<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission File No. 1-4115
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ZENITH ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-1996520
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1000 Milwaukee Avenue, Glenview, 60025-2493
Illinois (Zip Code)
(Address of principal executive
offices)
(847) 391-7000
(Registrant's telephone number, including area code)
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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
As of October 29, 1999, there were 67,525,447 shares of Common Stock, par
value $1 per share, outstanding. As of November 9, 1999, there were 1,000
shares of common stock, par value $0.01 per share outstanding as a result of
the company's consummation of its Chapter 11 prepackaged plan.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZENITH ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Millions, Except Per Share Amounts
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ------------------
Oct. 2, Sept. 26, Oct. 2, Sept. 26,
1999 1998 1999 1998
-------- ---------- ------- ---------
<S> <C> <C> <C> <C>
Net sales.............................. $ 228.0 $ 230.4 $595.8 $ 675.1
-------- --------- ------ -------
Costs, expenses and other:
Cost of products sold................ 203.6 203.3 533.8 621.6
Selling, general and administrative.. 24.6 31.5 75.9 93.4
Engineering and research............. 7.6 9.8 23.0 32.0
Other operating expense (income), net
(Note 4)............................ (8.1) (9.2) (23.7) (24.3)
Restructuring charges (Note 3)....... 5.1 100.4 12.5 107.8
-------- --------- ------ -------
Operating loss......................... (4.8) (105.4) (25.7) (155.4)
Gain on asset sales, net............... 2.9 -- 2.9 0.1
Interest expense (contractual interest
for the three and nine month periods
ended October 2, 1999 was ($2.7) and
($6.6), respectively) (Note 2)........ (2.0) (4.1) (5.9) (12.2)
Interest expense--related party
(contractual interest for the three
and nine month periods ended October
2, 1999 was ($9.2) and ($29.5),
respectively) (Note 2)................ (7.1) (9.6) (27.4) (21.0)
Interest income........................ 0.3 0.1 0.9 0.7
-------- --------- ------ -------
Loss before reorganization items and
income taxes.......................... (10.7) (119.0) (55.2) (187.8)
Reorganization items (Note 3):
Professional fees.................... (0.8) -- (0.8) --
Write off deferred debt issuance
costs............................... (1.3) -- (1.3) --
-------- --------- ------ -------
Loss before income taxes............... (12.8) (119.0) (57.3) (187.8)
Income taxes........................... 0.2 -- 1.7 --
-------- --------- ------ -------
Net loss............................... $ (13.0) $ (119.0) $(59.0) $(187.8)
======== ========= ====== =======
Net loss per share of basic and diluted
common stock (Note 5)................. $ (0.19) $ (1.76) $(0.87) $ (2.78)
======== ========= ====== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
ZENITH ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In Millions
<TABLE>
<CAPTION>
Dec.
Oct. 2, 31, Sept. 26,
1999 1998 1998
------- ------- ---------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash............................................. $ -- $ -- $ --
Receivables, net of allowance for doubtful
accounts of $23.2, $42.0 and $36.3,
respectively.................................... 125.6 127.0 143.4
Receivable from related party.................... 11.4 8.5 --
Inventories (Note 7)............................. 121.1 84.2 164.8
Other............................................ 25.4 10.8 14.5
------- ------- -------
Total current assets........................... 283.5 230.5 322.7
Property, plant and equipment, net................. 41.3 50.2 155.1
Property held for disposal (Note 11)............... 1.6 43.0 --
Receivable from related party...................... 11.8 21.3 21.3
Other noncurrent assets............................ 8.3 5.0 5.3
------- ------- -------
Total assets................................... $ 346.5 $ 350.0 $ 504.4
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities not subject to compromise
Current liabilities:
Short-term debt (Note 8)......................... $ 78.1 $ 47.8 $ 107.8
Short-term debt with related party (Note 8)...... 132.0 192.1 192.1
Current portion of long-term debt (Note 8)....... -- 5.8 5.8
Accounts payable................................. 60.0 48.1 87.8
Accounts payable with related party (Note 9)..... 1.1 136.1 134.9
Income taxes payable............................. 5.4 4.2 0.6
Accrued expenses................................. 157.3 167.8 143.4
------- ------- -------
Total current liabilities...................... 433.9 601.9 672.4
Long-term liabilities.............................. 6.3 3.6 --
Long-term liabilities with related party........... 10.9 11.2 11.0
Long-term debt (Note 8)............................ -- 97.8 97.8
------- ------- -------
Total liabilities not subject to compromise.... 451.1 714.5 781.2
Liabilities subject to compromise (Note 2)......... 318.9 -- --
Stockholders' equity:
Preferred stock.................................. -- -- --
Common stock..................................... 67.6 67.6 67.6
Additional paid-in capital....................... 506.8 506.8 506.8
Retained earnings (deficit)...................... (996.2) (937.2) (849.5)
Treasury stock................................... (1.7) (1.7) (1.7)
------- ------- -------
Total stockholders' equity..................... (423.5) (364.5) (276.8)
------- ------- -------
Total liabilities and stockholders' equity..... $ 346.5 $ 350.0 $ 504.4
======= ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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ZENITH ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In Millions
<TABLE>
<CAPTION>
Increase (Decrease)
in Cash
Nine Months Ended
-----------------------
Oct. 2, Sept. 26,
1999 1998
--------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss, including reorganization items.............. $ (59.0) $ (187.8)
Adjustments to reconcile net loss to net cash used by
operations:
Depreciation........................................ 12.1 24.4
Other............................................... (5.4) (1.8)
Gain on asset sales, net............................ (2.9) (0.1)
Non-cash restructuring charges...................... -- 95.4
Changes in assets and liabilities:
Current accounts.................................. (58.3) (18.3)
Other assets...................................... 6.2 3.0
Other liabilities................................. 2.4 3.1
--------- ----------
Net cash used by operating activities................. (104.9) (82.1)
--------- ----------
Cash flows from investing activities:
Capital additions................................... (2.5) (6.4)
Proceeds from asset sales........................... 49.0 36.2
Distribution of investor certificates............... -- (41.0)
--------- ----------
Net cash provided (used) by investing activities...... 46.5 (11.2)
--------- ----------
Cash flows from financing activities:
Short-term borrowings, net.......................... 58.4 137.8
Principal payments on long-term debt................ -- (44.5)
--------- ----------
Net cash provided by financing activities............. 58.4 93.3
--------- ----------
Increase in cash...................................... -- --
Cash at beginning of period........................... -- --
--------- ----------
Cash at end of period................................. $ -- $ --
========= ==========
Increase (decrease) in cash attributable to changes in
current accounts:
Receivables, net.................................... $ (1.5) $ (121.7)
Transferor certificates............................. -- 110.7
Income taxes, net................................... 1.2 (0.1)
Inventories......................................... (36.9) 0.7
Other assets........................................ (14.6) 6.8
Accounts payable and accrued expenses............... (6.5) (14.7)
--------- ----------
Net change in current accounts........................ $ (58.3) $ (18.3)
========= ==========
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for
Interest............................................ $ 14.3 $ 28.4
Income taxes........................................ 0.5 (0.8)
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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ZENITH ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note One--Basis of presentation
The accompanying unaudited condensed consolidated financial statements
("financial statements") have been prepared in accordance with generally
accepted accounting principles and pursuant to the rules and regulations of
the Securities and Exchange Commission. The accuracy of the amounts in the
financial statements is in some respects dependent upon facts that will exist,
and procedures that will be performed by the company, later in the year. In
the opinion of management, all adjustments necessary for a fair presentation
of the financial statements have been included and are of a normal, recurring
nature. For further information, refer to the consolidated financial
statements and notes thereto included in the company's Form 10-K for the year
ended December 31, 1998.
Note Two--Filing of Plan of Reorganization
On August 23, 1999, a voluntary petition for relief under Chapter 11 of
Title 11 of the U.S. Code was filed by the company in the U.S. Bankruptcy
Court for the District of Delaware. The filing followed approval of the plan
of reorganization by holders of the company's 6 1/4 percent subordinated
debentures due 2011. LG Electronics Inc. ("LGE") and Citibank, as secured
creditors, also approved the plan of reorganization. See Note Twelve for
subsequent event.
The prepackaged plan provides that, upon consummation of the company's
reorganization, current holders of the $103.5 million in principal amount of
the 6 1/4 percent subordinated debentures will receive $50.0 million of new
8.19 percent senior debentures maturing in November 2009.
Under the plan, all outstanding common stock will be canceled, and
stockholders will receive no distribution and retain no property. LGE will
exchange $200.0 million of its allowed claims for 100 percent of the equity of
the reorganized company and will exchange the remainder of its claims for
certain assets and new restructured notes, interest on which is payable in
kind under certain circumstances.
The 6 1/4 percent subordinated debentures due 2011 ($103.5 million) and
unsecured and partially secured debt payable to LGE are shown in the October
2, 1999 balance sheet as "Liabilities subject to compromise". The debt payable
to LGE subject to compromise includes the extended-term payables ($127.1
million) and the debt related to LGE's payment under the guarantees of the
leveraged leases ($88.3 million).
As previously announced, under the plan, trade creditors and vendors will
not be impaired and will continue to be paid in the ordinary course of
business. The company also will continue to pay employees' pre-petition and
post-petition wages, salaries and benefits without interruption and fulfill
obligations to customers throughout the reorganization.
Pursuant to an order of the Bankruptcy Court entered on August 24, 1999,
hearings to consider approval of the prepackaged plan were held on September
27 and 28, 1999. See Note Twelve for subsequent event.
Interest expense was $9.1 million and $33.3 million in the three and nine
month periods ended October 2, 1999, respectively. Contractual interest was
$11.9 million and $36.1 million in these same periods. The $2.8 million
difference reflects the suspension of contractual interest on the 6 1/4
percent subordinated debentures and unsecured and partially secured debt with
LGE discussed above as a result of the Chapter 11 filing and, in accordance
with SOP 90-7, suspension of interest expense accruals.
5
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Note Three--Restructuring charges and reorganization items
During the three months and nine months ended October 2, 1999, the company
recorded $5.1 million and $12.5 million, respectively, of restructuring
charges, primarily related to costs associated with work performed by outside
consulting and law firms to support the development of the operational and
financial restructuring plans and the prepackaged plan of reorganization. In
addition, for the period from the filing of the petition for relief on August
23, 1999 to October 2, 1999, the company incurred $0.8 million of professional
fees for purposes discussed above which was included in reorganization items.
Deferred debt issuance costs ($1.3 million) related to debt to be restructured
pursuant to the prepackaged plan of reorganization were also written off and
included in reorganization items.
During the first nine months of 1998, the company recorded $107.8 million
of restructuring charges. Of this total amount, $100.4 million was recorded
during the third quarter of 1998 and related to (i) a $68.8 million loss on
the termination of the company's leveraged lease, (ii) $32.3 million of
deferred charges (bank, attorney and guarantee fees) that were written off,
(iii) accelerated amortization of the remaining deferred gain ($9.1 million)
related to the 1997 sale of the assets into the leveraged lease, (iv) $7.0
million of professional fees (for services as discussed above) and financing
charges (relative to amending the Citicorp credit agreement), and (v) $1.4
million of other charges, related primarily to the company's exiting of its
analog set-top box product line.
A summary of the restructuring reserve recorded in 1998 and 1999 is as
follows (in millions):
<TABLE>
<CAPTION>
Restructuring 1999 1999 Restructuring
Reserve at Restructuring Cash Reserve at
Dec. 31, 1998 Charges Payments Oct. 2, 1999
------------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Severance and other
employee costs.......... $15.4 $ 2.7 $(12.7) $ 5.4
Plant closure and
business exit cost...... 15.0 0.3 (10.4) 4.9
Professional fees........ 0.6 9.5 (9.3) 0.8
Other.................... 0.3 -- (0.3) --
----- ----- ------ -----
Total restructuring
reserve............... $31.3 $12.5 $(32.7) $11.1
===== ===== ====== =====
</TABLE>
The $11.1 million reserve appears, at this time, to be adequate to cover
the remaining costs of the restructuring activity identified at December 31,
1998.
In addition, as of December 31, 1998 and October 2, 1999, the company has
reserves for asset impairment of $103.7 million and $87.0 million,
respectively, which were provided for in 1997 and 1998 and are included in
fixed assets, and, for certain environmental liabilities, in accrued expenses.
Note Four--Other operating expense (income)
Other operating expense (income) consisted of the following (in millions):
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
----------------- ------------------
Oct. 2, Sept. 26, Oct. 2, Sept. 26,
1999 1998 1999 1998
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Royalty income--tuner system patents... $(7.7) $(7.7) $(21.0) $(20.4)
Royalty income--VCR direct ship........ (0.4) (0.7) (1.5) (1.2)
Royalty income--other.................. (0.4) (0.6) (2.3) (1.7)
Bank fees.............................. 0.6 0.9 1.5 1.8
Other.................................. (0.2) (1.1) (0.4) (2.8)
----- ----- ------ ------
Total other operating income, net.... $(8.1) $(9.2) $(23.7) $(24.3)
===== ===== ====== ======
</TABLE>
6
<PAGE>
Note Five--Loss per share
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", the company computed basic loss per share by dividing
net loss by the weighted average number of shares of common stock outstanding
during the periods. Diluted loss per share, assuming conversion of the 6 1/4
percent convertible subordinated debentures due 2011 and outstanding stock
options, is not presented because the effect of the assumed conversion is
antidilutive. The weighted average number of shares was 67.5 million for the
three months and nine months ended October 2, 1999 and for the three months
and nine months ended September 26, 1998. As discussed above, all currently
outstanding common stock will be canceled and pursuant to the plan of
reorganization, LGE will exchange $200.0 million of its claims for 100 percent
of the equity of the reorganized company.
Note Six--Receivables
During the third quarter of 1998, the company's trade receivable
securitization was terminated. As a result, the company's financial statements
reflect that receivables, net of allowance for doubtful accounts, are no
longer sold and transferor certificates (which represented the company's
retained interest in the pool of receivables that were sold) do not exist.
Note Seven--Inventories
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
Oct. 2, Dec. 31, Sept. 26,
1999 1998 1998
------- -------- ---------
<S> <C> <C> <C>
Raw materials and work-in-process................. $ 25.5 $47.1 $ 71.2
Finished goods.................................... 95.6 37.1 93.6
------ ----- ------
Total inventories............................... $121.1 $84.2 $164.8
====== ===== ======
</TABLE>
Note Eight--Short-term debt and credit arrangements; Long-term debt
Between November 1997 and February 1998, the company entered into a series
of new financing transactions designed to enhance the company's liquidity and
financial flexibility. The company obtained a total of $110.0 million in
unsecured and uncommitted credit facilities through four lines of credit with
various lenders. The credit lines were guaranteed by LGE for which LGE is
entitled to receive a fee in an amount up to 2.0 percent of the outstanding
amount of the loans. During the second and third quarter of 1998, LGE made
payments under demands against guarantees on $72.0 million of the facilities;
during the second quarter of 1999, LGE made payment under demands against a
guarantee on $30.0 million and the company is obligated to LGE for all these
payments plus interest. The company's obligations to LGE are secured by a
second lien on certain assets of the company.
In March 1998, the company entered into a secured credit facility with LGE
which provides for borrowings of up to $45.0 million. As of October 2, 1999,
$30.0 million was outstanding under the facility. See Note Nine for further
discussion.
In April 1997, the company entered into a sale-leaseback transaction
whereby the company sold and leased back manufacturing equipment in its
Melrose Park, Illinois, plant and in its Reynosa and Juarez, Mexico,
facilities. The company's payment obligations, along with certain other items
under the lease agreement, were fully guaranteed by LGE. In July 1998, LGE
made payment under the guarantees of the leases in the amount of $90.1 million
under a negotiated settlement with the lessor. As equipment previously
included in the sale-leaseback transaction is sold, the proceeds of such sales
will reduce the company's debt to LGE for this payment. As a result of initial
asset sales and subsequent payments to LGE, the company's October 2, 1999
balance sheet reflects a reduced $88.3 million liability to LGE (included in
"Liabilities subject to compromise"). The December 31, 1998
7
<PAGE>
and September 26, 1998 balance sheets reflect a $90.1 million current
liability to LGE (included in "Short-term debt with related party").
On March 31, 1999, the company entered into a Commitment Letter (the
"Commitment") with Citicorp North America, Inc. pursuant to which Citicorp
North America, Inc. agreed to (i) provide up to $150.0 million of debtor-in-
possession financing during the pendency of the company's bankruptcy
proceeding and (ii) provide a new three-year $150.0 million credit facility
following completion of the company's bankruptcy proceeding, subject in each
case to borrowing base restrictions. The new facilities are secured by
substantially all of the company's assets and are subject to other terms and
conditions. The Commitment provides for interest on borrowings based on
specified margins above LIBOR or the prime rate. The debtor-in-possession
financing was approved by the Bankruptcy Court on an interim basis on August
24, 1999, and on a final basis on September 27, 1999. A portion of the
proceeds of the borrowings under this agreement were used to repay all loans
outstanding under the company's existing Citibank credit facility. The debtor-
in-possession facility contains covenants which, among other things, restrict
the ability of the company and its subsidiaries to incur indebtedness, issue
guarantees, incur liens, declare dividends or pay management or consulting
fees to affiliates, make loans and investments and engage in transactions with
affiliates. The debtor-in-possession financing agreement terminates on the
earlier of the completion of the company's bankruptcy proceeding or February
24, 2000. The commitment to complete the post-bankruptcy agreement terminates
on October 31, 1999. As of October 2, 1999, $78.1 million was outstanding
under the debtor-in-possession financing. See Note Twelve for subsequent
event.
The new Citicorp credit facilities are in addition to the $60.0 million
post-restructuring credit support to be provided by LGE to the company
pursuant to the terms of the plan of reorganization. On March 29, 1999, the
company was advised by LGE that LGE had received Korean regulatory approval to
permit LGE to consummate the transactions set forth in the restructuring
agreement between the company and LGE, including authorization for LGE to
provide the company with the $60.0 million of post-restructuring credit
support, on the terms and conditions of the restructuring agreement.
The company did not make the April 1, 1999 sinking fund ($5.8 million) and
interest ($3.2 million) payments on its subordinated debentures due 2011. The
company's failure to make such payments on April 1, subject to grace periods
(if any) provided in the indenture, constitutes a default under the indenture
relating to the subordinated debentures.
The lenders under the Citicorp credit facility waived the cross default
under the credit facility related to the company's failure to make the
payments on the subordinated debentures. In addition, LGE waived the cross
default under the Note Agreement between LGE and the company and certain
related security documents related to the company's failure to make the
payments on the subordinated debentures.
Note Nine--Related party
In November 1995, a change in control of the company occurred, in which LGE
and an affiliate (LG Semicon Co., Ltd., which sold its shares of common stock
along with the associated common stock purchase rights to LGE in 1999)
purchased shares of the company pursuant to a combined tender offer and
purchase of newly issued shares of common stock from the company. As of
October 2, 1999, LGE owned 36,569,000 shares, excluding vested but unexercised
options, of common stock of the company, which represents 54.2 percent of the
outstanding common stock. Because LGE owns a majority of the issued and
outstanding common stock, it effectively controls the outcome of any matter
requiring action by a majority of the company's stockholders, including the
election of a majority of the company's directors and any future change in
control of the company. As stated above, under the plan of reorganization, LGE
will own 100 percent of the common stock of the company.
On August 7, 1998, the company entered into a Restructuring Agreement with
LGE which sets forth the terms and conditions pursuant to which LGE has agreed
to participate in and assist the company with its proposed financial and
operational restructuring plans.
8
<PAGE>
LGE is a leading international brand-name manufacturer of five main groups
of products: televisions; audio and video equipment; home appliances;
computers and office automation equipment; and other products, including video
displays, telecommunication products and components, and magnetic media. The
following represent the most significant transactions between the company and
LGE during the three and nine month periods ended October 2, 1999 and
September 26, 1998.
Product purchases: In the ordinary course of business, the company
purchases VCRs, television-VCR combinations and components from LGE and its
affiliates. The company purchased $15.6 million and $35.2 million of these
items during the three and nine month periods ended October 2, 1999,
respectively, and $11.6 million and $34.7 million of these items during the
three and nine month periods ended September 26, 1998, respectively. Sales of
products purchased from LGE and its affiliates contributed $10.7 million and
$23.8 million to sales during the three and nine month periods ended October
2, 1999, respectively, and $11.2 million and $46.5 million to sales during the
three and nine month periods ended September 26, 1998, respectively. The
purchase prices were the result of negotiations between the parties and were
consistent with third party bids.
In 1998, the company and LGE entered into a direct shipment arrangement
pursuant to which LGE sells and ships VCRs directly to the company's two
largest customers and pays the company a license fee for the use of the
company's brand names on such products and the inclusion of the company's
patented tuner technology in such products. The license fee payable by LGE is
comparable to licensing rates charged by the company to unrelated parties.
During the three and nine month periods ended October 2, 1999, the company
accrued approximately $0.4 million and $1.5 million, respectively, in
royalties for the use of the company's brand names pursuant to this direct
shipment program. The company accrued approximately $0.7 million and $1.2
million for such royalties in the three and nine month periods ended September
26, 1998, respectively. A similar arrangement was entered into in April 1997,
in Canada where LGE's Canadian affiliate sells Zenith branded VCRs under a
license from the company. Pursuant to that arrangement, the company accrued
approximately $0.4 million and $0.3 million in the nine month periods ended
October 2, 1999 and September 26, 1998, respectively, none of which was
accrued in the third quarter of 1999 or 1998.
Product and other sales: The company sells televisions, picture tubes,
yokes and other manufactured subassemblies to LGE and its affiliates at prices
consistent with amounts charged by the company to its major customers. Sales
by the company to LGE and its affiliates were $11.1 million and $24.2 million
during the three and nine month periods ended October 2, 1999, respectively,
and $8.2 million and $30.7 million during the three and nine months ended
September 26, 1998, respectively.
In December 1996, the company closed its wholly-owned Canadian distributor
and sold the remaining inventory to LGE at book value. The company entered
into a distributor agreement with an LGE subsidiary whereby such subsidiary
became the Canadian distributor for the company. During 1997, the company
entered into a similar agreement with an LGE subsidiary in Mexico to sell the
company's products in Mexico. During the three and nine months ended October
2, 1999, the company's sales to the LGE Canadian and Mexican subsidiaries were
$5.5 million and $5.6 million, respectively, and $9.4 million and $14.8
million, respectively. During the three and nine month periods ended September
26, 1998, the company's sales to the LGE Canadian and Mexican subsidiaries
were $4.9 million and $2.8 million, respectively, and $16.8 million and $11.2
million, respectively. These amounts are included in the sales by the company
to LGE and its affiliates discussed above.
Other Items: In March 1998, the company entered into a secured credit
facility with LGE which provides for borrowings of up to $45.0 million. The
interest rate is LIBOR plus 6.5 percent per annum. As of October 2, 1999,
$30.0 million was outstanding under the facility. The facility is secured by a
second lien on certain of the company's assets, including its VSB technology
and is subject to certain terms and conditions.
Total accounts payable with related party consists of $128.2 million and
$134.9 million to LGE and its affiliates as of October 2, 1999 and September
26, 1998, respectively. In April 1997, the company and LGE entered into an
arrangement whereby LGE provided a vendor credit line to the company to
finance the company's purchases of certain goods from LGE in the ordinary
course of business. Prior to April 1997, the company's
9
<PAGE>
accounts payable arising in the ordinary course of business to LGE were
extended for certain periods of time, but no formal arrangement was in place.
The amount of extended payables was $127.1 million and $134.0 million as of
October 2, 1999 and September 26, 1998, respectively. The company is charged
interest on the extended period at rates reflecting then-current market
conditions in Korea. As stated above, the $127.1 million as of October 2,
1999, is included in "Liabilities subject to compromise" on the balance sheet.
The $21.3 million noncurrent receivable from related party as of December
31, 1998 represents the appraised fair value of the manufacturing equipment,
previously part of the sales-leaseback agreement, which is receivable from
LGE. This receivable has been reduced to $11.8 million as of October 2, 1999,
as the company purchased equipment prior to its selling the equipment to third
parties.
The company believes that the transactions between the company and LGE have
been conducted on terms no less favorable to the company than could have been
obtained with unrelated third parties.
Note Ten--Segment and geographic data
The company adopted Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information" as of
December 31, 1998. This statement established new disclosure requirements
related to operating and geographic segments.
Financial information, summarized by operating segment, is as follows (in
millions):
<TABLE>
<CAPTION>
Consumer Network Corporate
Electronics Systems and Other Consolidated
----------- ------- --------- ------------
<S> <C> <C> <C> <C>
Nine months ended October 2,
1999
Net sales.................... $520.5 $ 75.3 $ -- $ 595.8
Loss before income taxes..... 1.6 -- (58.9) (57.3)
Nine months ended September 26,
1998
Net sales.................... $614.7 $ 60.4 $ -- $ 675.1
Loss before income taxes..... (26.2) (11.4) (150.2) (187.8)
</TABLE>
It should be noted that in the information presented, certain costs such as
interest, administrative and certain restructuring costs and reorganization
items are not allocated to the Consumer Electronics or Network Systems
segments. These unallocated costs are reported above in the Corporate and
Other column.
Note Eleven--Property held for disposal
Under the operational restructuring, the company intends to transform
itself from an integrated manufacturer and distributor of consumer electronics
products into a sales, distribution and technology company. The operational
restructuring requires that the company close and dispose of all, or
substantially all, of its manufacturing facilities and outsource all, or
substantially all, product lines. During the first nine months of 1999, the
decrease in property held for disposal resulted from the sale of all, or
substantially all, assets at the company's Chihuahua, Juarez and Matamoros,
Mexico facilities and most equipment at its Melrose Park, Illinois plant.
Note Twelve--Subsequent Events
From August 23, 1999 to November 9, 1999, the company operated as a debtor-
in-possession.
On October 29, 1999, the commitment to complete the post-bankruptcy
financing was extended from October 31, 1999 to December 15, 1999.
On November 5, 1999, the U.S. Bankruptcy Court for the District of Delaware
entered an order confirming the company's prepackaged plan of reorganization,
subject to certain conditions precedent to its effectiveness. On November 9,
1999, the company satisfied these conditions, declared the prepackaged plan
effective and emerged from the bankruptcy proceeding.
10
<PAGE>
On November 9, 1999, Citibank terminated the debtor-in-possession financing
agreement, which was replaced by the new three-year $150.0 million credit
facility discussed above, and LGE converted $200.0 million of its claims into
100 percent of the equity of the company.
As a result of the confirmation of the company's prepackaged plan of
reorganization, (i) $200.0 million of debt and extended payables with LGE were
converted to equity; (ii) $165.7 million of debt with LGE was converted to new
restructured notes, interest on which is payable in kind under certain
circumstances; (iii) $39.5 million of the notes referred to above will be
settled by the transfer of Reynosa assets to LGE; (iv) an extraordinary gain
of approximately $60.0 million was recognized as a result of the conversion of
$103.5 million of 6 1/4 percent subordinated debentures due 2011 and related
accrued interest to $50.0 million of 8.19 percent senior notes maturing in
2009; and (v) old common stock and treasury stock were canceled, thereby
increasing old additional paid-in capital.
During 1996, the company signed a multi-year agreement with the Americast
programming venture ("Americast") to provide digital set-top boxes to that
consortium of telecommunications companies. In late 1998, the agreement was
renegotiated, and among other things, called for Americast to escrow $7.5
million that would revert to the company after its successful emergence from
bankruptcy. As the company's plan of reorganization was confirmed by the U.S.
Bankruptcy Court for the District of Delaware on November 5, 1999, the company
anticipates collecting the cash and recording it as other income during the
fourth quarter.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The company's third quarter net loss, excluding restructuring charges and
reorganization items, was $5.8 million in 1999 compared to $18.6 million in
1998. Including $7.2 million of restructuring charges and reorganization
items, the company reported a 1999 third quarter net loss of $13.0 million or
$0.19 per basic and diluted common share. In the 1998 third quarter, including
$100.4 million of restructuring charges, the company reported a net loss of
$119.0 million or $1.76 per basic and diluted common share.
The third quarter of 1999 restructuring charges related primarily to costs
associated with work performed by outside consulting and law firms to support
the development of the operational and financial restructuring plans and the
prepackaged plan of reorganization. In addition, for the period from the
filing of the petition for relief on August 23, 1999 to October 2, 1999, the
company incurred $0.8 million of professional fees for purposes discussed
above, which were shown as reorganization items. Deferred debt issuance costs
($1.3 million) related to debt to be restructured pursuant to the prepackaged
plan of reorganization were also written off and included in reorganization
items.
The third quarter of 1998 restructuring charge related to (i) a $68.8
million loss on the termination of the company's leveraged lease, (ii) $32.3
million of deferred charges (bank, attorney and guarantee fees) that were
written off, (iii) accelerated amortization of the remaining deferred gain
($9.1 million) related to the 1997 sale of the assets into the leveraged
lease, (iv) $7.0 million of professional fees (for services as discussed
above) and financing charges (relative to amending the Citicorp credit
agreement), and (v) $1.4 million of other charges, related primarily to the
company's exiting of its analog set-top box product line.
The company's core business--the development, manufacture and distribution
of a broad range of products for the delivery of video entertainment--is
composed of two major product areas--Consumer Electronics (which includes
color television sets and consumer products) and Network Systems (which
includes the design and manufacture of digital and analog set-top boxes along
with data modems sold primarily to cable and satellite television operators).
Total third quarter sales were $228.0 million in 1999, as compared to
$230.4 million in 1998. Consumer electronics sales, which represent the vast
majority of these sales, were approximately the same in the 1999 third quarter
as in the 1998 third quarter. Sales of Network systems products decreased $4.0
million in the third quarter of 1999 compared with a year ago. The decrease
reflected the phase-out of analog set-top boxes since the third quarter of
1998.
The company's 1999 third quarter gross margin was $24.4 million compared to
$27.1 million in the prior year. The decrease in gross margin was primarily
the result of (i) co-op advertising allowances being included in net sales
during 1999, whereas in 1998 they were included in selling expenses and (ii)
lower sales in the Company's high-margin repair and service business caused by
a shift in the market place toward replacing lower-priced consumer electronics
items instead of repairing them along with delays in product availability.
Selling, general and administrative expenses were $24.6 million in the
third quarter of 1999, compared with $31.5 million in the previous year.
Expenses for 1999 benefited from lower co-op advertising costs as discussed
above and the company's continuing efforts to reduce expenses and downsize
staffing.
Other operating expense (income) was $(8.1) million for the third quarter
of 1999 and ($9.2) million for the third quarter of 1998. Other operating
income in both the third quarter of 1999 and 1998 includes $7.7 million of
accrued royalty income from manufacturers of television sets and VCRs who have
taken licenses under some of the company's U.S. tuner system patents.
12
<PAGE>
Interest expense was $9.1 million in the third quarter of 1999, compared
with $13.7 million in the comparable period of the previous year. The change
resulted from lower interest accruals on extended-payables to LGE due to a
lower average balance in 1999 prior to the August 23, 1999 filing with the
Bankruptcy Court. In addition, interest expense was reduced by $2.8 million in
1999 reflecting the suspension of contractual interest on the 6 1/4 percent
subordinated debentures and certain unsecured debt with LGE as a result of the
Chapter 11 filing from the date of filing of the prepackaged plan and, in
accordance with SOP 90-7, suspension of interest expense accruals.
For the first nine months of 1999, the company reported a net loss,
excluding restructuring charges and reorganization items, of $44.4 million
compared to $80.0 million in the same period in 1998. Including $14.6 million
of restructuring charges and reorganization items, the company reported a 1999
nine month net loss of $59.0 million or $0.87 per basic and diluted common
share. In the first nine months of 1998, including $107.8 million of
restructuring charges, the company reported a net loss of $187.8 million or
$2.78 per basic and diluted common share. Nine-month sales were $595.8 million
in 1999 and $675.1 million in 1998.
Liquidity and Capital Resources
During the nine months ended October 2, 1999, $104.9 million of cash was
used by operating activities as a result of $46.9 million of net losses
(excluding depreciation) from operations and $58.3 million of cash used by the
change in current accounts. The latter was principally composed of a $36.9
million increase in inventories, a $14.6 million increase in other current
assets and a $6.5 million decrease in accounts payable and accrued expenses.
The increase in inventories resulted primarily from the seasonal build-up;
however, inventories were $43.7 million lower than the amount at September 26,
1998 due to decreasing manufacturing activities. The increase in other current
assets resulted from funds placed in escrow accounts from proceeds received in
connection with the sale of certain of the company's manufacturing plants and
assets. The decrease in accounts payable and accrued expenses resulted
primarily from (i) a decrease in the extended-term payables with LGE and (ii)
a decrease in accrued expenses primarily reflecting the decrease in
restructuring accruals, which were partially offset by an increase in accounts
payable related to the increase in inventories discussed above. The $104.9
million of cash used by operating activities in 1999 included $0.8 million for
professional fees subsequent to the filing of the petition for relief.
During the nine months ended October 2, 1999, $46.5 million of cash was
provided by investing activities. This was composed of $49.0 million of cash
received from the sale of certain property, partially offset by $2.5 million
of cash used for capital additions.
During the nine months ended October 2, 1999, $58.4 million of cash was
provided by financing activities. This was composed primarily of $78.1 million
borrowed under the Citicorp debtor-in-possession financing offset by a $17.8
million repayment of revolving credit borrowings under the amended Citibank
credit facility and $1.8 million repaid to LGE from proceeds from the sale of
equipment previously included in the sale-leaseback transaction.
As of October 2, 1999, the company had $529.0 million of interest-bearing
obligations which consisted of: (i) $127.1 million of extended-term payables
with LGE, (ii) $103.5 million of 6 1/4 percent convertible subordinated
debentures due 2011, (iii) $30.0 million outstanding under a secured credit
facility with LGE, (iv) $88.3 million owed to LGE as a result of LGE's payment
under the guarantees of the leveraged leases, (v) $102.0 million owed to LGE
as a result of LGE's payments under demands against guarantees on the
unsecured and uncommitted credit facilities and (vi) $78.1 million outstanding
under the Citibank debtor-in-possession credit facility. The 6 1/4 percent
convertible debentures, the extended-term payables with LGE and the amount
owed to LGE as a result of LGE's payment under the guarantees of the leveraged
leases are shown as "Liabilities subject to compromise" on the October 2, 1999
balance sheet.
Between November 1997 and February 1998, the company obtained a total of
$110.0 million in unsecured and uncommitted credit facilities through four
lines of credit with various lenders. The credit lines were
13
<PAGE>
guaranteed by LGE for which LGE is entitled to receive a fee in an amount up
to 2.0 percent of the outstanding amount of the loans. The company granted
liens in favor of LGE on the capital stock of the company's domestic
subsidiaries, on the company's intellectual property (other than tuning
patents, tuning patent royalties and related license agreements) and certain
other company assets to secure the guarantees of LGE for borrowings under
these credit lines. During the second and third quarter of 1998, LGE made
payments under demands against guarantees on $72.0 million of the facilities;
during the second quarter of 1999, LGE made payment under demands against a
guarantee on $30.0 million and the company is obligated to LGE for all these
payments plus interest.
In March 1998, the company entered into a secured credit facility with LGE
which provides for borrowings of up to $45.0 million. As of October 2, 1999,
$30.0 million was outstanding under the facility, which is secured by a second
lien on certain of the company's assets, including its VSB technology, and is
subject to certain terms and conditions.
In April 1997, the company entered into a sale-leaseback transaction
whereby the company sold and leased back manufacturing equipment in its
Melrose Park, Illinois, plant and in its Reynosa and Juarez, Mexico,
facilities. The company's payment obligations, along with certain other items
under the lease agreement, were fully guaranteed by LGE. In July 1998, LGE
made payment under the guarantees of the lease in the amount of $90.1 million
under a negotiated settlement with the lessor. As a result of initial asset
sales and subsequent payments to LGE, this liability was reduced to $88.3
million as of October 2, 1999.
On March 31, 1999, the company entered into a Commitment Letter (the
"Commitment") with Citicorp North America, Inc. pursuant to which Citicorp
North America, Inc. agreed to provide up to $150.0 million of debtor-in-
possession financing during the pendency of the company's bankruptcy
proceeding and agreed to provide a new three-year $150.0 million credit
facility following completion of the company's bankruptcy proceeding, subject
in each case to borrowing base restrictions. The new facilities are secured by
substantially all of the company's assets and are subject to other terms and
conditions. The Commitment provides for interest on borrowings based on
specified margins above LIBOR or the prime rate. The debtor-in-possession
financing was approved by the Bankruptcy Court on an interim basis on August
24, 1999, and on a final basis on September 27, 1999. A portion of the
proceeds of the borrowings under this agreement were used to repay all loans
outstanding under the company's existing Citibank credit facility. See Note
Eight for additional discussion of the debtor-in-possession facility.
The new credit facilities are in addition to the $60.0 million post-
restructuring credit support to be provided by LGE to the company pursuant to
the terms of the plan of reorganization. On March 29, 1999, the company was
advised by LGE that LGE had received Korean regulatory approval to permit LGE
to consummate the transactions set forth in the restructuring agreement
between the company and LGE, including authorization for LGE to provide the
company with the $60.0 million of post-restructuring credit support on the
terms and conditions of the restructuring agreement.
The company did not make the April 1, 1999 sinking fund ($5.8 million) and
interest ($3.2 million) payments on its subordinated debentures due 2011. The
company's failure to make such payments on April 1, subject to grace periods
(if any) provided in the indenture, constituted a default under the indenture
relating to the subordinated debentures. It is the company's intention to
restructure this debt by converting it to a $50.0 million long-term issue as
discussed below.
The lenders under the Citicorp credit facility waived the cross default
under the credit facility related to the company's failure to make the
payments on the subordinated debentures. In addition, LGE waived the cross
default under the Note Agreement between LGE and the company and certain
related security documents related to the company's failure to make the
payments on the subordinated debentures.
Although the company believes that its Citicorp credit facilities, together
with its LGE credit support, will be adequate to meet its seasonal working
capital, capital expenditure and other requirements during 1999 and
14
<PAGE>
2000, there can be no assurance that the company will not experience liquidity
problems in the future because of adverse market conditions or other
unfavorable events.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
Certain statements in this Quarterly Report on Form 10-Q, such as those
regarding the company's strategies, plans, objectives and expectations are
forward-looking statements that involve known and unknown risks, uncertainties
and other factors which may cause the actual results of the company or of its
efforts to successfully implement the operational restructuring and achieve
the anticipated financial results of the company to be materially different
from any future results expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general
economic and business conditions, both in the United States and other
countries in which the company sells its products and from which the company
obtains supplies; the effect of competition in the markets served by the
company; LGE's ability to obtain required approvals of the Republic of Korea
for additional financing, if any, that LGE may desire to extend to the
company; and the availability and terms of financing from LGE or other
financing sources to fund the company's operating losses, restructuring
charges and the other costs and expenses of its new business plan. Given these
uncertainties, stockholders and debtholders are cautioned not to place undue
reliance on any forward-looking statements contained herein. The company
disclaims any obligation to update such factors or forward-looking statements
or to publicly announce the result of any revisions to any of the forward-
looking statements contained or referred to herein or to reflect future events
or developments.
Readiness for the Year 2000
The company is employing a combination of internal resources and outside
consultants to coordinate and implement its Year 2000 Readiness initiatives.
The company has established a company-wide Year 2000 Task Force, led by the
company's technology group, with representation from its major business
segments, to evaluate and address Year 2000 issues. The Year 2000 Task Force's
responsibilities include, without limitation, (i) conducting an evaluation of
the company's computer-based systems, facilities and products (and those of
dealers, vendors and other third parties with which the company does business)
to determine their Year 2000 Readiness, (ii) coordinating the replacement
and/or upgrade of non-compliant systems, as necessary, (iii) promoting the
company-wide awareness of Year 2000 issues through education and training, and
(iv) developing and overseeing the implementation of all of the company's
other Year 2000 Readiness initiatives.
The company has completed its evaluation of its computer-based systems,
facilities and products to determine whether they are "Year 2000 Ready". The
company believes that its material non-information technology systems will be
Year 2000 Ready prior to January 1, 2000. The company believes that most of
its currently manufactured products are Year 2000 Ready. The company has sent
Year 2000 Readiness questionnaires to its existing key vendors and suppliers
to assess the Year 2000 Readiness of their systems and products. The responses
to these questionnaires have indicated that the company's vendors or suppliers
are addressing their Year 2000 issues and expect to be Year 2000 Ready by
January 1, 2000. While the company is working to achieve Year 2000 Readiness,
there can be no assurance that it will successfully achieve all of its goals.
At this time, and based on the company's current implementation plan, the
company does not believe that its Year 2000 related issues will have a
material adverse effect on the company's business. Although no contingency
plan has been deemed to be necessary at this time, the company has a
continuing process of evaluating the need for various contingency plans as a
precautionary measure.
Included within the company's Year 2000 Readiness initiatives are plans to
ensure the company's financial, sales and distribution application software
("FS&D Applications") are Year 2000 Ready. The FS&D Applications include the
primary software employed in the company's general ledger, accounts payable
and disbursement, accounts receivable and collection, purchasing, billing,
inventory management and sales activities.
15
<PAGE>
As a part of the company's Year 2000 readiness initiatives the company has
recently implemented new FS&D Applications which are Year 2000 Ready. The
estimated total cost of implementing the new FS&D Applications is $6.8
million, of which $3.3 million will be incurred in fiscal 1999.
In connection with the company's proposed operational restructuring, the
company plans to discontinue substantially all of its manufacturing operations
and to outsource substantially all components and products. The company
believes its other exposure to Year 2000 risks are related to the ability of
its vendors to provide the company with Year 2000 Ready components and
products and to assure that such vendors otherwise are Year 2000 Ready so that
they are able to provide the company with components and products in a timely
manner. The company has requested and has, to date, received from most of its
suppliers, assurance of their Year 2000 Readiness. The company is aware,
however, that Year 2000 issues may exist with respect to vendors with which it
has or will have a material relationship.
Prior to 1998, the company spent in the aggregate approximately $1.8
million on software and hardware upgrades and replacements and approximately
$0.2 million on other costs (i.e., labor, consulting fees and other expenses)
in connection with Year 2000 Readiness. The company spent a total of $2.5
million in 1998 (approximately $0.8 million for software and hardware upgrades
and approximately $1.7 million for other costs) for this project. The company
has estimated it will spend $4.6 million in 1999 (approximately $1.0 million
for software and hardware upgrades and approximately $3.6 million for outside
consulting assistance and other costs) with respect to Year 2000 readiness.
This amount includes the cost of implementing the new FS&D Applications
discussed above. Most of the costs incurred by the company in addressing Year
2000 Readiness are expected to be expensed as incurred, in compliance with
generally accepted accounting principles. The company continues to evaluate
the estimated costs associated with its Year 2000 Readiness efforts. While the
Year 2000 transition efforts may involve costs in addition to those currently
budgeted or anticipated to be budgeted, at this time, the company has not yet
determined the full costs of the modifications that may be necessary to
address all Year 2000 issues.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 23, 1999, a voluntary petition for relief under Chapter 11 of
Title 11 of the U.S. Code was filed by the company in the U.S. Bankruptcy
Court for the District of Delaware. The filing followed approval of the plan
of reorganization by holders of the company's 6 1/4 percent subordinated
debentures due 2011. LGE and Citibank, as secured creditors, also approved the
plan of reorganization.
Item 2. Changes in Securities
(b) None. See Item 5 for subsequent events.
Item 3. Defaults Upon Senior Securities
The company did not make the April 1, 1999 sinking fund ($5.8 million) and
interest ($3.2 million) payments on its subordinated debentures due 2011. The
company's failure to make such payments on April 1, subject to grace periods
(if any) provided in the indenture, constitutes a default under the indenture
relating to the subordinated debentures.
The lenders under the Citicorp credit facility waived the cross default
under the credit facility related to the company's failure to make the
payments on the subordinated debentures. In addition, LGE waived the cross
default under the Note Agreement between LGE and the company and certain
related security documents related to the company's failure to make the
payments on the subordinated debentures.
On March 31, 1999, the company, LGE and an ad hoc committee of holders of
the company's 6 1/4 percent Convertible Subordinated Debentures due 2011
reached an agreement with respect to the terms of the company's proposed
prepackaged plan of reorganization. The ad hoc committee is comprised of
Loomis Sayles & Company, Mariner Investment Group and Caspian Capital
Partners, L.L.P. (the "Debenture Committee"). The members of the Debenture
Committee represented to the company that they collectively held or controlled
over 50 percent of the outstanding principal amount of the subordinated
debentures.
The company, LGE and the Debenture Committee agreed to the terms of the
proposed restructuring of the subordinated debentures. The parties agreed,
among other things, that under the prepackaged plan, if approved, holders of
the subordinated debentures will receive a pro rata distribution of $50.0
million of new 8.19 percent senior debentures of the company due 2009. The
Debenture Committee agreed to support confirmation of the company's
prepackaged plan, and agreed to forbear from enforcement of any defaults that
might occur with respect to the subordinated debentures until the prepackaged
plan is confirmed. However, the obligations of the members of the Debenture
Committee terminate if, among other circumstances, the prepackaged plan has
not been confirmed by the Bankruptcy Court on or before December 31, 1999. The
agreement also contains other customary provisions.
Item 4. Submission of Matters to a Vote of Security Holders
On July 20, 1999, the company began the solicitation of bondholder votes
concerning the company's prepackaged plan of reorganization. The holders of
the company's 6 1/4 percent subordinated debentures due 2011 approved the plan
of reorganization.
Item 5. Other Information
On August 23, 1999, a voluntary petition for relief under Chapter 11 of
Title 11 of the U.S. Code was filed by the company in the U.S. Bankruptcy
Court for the District of Delaware. The filing followed approval of the plan
of reorganization by holders of the company's 6 1/4 percent subordinated
debentures due 2011. LGE and Citibank as secured creditors, also approved the
plan of reorganization.
17
<PAGE>
The prepackaged plan provides that, upon consummation of the company's
reorganization, current holders of the $103.5 million in principal amount of
the 6 1/4 percent subordinated debentures will receive $50.0 million of new
8.19 percent senior debentures maturing in November 2009.
Under the plan, all outstanding common stock will be canceled, and
stockholders will receive no distribution and retain no property. LGE will
exchange $200.0 million of its allowed claims for 100 percent of the equity of
the reorganized company and will exchange the remainder of its claims for
certain assets and new restructured notes, interest on which is payable in
kind under certain circumstances.
On November 5, 1999, the U.S. Bankruptcy Court for the District of Delaware
entered an order confirming the company's prepackaged plan of reorganization,
subject to certain conditions precedent to its effectiveness. On November 9,
1999, the company satisfied these conditions and declared the prepackaged plan
effective, and Citibank terminated the debtor-in-possession financing
agreement, which was replaced by a new three-year $150.0 million credit
facility.
On November 9, 1999, as part of the prepackaged plan, (i) LGE also
converted approximately $165.7 million of its claims into restructured loans
and certain operating assets of the company, (ii) the company's $103.5 million
6 1/4 percent subordinated debentures due 2011 and related accrued interest
were exchanged for $50.0 million in new 8.19 percent senior debentures
maturing in November 2009; (iii) the company and LGE entered into a new $60.0
million credit facility and (iv) the company's articles of incorporation and
bylaws were amended. On November 9, 1999, the $1 par value common stock of the
company was cancelled and no distribution was made to any holders as a result
of their shares. LGE converted $200.0 million of its claims into 100 percent
of the equity of the company as represented by 1,000 shares on new common
stock at $0.01 per share. On November 9, 1999, the company became a wholly-
owned subsidiary of LGE.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<C> <S>
Financial Data Schedule for the nine months ended October 2,
(27) 1999
</TABLE>
(b) Reports on Form 8-K:
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Zenith Electronics Corporation
(Registrant)
Date: November 16, 1999
/s/ Edward J. McNulty
By: _________________________________
Edward J. McNulty
Chief Financial Officer
(Principal Financial Officer)
/s/ Lawrence D. Panozzo
By: _________________________________
Lawrence D. Panozzo
Director of Corporate Accounting
and Planning
(Principal Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
PERIOD ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-02-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 160
<ALLOWANCES> 23
<INVENTORY> 121
<CURRENT-ASSETS> 284
<PP&E> 571
<DEPRECIATION> 528
<TOTAL-ASSETS> 347
<CURRENT-LIABILITIES> 661
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> (492)
<TOTAL-LIABILITY-AND-EQUITY> 347
<SALES> 596
<TOTAL-REVENUES> 596
<CGS> 534
<TOTAL-COSTS> 534
<OTHER-EXPENSES> 88
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (57)
<INCOME-TAX> 2
<INCOME-CONTINUING> (59)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59)
<EPS-BASIC> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
