UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended

June 25, 2004

For the transition period from ________ to ________

Commission file number 0-25246

BROWN JORDAN INTERNATIONAL, INC.

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The number of shares of Common Stock, $.01 par value per share, of the registrant outstanding as of October 1, 2004 was 1,000. The registrant has no securities registered pursuant to Sections 12(b) or 12(g) nor are any securities listed or trading on any market. The registrant files periodic reports under the Securities Exchange Act of 1934 solely to comply with requirements under the 12 3/4% Senior Subordinated Notes Due 2007 Indenture and the Senior Secured Notes due May 1, 2007.

Brown Jordan International, Inc.

INDEX TO ITEMS

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PART I

ITEM 1. FINANCIAL STATEMENTS

Brown Jordan International, Inc. and Subsidiaries

The accompanying notes are an integral part of these financial statements.

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Brown Jordan International, Inc. and Subsidiaries

The accompanying notes are an integral part of these financial statements.

4

Brown Jordan International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)

The accompanying notes are an integral part of these financial statements.

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Brown Jordan International, Inc. and Subsidiaries

Note 1 – Business and Organization

Business

Brown Jordan International, Inc. (“BJI” or the “Company”) is engaged in the design, marketing, manufacture and distribution of outdoor furniture, ready-to-assemble (“RTA”) furniture, contract and hospitality seating products and site amenity products. The Company accesses the market through the retail and contract channels. In the retail channel, BJI’s furniture products are distributed through specialty stores, national accounts and traditional furniture stores. BJI’s RTA products include promotionally priced furniture products and are distributed through the retail channel to national accounts, catalog wholesalers and specialty retailers. BJI’s contract and hospitality furniture products are distributed through the contract channel to a customer base, which includes architectural design firms, restaurants and hospitality chains. Site amenity products, which include park benches, picnic tables and accessories, are marketed through distributors to the end user. The Company’s products are constructed of extruded and tubular aluminum, wrought iron, cast aluminum, expanded mesh, sheet and tubular steel, wood and fabric.

Organization

Prior to the 2001 acquisition of the entity formerly known as Brown Jordan International, Inc. (“Former Brown Jordan”), WinsLoew 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.

All shares of WinsLoew’s common stock that were outstanding immediately prior to the merger (850,497 shares) were converted into shares of common stock of Holdings. Each warrant or option to purchase shares of WinsLoew’s common stock was converted into a warrant or option to purchase an equivalent number of shares of common stock of Holdings. In addition, 1,000 shares of previously unissued WinsLoew common stock were then issued to WLFI Holdings, Inc. Affiliates of Trivest Partners, L. P. (“Trivest”) are majority shareholders of Holdings. Trivest, Holdings and the Company have certain common shareholders, officers and directors.

Because there was no change in the stock ownership of WinsLoew as a result of the recapitalization, there was no change in the basis of the Company’s assets or liabilities.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of Brown Jordan International, Inc. and subsidiaries are for interim periods and do not include all disclosures provided in the annual consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission.

All material intercompany balances and transactions have been eliminated. The preparation of the consolidated financial statements requires the use of estimates in the amounts reported. Actual results may differ from those estimates.

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the results for the interim periods. The results of operations are presented for the Company’s three and six month periods ended June 25, 2004 and June 27, 2003. The results of operations for these periods are not necessarily indicative of the results to be expected for the full year.

Reclassifications

Certain prior period balances have been reclassified to conform to current period presentation.

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies – (continued)

Stock Options

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and its interpretations in accounting for its stock options and other stock-based employee compensation awards and the disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Under the provisions of APB No. 25, no compensation expense has been recognized for stock option grants as the exercise prices are at or greater than the fair value of shares at the date of the grant. The fair value of the options was calculated using the minimum value methodology as allowed under SFAS No. 123 for companies that do not have publicly traded equity.

Pro forma impact on the Company’s results is as follows:

New Accounting Standards

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” an Interpretation of Accounting Research Bulletin (“ARB”) No. 51, “Consolidated Financial Statements.” FIN 46 addresses the consolidation by business enterprises of variable interest entities (“VIEs”) either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (“Revised Interpretations”) resulting in multiple effective dates based on the nature and creation date of the VIE. The Revised Interpretations must be applied to all VIEs no later than the end of the first interim or annual reporting period ending after March 15, 2004. However, prior to the required application of the Revised Interpretations, its provisions must be adopted by the end of the first interim or annual reporting period that ends after December 15, 2003 (for the year ended December 31, 2003 for the Company) for VIEs considered to be special purpose entities (“SPEs”). SPEs for this provision include any entity whose activities are primarily related to securitizations or other forms of asset-backed financings or single-lessee leasing arrangements. The Company does not have any SPEs. The Company completed its evaluation of the effect of adopting FIN 46 and has concluded that there will be no impact on its financial position, results of operations and cash flows. Also see Note 4 to the Unaudited Consolidated Financial Statements for additional discussion.

Income Taxes

The Company accounts for income taxes under the liability method pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under the liability method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies – (continued)

Income Taxes – (continued)

rates and laws that will be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to more likely than not be realizable in future periods.

Due to the recent losses recognized by the Company, a valuation allowance was recorded to offset the income tax benefit related to the net operating losses generated in 2004, because the Company believes it is unlikely such benefit will be realized. The effective tax rate for the three and six month periods ended June 27, 2003 was 35.0% and 41.2%, respectively.

Pursuant to a tax sharing agreement between Holdings and the Company and its subsidiaries, the Company was included in the consolidated federal income tax return and certain consolidated state income tax returns of Holdings for all taxable periods ended on or prior to December 31, 2002 and will be included in the consolidated federal income tax return and certain consolidated state income tax returns for the year ended December 31, 2003.

Note 3 – Inventories

Inventories consist of the following:

Note 4 – Investment in Joint Venture

In December 2002, the Company entered into a joint venture with Shian Industry [Hong Kong] Company Limited (“Shian”) to build a research and design center and a model showroom in Shanghai, China. The facility, called the “Center of Excellence,” is dedicated exclusively to BJI products. The Center of Excellence became fully operational as of the beginning of the second quarter of 2004.

The Company has determined that its investment in the joint venture does not meet the criteria set forth in FIN 46 such that consolidation of the results of operations and assets and liabilities of the joint venture with the Company’s results would be required; accordingly, the joint venture is accounted for using the equity method of accounting. The carrying value of the investment in the joint venture was $0 as of June 25, 2004 and December 31, 2003. BJI’s share of the joint venture losses and an investment in the joint venture are not recorded in the accompanying Unaudited Consolidated Financial Statements as BJI has not made an investment in the joint venture and is not required to provide current or future funding.

Note 5 – Long-Term Debt

New Financing Arrangements

On March 31, 2004, the Company entered into new financing arrangements that consist of a (i) Loan and Security Agreement (“Revolver”), a $90.0 million asset based revolving credit facility with new lenders and (ii) $135.0 million Senior Secured Notes due May 1, 2007 (“Senior Notes”) with another lender.

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 5 – Long-Term Debt – (continued)

New Financing Arrangements – (continued)

Proceeds under these two new facilities were used to (i) repay all outstanding balances under the Company’s former senior credit facility, which was terminated on March 31, 2004, (ii) pay all former indebtedness to Trivest, including an advance by Trivest for the interest payment to the holders of the Company’s senior subordinated notes ($6.9 million), a payment of $3.5 million paid to the former lenders under the then former senior credit facility by Trivest with related fees and interest ($3.9 million in total), financial advisors’ fees ($0.8 million) and management fees accrued as of December 31, 2003, as well as fees earned and accrued through March 31, 2004 ($0.5 million in total), (iii) pay interest rate swap termination fees, and (iv) pay fees and expenses relating to the new financing transactions. Upon the closing of the transactions, $189.2 million ($54.2 million under the Revolver and $135.0 million under the Senior Notes) was drawn under the new facilities. The Company had been operating under a forbearance agreement with its former lenders as of January 9, 2004 that, as amended, provided for a forbearance period through March 31, 2004, while the new financing was arranged.

The termination of the former senior credit facility resulted in the write-off of deferred financing fees of $4.9 million and the settlement of the obligation for the interest rate swap (Note 6) in the quarter ended June 25, 2004. The write-off of deferred financing fees is included in “Interest expense, net” in the accompanying Unaudited Consolidated Statements of Operations.

The Revolver

The Revolver’s availability is based on a borrowing base consisting of the Company’s eligible accounts receivable and inventories. The interest rate on borrowings under the Revolver is based on the base rate (which is defined as a variable rate of interest per annum equal to the highest of the prime rate, reference rate, base rate or other similar rate as determined by the lender) plus 0.25% per year (the “Bank Prime Loan Rate”), or at the election of the Company, the applicable London Interbank Offering Rate (“LIBOR”) plus 2.25% per year (the “Eurodollar Rate”). The Company also pays an unused facility fee equal to 0.375% per annum on the average unused daily balance of the Revolver. Borrowings under the Revolver are secured by a first priority lien on substantially all of the Company’s accounts receivable, inventories, fixed assets and intangible assets. The Revolver contains a $10.0 million swing-line sub-facility (“Swing-Line”), which accrues interest at the Bank Prime Loan Rate per year. The Revolver terminates on May 1, 2007, unless terminated earlier by the Company. A termination fee of $0.9 million will be due to the lenders if the Company elects to terminate prior to March 31, 2005. As of June 25, 2004, the interest rate on the outstanding balance was 3.75% and was based on the Eurodollar Rate. As of June 25, 2004, the Company had availability under the Revolver of $13.8 million and cash on hand of $3.1 million.

The Revolver also provides for a $15.0 million letter of credit sub-facility. The aggregate amount of such letters of credit may not exceed the lesser of (i) $15.0 million, (ii) an amount equal to the $90.0 million aggregate commitment under the Revolver less the aggregate outstanding principal balance of the Revolver and Swing-Line or (iii) the borrowing base less the aggregate outstanding principal balance of the Revolver and Swing-Line. However, the letters of credit with respect to any of the Company’s business segments (as defined in the Revolver) may not exceed the sum of (i) the outstanding Revolver advances and Swing-Line loans to such business segment plus (ii) the outstanding letters of credit to exceed such business unit’s borrowing base. Fees associated with the letters of credit are equal to the Bank Prime Loan Rate per year based upon the face amount of the letters of credit. As of June 25, 2004, the Company had $7.2 million of letters of credit outstanding, primarily related to insurance programs and collateralization of an industrial development obligation.

The Revolver contains customary covenants and restrictions on the Company’s and its subsidiaries’ ability to issue additional debt or engage in certain activities and certain affirmative covenants, including, but not limited to, reporting requirements. The Revolver, prior to the amendment on September 13, 2004, specified that the Company must maintain a minimum of $5.0 million available borrowing capacity at all times, and provided that the Company maintained a minimum of $9.0 million of available borrowing capacity, the Revolver did not require compliance with financial covenants. The amendment on September 13, 2004 specifies that if availability falls below $9.0 million on or after December 31, 2004 and for any three consecutive business days during such month then ended, the Company is subject to a fixed charge ratio. The Revolver also contains events of default customary for credit agreements of this type, including failure to pay interest or principal when due and cross-default provisions relating to the Company’s other indebtedness in excess of $1.5 million. In the event of default and during the continuation thereof, borrowings under the Revolver will bear interest, at the option of the lender, at the then current Bank Prime Loan Rate plus 2.00% per annum or at the Eurodollar Rate plus 2.00% per annum.

The Revolver includes both a subjective acceleration clause and a lockbox arrangement that requires all lockbox receipts be

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 5 – Long-Term Debt – (continued)

The Revolver – (continued)

used to repay revolving credit borrowings. The balance outstanding under the Revolver as of June 25, 2004 of $29.3 million has been classified as “Current portion of long-term debt” in the accompanying Unaudited Consolidated Balance Sheet, in accordance with the provisions of Emerging Issues Task Force Issue No. 95-22, “Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements that Include both a Subjective Acceleration Clause and a Lockbox Arrangement” (“EITF No. 95-22”). The balance of the revolver outstanding under the former senior credit facility of $40.9 million as of December 31, 2003 was classified as current as the Company expected to refinance the former senior credit facility.

Senior Notes

The Senior Notes, which mature May 1, 2007, bear interest at a rate of LIBOR plus 9.0% per annum, reset quarterly. The Company will pay interest in arrears on each March 31, June 30, September 30 and December 31 and on the maturity date, which interest payment commencing, June 30, 2004. The Senior Notes are secured by a second priority lien on all of the Company’s accounts receivable, inventories, fixed assets and intangible assets and a first priority lien on the Company’s capital stock as well as the capital stock of all of the Company’s domestic subsidiaries. The Senior Notes are guaranteed by all of the Company’s domestic subsidiaries (the “Guarantors”). The Guarantors have fully, unconditionally, jointly and severally guaranteed the Company’s obligations under the notes. The Company’s subsidiaries other than the Guarantors are minor within the meaning of Rule 3-10(h)(6) of Regulation S-X of the Securities and Exchange Commission, and the Company has no independent assets or operations within the meaning of Rule 3-10(h)(5) of Regulation S-X. Holdings pledge of the Company’s stock is non-recourse to Holdings. As of June 25, 2004, the interest rate on the outstanding balance was 10.11%.

The Company may redeem, at its option, the Senior Notes, in whole or in part, from time to time after March 31, 2005 at the applicable redemption price as set forth below:

In addition, the Company may, at its option, elect on one occasion occurring on or prior to the 60 days following the completion of the Company’s audit for the year ended December 31, 2004 (but in any event, no later than June 30, 2005), to redeem at a redemption price of 100% of the principal amount thereof, plus accrued interest, a principal amount of the Senior Notes, not to exceed the lesser of (i) 5.0% of the principal amount of the Senior Notes issued and (ii) the amount of excess cash flow (as defined in the agreement) for the year ended December 31, 2004. The ability to redeem Senior Notes in accordance with this provision is contingent on the requirement that (i) no default or event of default shall have occurred and be continuing at such time, and (ii) that the report of the Company’s independent auditors in respect of the year ended December 31, 2004 is an “unqualified” audit report.

The Senior Notes contain various covenants customary for notes of a similar nature, including limitations on the activities of the Company and its subsidiaries to, among other things, (i) declare or pay cash dividends, (ii) modify the capital structure, (iii) acquire or retire indebtedness that is subordinate to the Senior Notes, (iv) issue preferred stock, (v) create or assume any indebtedness, (vi) sell, transfer or assign its properties or assets other then in the ordinary course of business, (vii) create or assume liens, (viii) enter into sale and leaseback transactions, and (ix) engage in mergers or acquisitions. In addition, the Senior Notes contain affirmative covenants including, but not limited to maintenance of the Company’s properties and reporting obligations. The Senior Notes also contain events of default customary for financing agreements of this type; including failure to pay interest on principal when due and cross-default provisions relating to the Company’s other indebtedness in excess of $5.0 million. In the event of default, holders of 33 1/3% or more in principal amount of the then outstanding Senior Notes may declare the principal amount of all of the Senior Notes due and payable immediately, by written notice to the Company, and upon such notice, such principal amount and any accrued and unpaid interest shall be immediately due and payable.

The Company paid $4.9 million in fees relating to the Revolver and the Senior Notes that will be amortized to interest expense over the 37-month period beginning March 31, 2004.

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 5 – Long-Term Debt – (continued)

Senior Subordinated Notes and Warrants

In connection with the merger described in Note 1, the Company issued 105,000 units (“Units”) consisting of $105 million aggregate principal amount at maturity of 12 3/4 % Senior Subordinated Notes due 2007 (“Notes”) and Warrants (“Warrants”) to purchase of 24,129 shares of capital stock. Each unit consists of $1,000 principal amount at maturity of Notes and a Warrant to purchase 0.2298 shares of common stock at an exercise price of $0.01 per share.

The 12 3/4% Senior Subordinated Notes Due 2007 Indenture (“Indenture”) under which the Notes are issued include provisions generally common in such indentures including restrictions on dividends, additional indebtedness and asset sales. At December 31, 2003, the Company was in compliance with such covenants. However, the Company failed to make the scheduled semi-annual interest payment when due on February 15, 2004 ($6.9 million) and August 15, 2004 ($6.7 million). The Company subsequently made these interest payments within the cure period specified in the Notes.

In March 2004, the Indenture was amended to, among other things, increase the level of permitted indebtedness under the Amended Facility from an aggregate amount not to exceed the greater of $155 million, or the sum of $125 million, plus 60% of the inventory of the Company, plus 85% of the accounts receivable of the Company to an aggregate amount not to exceed $195 million, or the sum of $125 million, plus 60% of the inventory of the Company, plus 85% of the accounts receivable of the Company.

Senior Credit Facility (“Amended Facility”)

As of December 31, 2003 and continuing through March 31, 2004, the Company was not in compliance with certain provisions of its senior credit facility, including certain financial covenants contained within the agreement. These violations constituted events of default. On January 9, 2004, the Company entered into a forbearance agreement with its lenders under the senior credit facility that, as amended, (the “Amended Facility”) provided for a forbearance period through March 31, 2004 under which the senior lenders would not exercise certain rights and remedies that could result from the Company’s default. During the forbearance period, the Company arranged for new financing with new lenders and repaid the Amended Facility in full by March 31, 2004, as discussed above under “New Financing Arrangements.”

The Amended Facility provided for borrowings of up to $215 million. The Amended Facility was collateralized by substantially all of the assets of the Company and was secured by a pledge of the capital stock of all the Company’s domestic subsidiaries. The Amended Facility consisted of a revolving line of credit (maximum of $50 million) and a term loan (aggregate of $165 million, of which $34.9 million was repaid as of March 26, 2004). The revolving line of credit allowed the Company to borrow funds up to a certain percentage of eligible inventories and accounts receivable. At the option of the Company, the interest rates under the Amended Facility were either: (1) the base rate, which is the higher of the prime lending rate or 0.5% in excess of the federal funds effective rate, plus a margin, or (2) the adjusted LIBOR rate plus a margin. The Amended Facility contained a floor of 2.5% on the LIBOR rate. The margins of different loans under the Amended Facility varied according to a pricing grid. The margin for term loans that were LIBOR based was 5.0% while the margin for revolving loans that were LIBOR based was 4.5%. Both LIBOR based term and revolving rates were based upon the Company’s consolidated total leverage ratio. Margins on base rate loans are the applicable LIBOR margin for such type loans less 1.0%. The Amended Facility contained a $5.0 million swing-line sub-facility, which accrued interest at the base rate per year. As of March 31, 2004, the Amended Facility was paid in full.

The Company also paid commitment fees at a rate per annum equal to 0.5% on the average daily excess of revolving loan commitments over the sum of the aggregate principal amount of outstanding revolving loans (but not any outstanding swing line loans) plus letter of credit usage.

Under a Guaranty between the senior bank group and Trivest, Trivest agreed to advance to the Company up to $13.4 million in respect of the Company’s obligations in 2003 to pay interest on the Company’s Senior Subordinated Notes indebtedness. A Reimbursement Agreement obligated the Company to reimburse Trivest for any funds paid by Trivest pursuant to the Guaranty. As of December 31, 2003, the Guaranty was called upon by the senior bank group. Trivest made a payment of $3.5 million to the lenders under the Amended Facility on the Company’s behalf. The Company repaid Trivest the $3.5 million, plus related fees and interest of $0.4 million out of proceeds from the new financings, as discussed above under New Financing Arrangements. With the pay off of the Amended Facility this Guaranty was terminated.

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 6 – Interest Rate Swap

On August 6, 2001, the Company entered into an interest rate swap agreement to fix the interest rate on $100 million principal amount of variable rate debt outstanding under the Amended Facility. The interest rate swap was designed to fix the adjusted LIBOR interest rate on $100 million at 5.09% through March 31, 2004 and on $80 million from March 31, 2004 to March 31, 2005.

On March 31, 2004, the interest rate swap agreement was terminated in connection with the Company’s new financing arrangements (Note 5). As a result of the termination of this contract, the Company settled its obligation for the interest rate swap with a cash payment of $4.2 million, which represented the fair value of the interest rate swap of $3.3 million and accrued interest of $0.9 million. The obligation for the interest rate swap was included in “Other accrued liabilities” in the accompanying Consolidated Balance Sheet. In addition, in connection with the termination of the interest rate swap, the Company recognized in “Interest expense, net” in the accompanying Unaudited Statement of Operations, $2.4 million that was included in “Other comprehensive income” related to the change in the fair value of the effective portion of the interest rate swap.

As of June 27, 2003, the fair value of the swap was recorded as a liability of $5.8 million. The portion of the change in fair value attributable to the ineffectiveness of the hedge is recorded in the accompanying statement of operations as “Interest expense, net” and was a reduction in interest expense of $0.4 million during the six month period ended June 27, 2003. The balance of the change in fair value of $0.6 million during the six month period ended June 27, 2003 is recorded in ‘Other comprehensive loss”, net of tax.

Note 7 – Consolidation of Manufacturing Operations

In May 2004, the Company announced its intention to close its manufacturing facility located in Medley, Florida. The Medley facility manufactures furniture products for both the Retail and Contract operating segments. The Company plans to move the Medley facility’s operations to other Company plants located in Haleyville, Alabama and Juarez, Mexico. The transition of the manufacturing operations is expected to be completed by the end of September 2004. This initiative resulted in the elimination of approximately 120 positions; we expect that substantially all of these positions will be eliminated by September 30, 2004. As a result of this initiative, the Company recorded charges of $1.6 million in the second quarter for (i) severance and other employee related costs ($0.3 million), (ii) a $0.1 million charge for inventory that will no longer be required as a result of the facility consolidation and (iii) $1.2 million in leasehold and equipment impairment, resulting from the write down to their estimated net realizable value. The Company is in the process of evaluating alternatives relating to the ultimate disposition of the operating lease for the building at the Medley facility.

The Company expects to incur costs of approximately $0.2 million during the third quarter for labor and freight expenses associated with relocating inventory to the Haleyville and Juarez facilities and for costs associated with cleaning up the facility once vacated. As of June 25, 2004, no employees have been terminated and accordingly, no severance and related employee benefits have been paid. The accrual balance as of June 25, 2004 of $0.3 million is included in “Other accrued liabilities” in the Unaudited Consolidated Balance Sheet.

The $1.6 million of costs associated with the closing of the Medley Facility was recorded as follows (in thousands):

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Brown Jordan International, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements

Note 8 – Related Party Transactions

In December 1994, the Company entered into a ten-year agreement (the “Investment Services Agreement”) with Trivest. Pursuant to the Investment Services Agreement, Trivest provides corporate finance, financial relations, strategic and capital planning and other management advice to the Company. The Investment Services Agreement, as amended from time to time, provides for an annual base compensation of $750,000, which is to be adjusted annually for increases in the Consumer Price Index. For the year ended December 31, 2003, the annual compensation was $770,000. Pursuant to the second amendment to the Amended Facility, the Company expensed the entire management fee annually, but was restricted to paying only $350,000 during the period of the second amendment.

On March 31, 2004, in connection with the Company’s new financing arrangements, the Investment Services Agreement with Trivest was amended to (i) provide for the payment of accrued, unpaid management fees, (ii) provide for an additional incentive fee of $0.8 million for services provided in connection with the new financing arrangements, (iii) reduce the annual base compensation to $350,000 and (iv) provide for a component of compensation that is based on the Company’s performance (“Performance Compensation”), as defined in the amendment to the Investment Services Agreement. The Performance Compensation is not to exceed $400,000 in any year. The annual base compensation will be adjusted annually to reflect any increase from the prior year in the Consumer Price Index, with the first such adjustment to occur as of January 1, 2005.

For the three and six month periods ended June 25, 2004, the amount expensed related to the Investment Services Agreement was $87,500, and $280,000, respectively. For the three and six month periods ended June 27, 2003, the amount expensed in selling, general and administration expense related to the Investment Services Agreement was $162,600, and $385,000, respectively.

As a condition to the extension of the forbearance period under the Company’s former Amended Facility, Trivest provided the Company with an advance for the financing of the interest payment due in February 2004 to holders of the Senior Subordinated Notes ($6.9 million). In addition, on March 5, 2004, Trivest made a payment of $3.5 million to the Company’s lenders under the Amended Facility on the Company’s behalf. In the second quarter of 2004, the Company: (i) repaid Trivest for the advance of the $6.9 million interest payment