance of the proceeds was provided through a refinancing of the Company's
existing Senior Credit Facility. The new Senior Credit Facility consists of a
$165 million Term Loan and a $60 million revolving credit facility.
The operating results of the above acquisitions have been included in the
consolidated operating results since the dates of acquisition.
RESULTS OF OPERATIONS
The following table sets forth net sales, gross profit and gross margin as
a percent of net sales for the years ended December 31, 2002, 2001 and 2000 for
each of the Company's market channels (in thousands, except for percentages):
2002 2001 2000
- ---------------- ---------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
- ---------------- ---------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
Retail Channel
$243,200 $56,382 23.2% $160,985 $43,665 27.1% $74,734 $32,858 44.0%
Contract Channel
$111,470 $35,375 31.7% $125,169 $42,921 34.3% $114,229 $45,164 39.5%
- --------------- ----------- ----------- ------------- ----------- ----------- ------------- ----------- -----------
$354,670 $91,757 25.9% $286,154 $86,586 30.3% $188,963 $78,022 41.3%
See Note 11 to Consolidated Financial Statements for more information
concerning the Company's segments.
The following table sets forth certain information relating to the Company's
operations expressed as a percentage of the Company's net sales.
-----------------------------------------------
For the Years Ended December 31,
----------- ----------------- -----------------
2002 2001 2000
- ---------------------------------------------------------- ----------- ----------------- -----------------
Gross profit 25.9% 30.3% 41.3%
- ---------------------------------------------------------- ----------- ----------------- -----------------
Selling, general and admin expenses 14.9% 15.4% 15.9%
- ---------------------------------------------------------- ----------- ----------------- -----------------
Amortization 0.8% 3.2% 3.7%
- ---------------------------------------------------------- ----------- ----------------- -----------------
Operating Income 10.2% 11.7% 21.7%
- ---------------------------------------------------------- ----------- ----------------- -----------------
Interest expense 9.5% 12.0% 14.3%
- ---------------------------------------------------------- ----------- ----------------- -----------------
Provision for income taxes 0.3% 1.0% 3.8%
- ---------------------------------------------------------- ----------- ----------------- -----------------
Income (loss)before cumulative effect of a change in 0.4% -1.4% 3.6%
accounting principle
- ---------------------------------------------------------- ----------- ----------------- -----------------
Cumulative effect of a change in accounting principle,
net of tax 56.7% - -
- ---------------------------------------------------------- ----------- ----------------- -----------------
Net income (loss) -56.3% -1.4% 3.6%
- ---------------------------------------------------------- ----------- ----------------- -----------------
COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2001
Net Sales. BJI's actual consolidated net sales increased $68.5 million in
2002, or 23.9% to $354.7 million compared to $286.2 million in 2001. Net sales
in the retail channel of $243.2 million for 2002 increased from 2001 retail
channel net sales of $161.0 million as a result of the acquisition of the entity
formerly known as Brown Jordan International. Contract channel sales decreased
in 2002 compared to 2001 resulting from a slowdown in new construction and
refurbishing projects in the commercial and hospitality markets caused by
economic recession and the continued impact of the events of September 11, 2001.
Gross Profit. Actual gross profit increased $5.2 million in 2002 or 6.0% to
$91.8 million compared to $86.6 million in 2001. The retail channel experienced
lower gross margins in 2002, resulting from the continued impact of a higher
percentage of sales to lower margin national accounts, pricing pressure in the
Company's specialty business and the Company's initiatives to increase its sales
in the middle price points of this market. In addition to specialty stores, the
retail channel also targets the lower margin, national accounts market. The
contract channel gross margin decreased as a result of lower volumes and the
pricing pressure experienced by the Company during 2002 as a result of the
continued impact from the events of Sept 11, 2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $8.8 million or 20.0% from $44.1 million in
2001 to $52.9 million in 2002 primarily resulting from the full year impact of
the 2001 acquisitions.
Amortization. Amortization expense decreased $6.3 million from $9.1 million
in 2001 to $2.8 million in 2002. The decrease is related to a change in
accounting as a result of the implementation of Statement of Financial
Accounting Standards ("SFAS") No. 142. Under the provisions of this statement
goodwill is no longer amortized but is reviewed for impairment each year. See
Impact of recently Issued Accounting standards below regarding the
implementation of this standard.
Operating Income. As a result of the above, actual operating income
increased 8.0% from $33.4 million in 2001 (11.7% of net sales) to $36.1 million
(10.2% of net sales) in 2002.
Interest Expense. Interest expense decreased $.8 million in 2002 to $33.6
million from $34.4 million in 2001 as a result of the reclassification, in
accordance with SFAS No. 145, of approximately $2.6 million in debt issuance
costs written off in 2001 as a result of the refinancing in connection with the
acquisitions in 2001. Excluding these costs interest expense increased as a
result of the higher interest rates and the fact that the debt was outstanding
for a full year.
Provision for Income Taxes. The effective tax rate in 2002 (39.4%) and 2001
(307.0%) is greater than the federal statutory rate due to the effect of state
income taxes in 2001 and the impact of non-deductible goodwill amortization.
Cumulative effect of change in accounting principle. As of January 1, 2002
the Company implemented the provisions of SFAS No. 142. The Company recorded a
cumulative effect of change in accounting principle to reflect the impairment of
goodwill of $201.2 million, net of tax. This adjustment was recorded effective
January 1, 2002.
COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000
Net Sales. BJI's consolidated net sales increased $97.2 million in 2001, or
51.4% to $286.2 million compared to $189.0 million in 2000. Retail net sales
increased to $161.0 in 2001 or 115.5% from $74.7 million in 2000 as a result of
the May 2001 acquisition of Former Brown Jordan. The contract channel net sales
were $125.2 million in 2001 compared to $114.2 million in 2000 primarily as a
result of the acquisition of Wabash in late March 2000 and Woodsmiths in mid
March 2001.
Gross Profit. Gross profit increased $8.6 million in 2001 or 11.0% to $86.6
million compared to $78.0 million in 2000. The retail channel experienced lower
gross margins in 2001, resulting from a combination of low-margin volume sales
and the addition of significant sales to the national account customers in the
retail channel. In additional to specialty stores this channel also targets the
lower margin, national accounts market. The contract channel gross margin
decreased as a result of lower volumes and the inclusion of Charter for all of
2001.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $14.0 million or 46.8% from $30.1 million in
2000 to $44.1 million in 2001 primarily resulting from acquisitions.
Amortization. Amortization expense increased $2.1 million or 30.5% from
$7.0 million in 2000 to $9.1 million in 2001. The increase is related to a full
year of goodwill amortization from acquisitions in 2000 as well as additional
goodwill amortization related to acquisitions in 2001.
Operating Income. As a result of the above, operating income decreased
18.6% from $41.0 million in 2000 (21.7% of net sales) to $33.4 million (11.7% of
net sales) in 2001.
Interest Expense. Interest expense increased $7.3 million in 2001 to $34.4
million from $27.1 million in 2000 as a result of additional debt service
associated with acquisitions. Further, the Company has increased its debt by
$53.0 million from December 31, 2000 primarily as a result of acquisitions.
Provision for Income Taxes. The effective tax rate in 2001 and 2000 is
greater than the federal statutory rate due to the effect of state income taxes
and non-deductible goodwill amortization. The increase in the effective tax rate
in 2001 compared to 2000 is primarily due to the non-deductible goodwill related
to the Former Brown Jordan acquisition.
SEASONALITY AND QUARTERLY INFORMATION
Sales of retail specialty products are typically higher in the second
quarter of each year as a result of high retail demand for casual furniture
preceding the summer months. Sales of retail specialty products are also higher
in the fourth quarter as a result of the Company's merchandising programs with
its dealers. Sales of casual products to national account are typically higher
in the fourth and first quarters as the national accounts warehouse product in
preparation for the spring season. Weather conditions during the peak retail
selling season and the resulting impact on consumer purchases of outdoor
furniture products can also affect sales of our casual products.
The following table presents the Company's unaudited quarterly data for
2002 and 2001. Such operating results are not necessarily indicative of results
for future periods. BJI believes that all necessary and normal recurring
adjustments have been included in the amounts in order to present fairly and in
accordance with generally accepted accounting principles the selected quarterly
information when read in conjunction with BJI's consolidated financial
statements included elsewhere herein. The results of operations for any quarter
are not necessarily indicative of results for a full year. In accordance with
the provisions of SFAS No. 142, the Company's first quarter 2002 results or
operations have been restated to reflect the SFAS No. 142 transition adjustment.
In addition, the Company's quarterly operating results have been restated to
reflect the impact of certain year end business acquisition adjustments, in the
appropriate quarter and to record amortization of customer relationships in each
quarter. The chart below shows the original and restated quarterly amounts as a
result of those adjustments:
(In thousands)
2002 Quarters First Second
------------------------------ ------------------------------
As reported As Restated As reported As Restated
Net Sales $124,919 $124,919 $74,354 $74,354
Gross Profit 27,725 27,025 25,885 25,885
Operating Income 14,108 12,915 11,911 11,284
Interest Expense 8,172 8,172 8,356 8,356
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting principle
5,936 4,743 3,555 2,928
Provision for income taxes 2,722 1,867 891 1,152
Cumulative effect of change in accounting
principle, net of tax
- 201,247 - -
Net Income (loss) $ 3,214 $(198,371) $ 2,664 $ 1,776
(In thousands)
2002 Quarters Third Fourth
------------------------------ --------------
As reported As Restated As reported
Net Sales $52,461 $52,461 $ 102,936
Gross Profit 17,926 17,926 20,921
Operating Income 4,929 3,778 8,093
Interest Expense 7,876 7,876 9,151
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting principle
(2,947) (4,098) (1,058)
Provision for income taxes (734) (1,613) (416)
Cumulative effect of change in accounting
principle, net of tax
- - -
Net Income (loss) $(2,213) $(2,485) $ (642)
(In thousands)
2001 Quarters First Second Third Fourth
-------------- --------------- --------------- --------------
Net Sales $39,718 $79,253 $57,115 $110,068
Gross Profit 15,001 28,048 17,558 25,979
Operating Income 5,982 13,511 2,750 11,141
Interest Expense 7,267 11,277 7,073 8,741
(Loss)Income From Continuing
Operations (1,285) 2,234 (4,323) 2,400
Net (Loss)Income (574) (296) (3,838) 744
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for debt service and
working capital, including accounts receivable and inventory requirements. The
Company has historically financed its short-term liquidity needs with cash flow
generated from operations and revolving line of credit borrowings. At December
31, 2002, the Company had $67.0 million of working capital and $21.9 million of
unused and available funds under its revolving credit facility.
Cash Flows from Operating Activities. During 2002, net cash provided by
operations was $7.0 million, compared to $17.3 million in 2001. The primary
reason for the decrease is due to the Company's reduction of trade payables
which was somewhat offset by higher receivables balances due to the impact of
the acquisitions in 2001.
Cash Flows from Investing Activities. During 2002 we spent $1.4 million on
capital expenditures and sold several assets resulting in $9.8 million generated
by investing activities. This is compared to 2001, which included $5.2 million
spent on capital expenditures and $73.7 million spent on acquisitions. Net cash
generated by investing activities was $8.3 million in 2002 compared to a use of
cash of $78.9 million for 2001.
Cash Flows from Financing Activities. Net cash used in financing activities
during 2002 was $12.5 million compared to net cash provided by financing
activities of $66.1 million in 2001. During 2002 the Company sold several assets
using the proceeds to reduce its outstanding senior term loan. Financing
activities during 2001 focused on the Company's acquisition of Former Brown
Jordan and simultaneous restructuring of the Company's Senior Credit Facility.
Specifically, proceeds for the acquisition and Senior Credit Facility payoff
were $201.8 million under the Company's new Senior Credit facility and $50.9
million of equity investment. Of these amounts, $147.3 million was used to
payoff the existing Senior Credit Facility and $105.4 million was used for the
acquisition, including payoff of funded indebtedness. This is compared to 2000
when cash was primarily provided by proceeds from borrowings under our revolving
credit facility and to a lesser extent, our acquisition line of credit. In
addition, proceeds were provided by the issuance of the company's common stock
pursuant to acquisitions.
During 2002, our senior credit facility consisted of a $165.0 million term
loan of which $161.3 million was outstanding on January 1, 2002. During 2002,
principal payments totaling $16.8 million were made against the term loan
leaving an outstanding balance on the loan of $144.4 million as of December 31,
2002. During 2002 our senior credit also included, a $60.0 million revolving
credit facility, of which $32.7 million was borrowed and $5.5 million was
allocated to existing letters of credit outstanding at December 31, 2002. As of
December 31, 2002, we had undrawn availability based on a borrowing base formula
under the revolving credit facility of approximately $21.9 million.
The senior credit facility also requires the Company to enter into an
interest rate swap agreement to fix the interest rate on at least $80 million
principal amount of variable rate debt. (See Note 5 to the Consolidated
Financial Statements).
We have significant amounts of debt requiring interest and principal
repayments. The senior subordinated notes (See Note 4 to the Consolidated
Financial Statements) require semi-annual interest payments, will mature in
August 2007. Borrowings under the senior credit facility also require quarterly
interest payments.
In connection with acquisition of the Former Brown Jordan, Holdings issued
$22 million in notes to Former Brown Jordan stockholders. Holdings does not
generate cash internally and is therefore dependent upon the Company's cash
flows to service its debt. Cash interest payments by Holdings would be funded
from the Company's existing working capital or revolving credit line. However,
the Company currently does not pay dividends to its shareholder and is
prohibited under the Senior Credit Facility from doing so and has no obligation
to fund interest payments on the notes; therefore, all interest payments by
Holdings were paid in kind ("pik") through the issuance of additional notes in
equal value to the interest payable. It is Holdings' intention to continue to
issue additional pik notes to the note holders in lieu of quarterly cash
payments for interest earned. (See Note 4 to the Audited Consolidated Financial
Statements).
Our other liquidity needs relate to working capital, capital expenditures
and potential acquisitions. We intend to fund our working capital, capital
expenditures and debt service requirements through cash flow generated from
operations and borrowings under our senior credit facility.
We believe that existing sources of liquidity and funds expected to be
generated from operations will provide adequate cash to fund our anticipated
working capital needs. Significant expansion of our business or the completion
of any material strategic acquisitions may require additional funds which, to
the extent not provided by internally generated sources, could require us to
seek access to debt or equity markets.
Operating cash flows are closely correlated to demand for the Company's
products. A decrease in demand for the Company's products would impact the
availability of these internally generated funds. Further, the Company's
revolving line of credit is contingent upon the Company maintaining particular
debt covenants. Failure to comply with these covenants would impact the
availability of funds on the revolving credit line.
Our anticipated capital needs through 2003 will consist primarily of the
following:
interest payments due on the notes and interest and principal due under
our senior credit facility,
increases in working capital driven by the growth of our business, and
the financing of capital expenditures.
Aggregate capital expenditures are budgeted at approximately $2.0 million
in 2003. To the extent available, funds will be used to reduce outstanding
borrowings under our senior credit facility.
As of December 31, 2002 the Company was not in compliance with the Maximum
Consolidated Total and Senior Leverage Covenants and the Interest Coverage
Covenant as defined in the Senior Credit Facility. The lender's agent and the
requisite lenders waived these violations of covenants pursuant to the terms
contained in the Second Amendment to the Credit Agreement and Limited Waiver
("Second Amendment"). The Second Amendment, dated March 19, 2003, changed
certain covenant requirements, established the applicable LIBOR margin at 5.0%
for the term debt and 4.5% for the revolver debt, until the later of March 31,
2004 or the delivery of the audited 2003 financials statements. The revolving
credit portion of the facility was also reduced from $60 million to $50 million.
In addition, the Company failed to make a $6.7 million scheduled
subordinated note interest payment in February 2003. The Company subsequently
made the required interest payment within the cure period specified in the
Notes.
Under a Guaranty between the senior bank group and Trivest, Trivest agreed
to guarantee up to $13.4 million of the Company's obligations to pay interest on
the subordinated indebtedness. The Reimbursement Agreement obligates the Company
to reimburse Trivest for any funds paid by it pursuant to the Guaranty.
The following tables set forth the Company's contractual obligations and
commitments.
- --------------------------- ------------- ------------- -------------- ------------- -------------
(In Thousands) Payments Due By Period
- --------------------------- ----------------------------------------------------------------------
Contractual 1 year 2-3 4-5 After 5
Obligations Total or less years years years
- --------------------------- ------------- ------------- -------------- ------------- -------------
Long-Term Debt 112,500
249,435 9,375 127,560 -
- --------------------------- ------------- ------------- -------------- ------------- -------------
IDB Debt 3,250 325 650 650 1,625
- --------------------------- ------------- ------------- -------------- ------------- -------------
Operating Leases
23,438 5,083 7,315 6,004 5,036
- --------------------------- ------------- ------------- -------------- ------------- -------------
- --------------------------- -------------- ------------- ------------- ------------- -------------
(In Thousands) Commitment Expiration Per Period
- --------------------------- -------------- ----------------------------------------- -------------
Total
Contractual Amounts 1 year 2-3 4-5 After 5
Obligations Committed or less years years years
- --------------------------- -------------- ------------- ------------- ------------- -------------
Standby Letters of
Credit 5,488 5,488 - - -
- --------------------------- -------------- ------------- ------------- ------------- -------------
RELATED PARTY TRANSACTIONS
In October 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. As a
result of acquisitions during 2000, the annual base compensation was increased
to $400,000. In 2001, as a result of acquisitions, the annual base compensation
was increased to $750,000. For the year ended December 31, 2002, 2001 and 2000,
the amount expensed was $764,000, $651,000 and $393,000, respectively. Under the
agreement, during 2001, the Company also paid Trivest $1,300,000 in connection
with the acquisition of Former Brown Jordan. During 2000, the Company paid
Trivest $631,000 in connection with the Wabash acquisition and $478,000 in
connection with the Charter acquisition. Trivest and its affiliates made
additional equity investments into Holdings of approximately $48.0 million in
2001, in support of the Former Brown Jordan acquisition. In addition, Trivest
and its affiliates contributed approximately $6.1 million in support of
acquisitions in 2000. Pursuant to the Second Amendment to the Senior Credit
Facility the Company will continue to expense the management fee of $750,000 but
is restricted to paying only $350,000 during the period of the Second Amendment.
As a result of the Former Brown Jordan acquisition the Company acquired
approximately 20% ownership of Lexman Holdings, Limited, ("Lexman"). Lexman is
the sole equity holder of Leisure Garden, a furniture manufacturer in the
People's Republic of China. The Company had a long-term supply agreement with
Lexman providing for the Company to purchase a minimum of $10,000,000 of
furniture per year. In calendar 2002 the Company purchased approximately
$92,000,000 from Leisure Garden. The agreement with Leisure Garden expired in
2001. In addition, the Company reported dividend income from Leisure Garden, in
2002 of $1,000,000 and of $700,000 in 2001. In December 2002 the Company
divested its interest in Lexman for $4.3 million in cash and the return of the
shares owned by the principals of Lexman and Leisure Garden in Holdings. The
Company did not realize any gain or loss from the sale of this asset, but did
record a reduction of additional paid in capital of $195,000 as a result of the
return of the shares of Holdings.
FOREIGN EXCHANGE FLUCTUATIONS AND EFFECTS OF INFLATION
BJI purchases some raw materials from several Italian suppliers. In
addition, the Company funds some expenses for its Juarez, Mexico manufacturing
facility. These transactions expose the Company to the effects of fluctuations
in the value of the U.S. dollar versus the Euro and Mexican Peso. If the U.S.
dollar declines in value versus these foreign currencies, the Company will pay
more in U.S. dollars for these transactions. To reduce its exposure to loss from
such potential foreign exchange fluctuations, the Company will occasionally
enter into foreign exchange forward contracts. These contracts allow the Company
to buy Euros and Mexican Pesos at a predetermined exchange rate and thereby
transfer the risk of subsequent exchange rate fluctuations to a third party.
Consequently, the Company elected to hedge a portion of its exposure to
purchases made in 2002 by entering into foreign currency forward contracts, with
a value of $1.5 million, none of which were outstanding and unsettled at
December 31, 2002. Further, the Company entered into Mexican Peso forward
contracts during 2002, with a value of $4.2 million, none of which were
outstanding at December 31, 2002. The Company did not incur significant gains or
losses during 2002 as a result of these foreign currency transactions. The
Company's hedging activities relate solely to its component purchases in Italy
and operations funding in Mexico. The Company does not speculate in foreign
currency.
Inflation has not had a significant impact on us in the past three years,
and management does not expect inflation to have a significant impact in the
foreseeable future.
CRITICAL ACCOUNTING POLICIES
General
Management's discussion and analysis of its financial condition and results
of operations are based upon the Company's