SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 1-5787
LEVITZ FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 23-1657490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6111 BROKEN SOUND PARKWAY, N.W. BOCA RATON, FL 33487-2799
(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
(Registrant's telephone number, including area code)
--------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(D) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
On June 30, 1997, there were 1,000 shares of the registrant's Common Stock
outstanding, with no shares held by the registrant in its treasury. As of that
date all shares of such Common Stock were owned by the registrant's parent,
Levitz Furniture Incorporated, a Delaware Corporation.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
The registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is therefore filing this form with the reduced disclosure
format.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Levitz Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"), was organized in 1965 as a Florida
corporation, is the successor to a business originally commenced in 1910 and was
acquired by Levitz Furniture Incorporated ("LFI") in 1985. Levitz is one of the
largest specialty retailers of furniture in the United States with, as of May
31, 1997, a chain of 68 warehouse-showrooms and 61 satellite stores located in
major metropolitan areas in 26 states. Levitz pioneered the warehouse-showroom
concept by opening the first warehouse-showroom in 1963 in Allentown,
Pennsylvania. Today, Levitz stores serve customers in 22 of the largest 25
metropolitan statistical areas and, in the year ended March 31, 1997 ("Fiscal
1997"), generated revenues of $966.9 million. Management believes the Levitz
name to be one of the most recognized in furniture retailing.
LFI was incorporated in Delaware in 1984 under the name LFC Holding Corporation
for the purpose of acquiring Levitz. LFI changed its name to Levitz Furniture
Incorporated in April 1993. LFI's only material asset is the common stock of
Levitz and it conducts no business other than holding the common stock of
Levitz. The principal executive offices of Levitz are located at 6111 Broken
Sound Parkway, N.W., Boca Raton, Florida 33487-2799, and its telephone number is
(561) 994-6006.
In 1994 Levitz acquired the John M. Smyth Company, an Illinois corporation
("JMS"). JMS operates a chain of three warehouse-showrooms and three satellite
stores in the Chicago, Illinois market under the trade name, John M. Smyth
Homemakers. JMS' facilities contain a total of approximately 980,000 square
feet, including approximately 388,000 square feet of selling space. These stores
are substantially similar to Levitz stores with the exception that the JMS
stores carry a broader selection of higher priced merchandise. Accordingly,
references to Levitz in this report will include the JMS stores unless stated to
the contrary.
Levitz stores offer a wide selection primarily of brand-name furniture and
accessories including living room, bedroom, dining room, kitchen and occasional
furniture and bedding. Some of the well known, nationally advertised brands
offered by Levitz stores include Ashley, Bassett, Benchcraft, Berkline,
Broyhill, Douglas, Flexsteel, Lane, Lea Industries, Rowe, Serta, Simmons,
Stanley, Stratford, Thomasville and Universal. Levitz does not manufacture any
of the merchandise sold in its stores but instead devotes all of its resources
to the retail sale of furniture.
Levitz has experienced declining sales, profitability and cash flows over the
past several fiscal years. Reference is made to Item 7 - "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
Note 1 to Notes to Consolidated Financial Statements, which address these
issues.
THE WAREHOUSE-SHOWROOM/SATELLITE CONCEPT
The warehouse-showroom/satellite furniture retailing concept targets
value-conscious consumers by offering:
- dominant selections of furniture and accessories;
- nationally advertised brands;
- competitive prices; and
- immediate availability of merchandise.
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This blend enables Levitz to offer America's largest selection of quality brand
name furniture at guaranteed low prices. Levitz's large showrooms facilitate
display of a broad selection of furniture and accessories. In each of its
warehouse-showroom facilities, Levitz can maintain substantial inventory,
carrying in-stock the depth of merchandise necessary for customers to carry away
purchases immediately. Levitz's satellite stores utilize the warehouse and
delivery functions of nearby warehouse-showrooms enabling Levitz to more
cost-effectively penetrate existing markets. The sales volumes inherent in the
warehouse-showroom/satellite concept make Levitz a key channel of distribution
for its principal vendors. Management has developed strong partnerships with
these principal vendors from whom it purchases large quantities of quality
merchandise, often at substantial savings. This buying power enables Levitz to
price its merchandise very competitively.
WAREHOUSE-SHOWROOMS
Each of Levitz's 68 warehouse-showrooms incorporate a warehouse and a showroom
within a single building. High-bay warehouse racks, filled floor-to-ceiling with
ready-to-deliver furniture, emphasize Levitz's dominant selection and in-stock
position on thousands of furniture items and accessories. The warehouse is
designed to allow maximum use of available space through the use of modern
materials handling systems.
The warehouse-showrooms range from 62,000 square feet to 250,000 square feet,
featuring selling space of 30,000 to 110,000 square feet. Merchandise is
typically displayed in model room settings of which approximately 260 are
located in each facility containing 50,000 or more square feet of selling space.
Smaller facilities feature approximately 175 model room settings. Levitz's
customers typically have the option to receive their merchandise at the
warehouse-showroom immediately upon purchase or to have their merchandise
delivered to their homes for a modest delivery charge. Levitz's
warehouse-showrooms are typically located within easy access of expressway
interchanges or major highways and have adjacent parking facilities. See
"Properties" for information regarding the locations of Levitz's
warehouse-showrooms.
SATELLITE STORES
Levitz's 61 satellite stores are free-standing showrooms utilizing the warehouse
and delivery functions of nearby warehouse-showrooms. As a result, satellite
stores require a smaller capital investment than a full warehouse-showroom and
leverage the relatively fixed operating costs of the larger facilities including
warehouse and delivery, management and advertising. Satellite stores enable
Levitz to more cost-effectively penetrate existing markets. While the average
warehouse-showroom is approximately two to three times the size of an average
satellite store, selling space is approximately equal. Satellite stores range
from 25,000 to 60,000 square feet, although one satellite store has
approximately 100,000 square feet of space. See "Properties" for information
regarding the locations of Levitz's satellite stores.
Levitz's retail facilities are generally open Monday through Saturday from 10:00
a.m. to 9:00 p.m., and on Sundays from 12:00 noon to 6:00 p.m.
MERCHANDISING
Levitz's merchandising strategy is generally to display more merchandise in a
larger selling space than its competition, with 175 to 260 settings typically
displayed on its showroom floors. The merchandise sales mix among product line
groupings for Fiscal 1997 was upholstery/seating 41.9%, bedroom 21.1%,
occasional 12.6%, dining room 7.0%, bedding 9.8%, and other 7.6%. Percentage
breakdowns have been relatively consistent for the past several years.
Levitz's stores feature moderately priced merchandise targeting value-conscious
consumers. Management believes its customer base includes "the
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middle 80%" of consumers who buy furniture. A typical purchaser is a married
female homeowner under 45 years of age with family income of up to $75,000 per
year.
Based on statistical information, management believes the 18 to 44 age bracket
of consumers is expected to remain relatively constant for the next decade,
while the 45 to 64 age bracket is expected to expand due to the aging of the
population. Targeting the older and more affluent upper end of this spectrum,
the majority of Levitz's showrooms feature a "Classic House" collection. Each
collection features Flexsteel and Rowe upholstered furniture with four hundred
fabric choices. Levitz directs a portion of its advertising and promotion
programs at these consumers primarily in national magazines.
To attract consumers who prefer more customized merchandise and are less
concerned with immediate delivery, Levitz has a "Choices" program. The "Choices"
program enables the customer to select from hundreds more of pre-selected
fabrics than are typically available in stock. Due to the strength of its vendor
relationships, Levitz is able to promise delivery of these custom order
furniture items generally within four weeks of purchase. During Fiscal 1997, the
"Choices" program represented approximately 10.0% of upholstery sales. In Fiscal
1997 wicker and rattan furniture assortments were added in 14 stores. It is
expected that similar assortments will be added to approximately 15 stores in
the fiscal year ending March 31, 1998 ("Fiscal 1998").
ADVERTISING AND PROMOTION
Levitz retains independent national advertising firms for creative and
production services in connection with its print, radio and television
advertisements. For Fiscal 1997, Levitz's advertising expenditures amounted to
$102.1 million or 10.6% of net sales, as compared to $100.5 million or 10.2% of
net sales, for Fiscal 1996.
CUSTOMER SERVICE
Levitz is committed to providing high-quality customer service in all phases of
its business, including immediate merchandise availability, instant store credit
and prompt delivery. Through its warehouse-showrooms, Levitz provides immediate
availability on a substantial majority of its items. If delivery is desired,
Levitz will generally deliver the item within seven days of the purchase for a
modest delivery charge. Levitz provides its customers with instant credit at the
time of purchase utilizing point-of-sale terminals on the showroom floors. In
the case of any damaged or defective merchandise Levitz will repair or replace
the item or, if impracticable to repair or replace, will offer a refund to the
customer. Management believes its commitment to customer service has contributed
to the substantial percentage of repeat purchases by Levitz's customers.
VENDOR PARTNERSHIPS/INVENTORY
The success of the warehouse-showroom/satellite concept with consumers has made
Levitz a key channel of distribution for its principal vendors. Levitz purchases
substantial inventories as a result of its significant sales volume and strategy
of immediate merchandise availability. As a result, Levitz can purchase
merchandise more competitively in truckload lots because manufacturers can plan
longer production runs and produce goods more efficiently.
Levitz's volume purchasing also results in faster receipt of furniture orders
from manufacturers. Smaller retailers are typically unable to order a full
production run, and as a result, do not receive orders until full run quotas are
satisfied by additional orders. While some other retailers maintain large
inventories, Levitz's warehouse-showroom/satellite strategy contrasts with
prevalent industry practice whereby retailers carry minimal inventory for
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immediate availability, and instead purchase merchandise upon receipt of
specific orders. The efficiency of this strategy from the standpoint of
selection, availability and price creates exceptional value for the customer.
Management has established strong partnerships with its principal vendors to
review new merchandise and plan promotions and marketing strategies, as well as
manage inventory levels. Substantially all manufacturers have cooperative
advertising budgets with Levitz. One hundred ten manufacturers currently
participate in Levitz's electronic data interchange ("EDI") system which enables
manufacturers to plan and produce goods more efficiently while making it
possible for Levitz to maintain an in-stock position with less inventory. During
May 1997, 97.6% of all purchases were made through the EDI system.
To further develop its relationship with its partner vendors, Management has
strengthened its relationship with selected vendors. For Fiscal 1997, Levitz's
top 10 vendors accounted for 50.7% of purchases. Management believes the
strength of its vendor partnerships will enable Levitz in the future to maintain
acceptable inventory turns. EDI is an important aspect of this strategy.
Levitz currently purchases merchandise from over 330 independent manufacturers.
Levitz has no long-term contractual commitments with any of its manufacturers
and has had no difficulty in the past in obtaining merchandise for sale.
MANAGEMENT INFORMATION SYSTEMS
Management believes Levitz employs one of the most sophisticated management
information systems in furniture retailing. An IBM AS/400 computer is located in
each warehouse-showroom to track inventory which enables more efficient sales
management.
When merchandise arrives at the warehouse, it has been or is immediately bar
coded, enabling scanning by hand-held readers. This information is directly
loaded into the AS/400 thereby eliminating clerical errors, increasing available
inventory for sale and minimizing inventory shrinkage. Shrinkage has been
minimal in recent years. The sales floors in all stores are equipped with
on-line point-of-sale terminals enabling sales persons to access inventory
status, reserve inventory, schedule delivery and begin the credit approval
process for customers. All data is transmitted to corporate headquarters each
night. Management at corporate headquarters and at the store level monitor
inventory composition, age and condition. Sales and promotion activities feature
Levitz's aggressive product prices and are targeted regionally and locally to
inventories on hand. Aged merchandise is promptly marked down for rapid sale.
CUSTOMER CREDIT POLICIES
Levitz sells its merchandise either for cash or under customer installment
purchase or revolving charge plans. Currently, Levitz accepts bank credit cards
in 29% of its stores. During Fiscal 1997 and 1996, approximately 36.1% and
33.4%, respectively, of sales at Levitz's facilities were for cash, and
approximately 63.9% and 66.6%, respectively, of sales were under customer credit
plans.
Levitz's customer credit obligations are transferred to General Electric Capital
Corporation ("GECC") on a nonrecourse basis, except for insignificant amounts.
Under the terms of Levitz's agreement with GECC ("the GECC Agreement"), Levitz
may pay GECC a fee or may receive income, based upon the relationship among the
interest earned on the portfolio transferred thereunder, the amount of the
servicing fee, the prime rate, promotional discount fees and to a limited
extent, credit losses. During Fiscal 1997, 1996 and 1995, income from the GECC
Agreement was $12.8 million, $12.6 million and $7.4 million, respectively. The
GECC Agreement provides for the purchase of customer credit
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obligations by GECC where the then aggregate amount of indebtedness represented
by such credit obligations does not exceed $900.0 million. On March 31, 1997,
GECC had purchased approximately $758.5 million under the GECC Agreement.
Levitz has had arrangements with GECC with respect to customer credit
obligations since 1968 and believes that GECC will continue to purchase its
customer credit obligations in the future. Under the terms of the GECC
Agreement, on August 21, 1996 Levitz gave GECC notice of Levitz's intent to
renegotiate the GECC Agreement. On July 8, 1997 Levitz and GECC amended the
current GECC Agreement while pursuing the negotiations on a new agreement. The
amendment extended the negotiation period through August 16, 1997, extended the
GECC Agreement until October 1999, removed Levitz's obligation to repurchase at
GECC's direction those receivables transferred prior to January 1, 1997 and
extended until October 1999 GECC's ability to direct Levitz to repurchase those
receivables transferred subsequent to December 31, 1996 at a price equal to
their outstanding balance less a loss reserve. Except under certain limited
circumstances, Levitz must pay a fee of $3.5 million to GECC upon termination of
the GECC Agreement.
Levitz believes that sufficient capacity is or will be available under the GECC
Agreement to enable it to transfer receivables in the ordinary course of its
business. However, if necessary, Levitz believes that it could replace the GECC
Agreement with a similar agreement or pursue alternative methods of financing
and servicing its customer credit obligations without materially affecting its
results of operations.
COMPETITION
The home furnishings industry is a highly competitive and fragmented market with
sales for furniture, bedding and decorative accessories by furniture stores in
the United States estimated at $32.2 billion in 1996. According to a leading
industry publication, the nation's 100 largest furniture retailers accounted for
approximately 41.3% of all furniture sales by furniture stores in the United
States in 1996. According to the same publication, in 1996 Levitz represented
3.0% of total domestic furniture sales, and was the second largest specialty
retailer of furniture in the United States.
Levitz's competition varies significantly according to geographic areas.
Levitz's principal competitors consist of local independent specialty furniture
retailers. Levitz also competes with national and regional specialty furniture
retailers, general merchandisers and, in certain limited categories, wholesale
clubs. Levitz believes that its regional diversification gives it a significant
advantage over other competitors. Levitz's name is widely recognized by
furniture consumers. In the future Levitz may have increasing competition from
other major retail operations, some of which may have greater financial and
other resources than Levitz and may derive revenues from sales of products other
than household furnishings.
EMPLOYEES
As of March 31, 1997, Levitz had 5,018 employees, of whom 1,618 were engaged in
sales, 8 in advertising, 511 in merchandising and display, 1,394 in warehouse
and maintenance functions and 1,487 in office and administrative work. As of
March 31, 1997, 3,757 of Levitz's employees were full-time and 1,261 were
part-time. Sales personnel are paid primarily on a commission basis. Levitz's
store managers and key marketing, distribution and operations personnel may
receive, in addition to their base salaries, bonus compensation based upon
achieving planned sales and operating performance for the location or locations
for which the employee has responsibility. Certain of Levitz's national staff
personnel, including officers, may receive bonuses based upon favorable
operating results during the fiscal year.
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Levitz maintains one facility in which its sales employees are covered by a
collective bargaining agreement with a local of the United Food and Commercial
Workers Union ("UFCW"). This collective bargaining agreement has a three-year
term, expiring in December 1997. JMS has three union contracts covering all of
its warehouse and shop employees and some of its front-office employees. Most of
such employees are covered by a contract that expires in September 1999. The
remaining employees are covered by a contract that expires in October 2000. The
total number of Levitz's and JMS's employees covered by such agreements is 119.
In June 1997, an election was held to determine whether a Teamsters Union local
would represent all the Levitz associates at the Paramus, Woodbridge and
Willowbrook, New Jersey locations. The union received a majority of votes for
representation, subject to a number of challenged votes. The National Labor
Relations Board has not yet certified the results of that election.
In the past, a number of petitions were received from various unions, including
affiliates of the UFCW and the Teamsters Union, for organization of some or all
of the employees in certain other of Levitz's facilities. Except as noted above,
none of these petitions or other union activities has resulted in a current
collective bargaining agreement. Levitz has not experienced a material work
stoppage due to union activity in the past 10 years.
Levitz expects that union efforts to organize the employees at its facilities
will continue, but cannot predict what effect these activities may have on
Levitz's business operations, employee relations or income from operations.
Although nationwide organizational campaigns may be instituted by one or more
unions, all union activities to date have been confined to the local or regional
level.
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ITEM 2. PROPERTIES
On June 30, 1997, Levitz operated 129 retail facilities, including 68
warehouse-showrooms and 61 satellite stores located in major metropolitan areas
in 26 states, with concentrations in California, Texas and Florida. The
following table sets forth the number of retail facilities owned or leased by
Levitz on June 30, 1997:
OWNED(a) LEASED(b)
-------- ---------
Warehouse-showrooms.......................... 21 47
Satellite stores............................. 10 51
- ----------
(a) Two warehouse-showrooms and two satellite stores are located on land
occupied by Levitz under long-term ground leases. Each of the owned
properties is encumbered by either a first or second mortgage, most of
which mortgages secure borrowings by Levitz under its Senior Secured
Facilities.
(b) The terms of the leases range from 6 months to 57 years, including
renewal options. Rentals are either fixed or fixed minimums coupled
with contingent rentals based on the Consumer Price Index or a
percentage of net sales.
On June 30, 1997, these facilities contained a total of approximately 14,000,000
square feet, including approximately 6,100,000 square feet of selling space.
Levitz also owns a 35,000 square foot facility in Pottstown, Pennsylvania which
is used for accounting offices as well as a 94,000 square foot corporate
headquarters building in Boca Raton, Florida.
The following sets forth, as of June 30, 1997, the retail premises owned and
leased by Levitz:
<TABLE>
<CAPTION>
OWNED PREMISES LEASED PREMISES
- ------------------------------------------------------ ------------------------------------------------------
MONTH AND STORE MONTH AND STORE
LOCATION YEAR OPENED TYPE(1) LOCATION YEAR OPENED TYPE(1)
- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Atlanta, GA.................... Mar. 1969 WS Allentown, PA................... Sept. 1963 WS
Tampa, FL...................... Oct. 1969 WS Phoenix, AZ..................... Nov. 1963 ST
Los Angeles, CA................ Dec. 1970 WS Dallas, TX...................... May 1967 ST
Denver, CO..................... Jan. 1971 WS Santa Clara, CA................. Sept. 1968 WS
Oxnard, CA..................... Jan. 1971 WS Wilmington, DE.................. June 1969 WS
Houston, TX.................... May 1971 ST San Bernardino, CA.............. Aug. 1969 WS
St. Louis, MO.................. Sept. 1971 WS Huntington Beach, CA............ Nov. 1969 WS
Portland, OR................... Nov. 1971 WS San Diego, CA................... May 1970 WS
St. Paul, MN................... Dec. 1971 WS Sacramento, CA.................. Sept. 1970 WS
Southington, CT................ Aug. 1975 WS Ft. Lauderdale, FL.............. Oct. 1970 WS
Independence, MO............... Feb. 1976 ST Seattle, WA..................... Nov. 1970 WS
Paramus, NJ.................... Aug. 1977 WS Cincinnati, OH.................. Aug. 1971 WS
Garden City, NY(2)............. Aug. 1977 WS San Leandro, CA................. Aug. 1971 WS
S. Miami, FL................... Dec. 1977 ST So. San Francisco, CA........... Aug. 1971 WS
W. Palm Beach, FL.............. Nov. 1979 ST Cherry Hill, NJ................. Sept. 1971 WS
Lynnwood, WA................... June 1980 WS Willowbrook, NJ................. Dec. 1971 WS
La Puente, CA(2)............... Jan. 1981 ST Minneapolis, MN................. Dec. 1971 WS
Woodbridge, NJ(2).............. Jan. 1981 WS San Antonio, TX................. Jan. 1972 WS
Ft. Myers, FL.................. Oct. 1981 WS Suitland, MD.................... Jan. 1972 WS
Modesto, CA.................... Nov. 1981 WS Rockville, MD................... Jan. 1972 WS
Mesquite, TX................... Dec. 1982 WS Miami, FL....................... April 1972 WS
Plantation, FL................. Aug. 1983 WS Fairfax, VA..................... May 1972 WS
Colo. Springs, CO.............. Nov. 1983 ST San Dimas, CA................... May 1972 WS
Arlington, TX.................. Jan. 1984 WS Salt Lake City, UT.............. June 1972 WS
San Marcos, CA................. Feb. 1984 ST Northridge, CA.................. June 1972 WS
Ft. Lauderdale, FL(2).......... Oct. 1984 ST Indianapolis, IN................ Aug. 1972 WS
Portland, OR................... July 1986 ST Fresno, CA...................... Aug. 1972 WS
Schaumburg, IL................. June 1994 WS Redondo Beach, CA............... Aug. 1972 WS
Downers Grove, IL.............. June 1994 WS Atlanta, GA..................... Aug. 1972 WS
North Avenue, IL(3)............ June 1994 ST King of Prussia, PA............. Aug. 1972 ST
Orland Park, IL ............... June 1994 WS Fort Worth, TX.................. Oct. 1972 WS
Kansas City, KS................. Nov. 1972 WS
El Paso, TX..................... Feb. 1973 WS
<FN>
- ----------
(1) The column refers to warehouse-showrooms ("WS") or satellite stores ("ST").
(2) Stores located on land occupied by Levitz pursuant to long-term ground leases.
(3) Under agreement of sale.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
LEASED PREMISES LEASED PREMISES
- ------------------------------------------------------ ------------------------------------------------------
MONTH AND STORE MONTH AND STORE
LOCATION YEAR OPENED TYPE(1) LOCATION YEAR OPENED TYPE(1)
- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Houston, TX.................... Feb. 1973 WS Pinole, CA...................... Dec. 1987 ST
Mesa, AZ....................... Mar. 1973 WS Tacoma, WA...................... Jan. 1988 ST
Farmingdale, NY................ April 1973 WS Alhambra, CA.................... Aug. 1988 ST
Langhorne, PA.................. May 1973 WS Reno, NV........................ Oct. 1988 ST
New Orleans, LA................ Sept. 1973 WS Potomac, VA..................... July 1989 ST
Baltimore (Glen Burnie), MD.... July 1974 WS Smithtown, NY................... Aug. 1989 ST
Winter Park, FL................ June 1977 WS Mall Corners, GA................ Sept. 1989 ST
Dedham, MA..................... Aug. 1977 WS Morrow, GA...................... Sept. 1989 ST
Danvers, MA.................... Aug. 1977 WS Akers Mill, GA.................. Sept. 1989 ST
Westboro, MA................... Aug. 1977 WS Brooklyn Park, MN............... Nov. 1989 ST
Enfield, CT.................... Aug. 1977 WS Corona, CA...................... Nov. 1989 ST
Clearwater, FL................. Sept. 1977 ST Nashua, NH...................... Nov. 1990 ST
Concord, CA.................... Dec. 1978 WS Fullerton, MD (2)............... Jan. 1991 ST
Jacksonville, FL............... June 1979 WS Marietta, GA.................... Feb. 1991 ST
Austin, TX..................... Oct. 1979 WS Las Vegas, NV................... Aug. 1991 WS
Denver, CO..................... Oct. 1979 ST New Port Richey, FL............. Oct. 1992 ST
Anaheim, CA.................... Nov. 1981 ST Glendale, AZ.................... Nov. 1992 ST
Laguna Hills, CA............... April 1983 ST Victorville, CA................. Dec. 1992 ST
Baltimore, MD.................. Nov. 1983 ST Cincinnati, OH.................. Nov. 1993 ST
Pleasanton, CA................. Jan. 1984 ST North Houston, TX............... Nov. 1993 ST
San Carlos, CA................. April 1984 ST Rohnert Park, CA................ Mar. 1994 ST
San Antonio, TX................ Nov. 1984 ST N. Richland Hills, TX........... April 1994 ST
Stockton, CA................... June 1985 ST Arroyo Grande, CA............... April 1994 ST
Cerritos, CA................... June 1985 ST Cathedral City, CA.............. April 1994 ST
Boca Raton, FL................. Nov. 1985 ST Tempe, AZ....................... June 1994 ST
Phoenix, AZ.................... Nov. 1985 ST Ford City, IL................... June 1994 ST
Milford, CT.................... April 1986 ST Indianapolis, IN................ Aug. 1994 ST
Orlando, FL.................... May 1986 ST Fremont, CA..................... Aug. 1994 ST
Kansas City, MO................ Oct. 1986 ST Middle Village, NY.............. Oct. 1994 WS
Reading, PA ................... Jan. 1987 ST Plano, TX....................... Oct. 1994 WS
Bakersfield, CA ............... Mar. 1987 ST Morton Grove, IL................ Mar. 1995 ST
Chula Vista, CA ............... Mar. 1987 ST Manchester, MO.................. Oct. 1995 ST
Jacksonville, FL............... May 1987 ST
<FN>
- ----------
(1) The column refers to warehouse-showrooms ("WS") or satellite stores ("ST").
(2) Stores located on land occupied by Levitz pursuant to long-term ground lease.
</FN>
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, Levitz is party to various legal actions
which it believes are routine in nature and incidental to the operation of its
business. In the opinion of management, the outcome of the proceedings to which
Levitz is currently party will not have a material adverse effect upon its
operations or financial condition.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of Levitz's Common Stock is owned by LFI. LFI's Common Stock is traded on
the New York Stock Exchange. As of June 13, 1997, there were 648 holders of
record of Voting Common Stock and 7 holders of record of Non-Voting Common
Stock. During Fiscal 1997 and 1996, LFI did not declare any cash dividends on
any class of its Common Stock. LFI's ability to make cash dividends is
restricted by the terms of Levitz's financing agreements. See Item 7 -
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources" and Note 5 to the Notes to
Consolidated Financial Statements.
LFI has not paid dividends on any class of its Common Stock since 1987 and does
not intend to pay dividends in the foreseeable future. As a holding company,
LFI's ability to pay dividends is dependent on the receipt of dividends or other
payments from Levitz. The payment of dividends by Levitz to LFI is subject to
certain restrictions under the Senior Secured Facilities, the indentures
relating to debt securities issued by LFI and Levitz and Florida law. Florida
law generally requires that, after giving effect to a dividend, Levitz must be
able to pay its debts as they become due in the usual course of business and the
fair value of Levitz's total assets must be greater than the sum of its total
liabilities plus certain preferential rights. Any determination to pay cash
dividends in the future will be at the discretion of the LFI's Board of
Directors and will be dependent upon LFI's results of operations, financial
condition, contractual restrictions and other factors deemed relevant at that
time by the Board of Directors.
The range of high and low sales prices for LFI's Common Stock as reported in the
New York Stock Exchange Composite Index for each quarterly period within the two
most recent fiscal years is as follows:
QUARTER ENDED HIGH LOW
------------- ---- ---
June 30, 1995................. 9-1/4 5-3/4
September 30, 1995............ 8 5-5/8
December 31, 1995............. 6-3/8 2-1/2
March 31, 1996................ 5 3-1/4
June 30, 1996................. 5-1/8 3-3/4
September 30, 1996............ 5-1/8 3-3/4
December 31, 1996............. 4-1/8 2-1/4
March 31, 1997................ 3-1/2 2-5/8
On June 30, 1997, LFI's Common Stock closed at $1.50 per share.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this document.
GENERAL
Decreased comparable store sales and significant losses in the past two fiscal
years have reduced operating income and related cash flow resulting in debt
compliance and liquidity concerns.
Although comparable store sales for the second two quarters of Fiscal 1997
increased 3.0% from the comparable period in Fiscal 1996, comparable store sales
for the entire Fiscal 1997 declined 1.3% from Fiscal 1996. During the quarter
ended June 30, 1997 comparable store sales declined 6.4% from the comparable
period in Fiscal 1997.
Operating income has decreased from $54.3 million in Fiscal 1995 to $17.2
million in Fiscal 1996 and $16.1 million in Fiscal 1997. Net cash provided by
operating activities has decreased from $34.0 million in Fiscal 1995 to $15.5
million in Fiscal 1996 and $1.2 million in Fiscal 1997.
Levitz's ability to continue as a going concern is dependent upon its ability to
attain satisfactory levels of future operating income and cash flows and to
remain in compliance with the covenant requirements of the Senior Secured
Facilities. See "Liquidity and Capital Resources" and Note 1 to Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth Levitz's results of operations expressed as a
percentage of net sales for the periods indicated:
PERCENT OF NET SALES
---------------------
YEARS ENDED MARCH 31,
---------------------
1997 1996 1995
----- ----- -----
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 55.2 54.2 53.1
----- ----- -----
Gross profit 44.8 45.8 46.9
Selling, general and administrative expenses 39.5 40.2 39.0
Charge for store closings 0.8 - -
Restructuring expense - 0.9 -
Depreciation and amortization 2.8 3.0 2.7
----- ----- -----
Operating income 1.7 1.7 5.2
Interest expense, net 5.6 5.2 4.5
----- ----- -----
Income (loss) before income taxes (3.9) (3.5) 0.7
Income tax provision (benefit) (1.4) (1.3) 0.2
----- ----- -----
Income (loss) before extraordinary items (2.5) (2.2) 0.5
Extraordinary items (0.2) - (0.2)
----- ----- -----
Net income (loss) (2.7) (2.2) 0.3
===== ===== =====
Comparable store sales decrease (1) (1.3)% (9.6)% (2.3)%
===== ===== =====
- -------------
(1) Comparable store sales are calculated by excluding the net sales of a
store for any month of one period if the store was not open during the
same month of the prior period. A store opened at any time during a month
is deemed to have been opened on the first day of that month.
11
<PAGE>
COMPARISON OF OPERATIONS FOR FISCAL 1997 TO FISCAL 1996
Net sales for Fiscal 1997 decreased to $966.9 million or 2.0% from $986.6
million for Fiscal 1996. Although comparable store sales for the last two
quarters of Fiscal 1997 increased 3.0% from the comparable period in Fiscal
1996, comparable store sales for the entire Fiscal 1997 declined 1.3% from
Fiscal 1996. Levitz has attempted to address the decrease in comparable store
sales declines by among other things: (i) hiring a new President-Store
Operations; (ii) renovating 19 showrooms in Fiscal 1997 with plans to renovate
approximately 6 showrooms in Fiscal 1998; (iii) hiring a new advertising agency
for electronic media; and (iv) hiring a new President-Merchandising/Marketing in
July 1997.
Gross profit for Fiscal 1997 was $433.3 million, or 44.8% of net sales, as
compared to $451.7 million, or 45.8% of net sales, for Fiscal 1996. The decrease
in gross profit as a percentage of net sales is attributable to a change in
merchandise pricing policy to coincide with the advertising program. During the
fourth quarter of Fiscal 1997 gross profit as a percentage of net sales
increased to 45.3%. Management believes that the gross profit performance in the
fourth quarter of Fiscal 1997 can be achieved in future periods.
Selling, general and administrative (SG&A) expenses decreased by $14.3 million
or 3.6% to $381.9 million in Fiscal 1997 from $396.2 million in Fiscal 1996. The
dollar decrease in SG&A expenses is attributable to the reduction in
compensation expense and related payroll taxes and employee benefits of $21.3
million in Fiscal 1997 as compared to Fiscal 1996 which included a curtailment
gain of $8.3 million when Levitz amended its defined benefit pension plan which
curtailed future benefit accruals.
Depreciation and amortization expenses decreased to $27.0 million in Fiscal 1997
from $29.3 million in Fiscal 1996. The decrease is primarily attributable to the
expiration of capital leases on equipment which reduced amortization expense by
$1.0 million and reduced depreciation expense by $1.3 million.
In Fiscal 1997, Levitz closed five satellite stores which resulted in a pre-tax
charge for store closings of $8.3 million. The charge includes the reduction of
the carrying value of the store assets to their estimated fair value net of
selling expenses as well as reserves for future rental payments under operating
lease agreements. Included in the store closing charge for one of the closed
stores is a $2.4 million charge from the adoption of SFAS No. 121 effective
April 1, 1996.
In Fiscal 1996, Management implemented two restructuring plans to consolidate
regional offices and to eliminate certain support positions. The plans resulted
in a restructuring charge of $9.0 million. The charges include $7.8 million of
severance pay and related employee benefits and $1.2 million of lease
commitments on closed regional office facilities.
Operating income for Fiscal 1997 was $16.1 million, or 1.7% of net sales, as
compared to operating income of $17.2 million, or 1.7% of net sales, for Fiscal
1996.
Interest expense for Fiscal 1997 increased to $54.1 million or 5.6% of net sales
from $51.8 million or 5.2% of net sales for Fiscal 1996. Interest expense
increased due to the Exchange Offer, and to increased borrowings under the
Senior Secured Facilities as compared to the previous Credit Agreement.
Loss before income taxes for Fiscal 1997 amounted to $37.9 million, or 3.9% of
net sales, as compared to a loss of $34.7 million, or 3.5% of net sales, for
Fiscal 1996.
12
<PAGE>
Income tax benefit was $13.5 million or 1.4% of net sales for Fiscal 1997 as
compared to income tax benefit of $12.4 million or 1.3% of net sales for Fiscal
1996.
Loss before extraordinary items for Fiscal 1997 amounted to $24.5 million or
2.5% of net sales as compared to a loss of $22.3 million or 2.2% of net sales
for Fiscal 1996.
During Fiscal 1997, Levitz incurred an after-tax extraordinary loss of $2.0
million due to the write-off of deferred financing fees related to the previous
bank credit agreement.
As a result of the aforementioned factors, net loss was $26.5 million or 2.7% of
net sales for Fiscal 1997 as compared to $22.3 million or 2.2% of net sales for
Fiscal 1996.
COMPARISON OF OPERATIONS FOR FISCAL 1996 TO FISCAL 1995
Net sales for Fiscal 1996 decreased to $986.6 million or 5.8% from $1,047.2
million for Fiscal 1995. Comparable store sales decreased 9.6%. Decreased net
sales and comparable store sales have reduced operating performance
significantly during Fiscal 1996. LFI has attempted to address this decrease in
net sales by, among other things: (i) hiring a new Chief Executive Officer,
President-Merchandise/Marketing and appointing a new President and Chief
Operating Officer; (ii) changing and outsourcing advertising to create a new
image; (iii) creating a new pricing policy to promote the best value for
customers and (iv) adding new merchandise to the assortment to broaden the
customer base.
Gross profit for Fiscal 1996 was $451.7 million, or 45.8% of net sales, as
compared to $491.4 million, or 46.9% of net sales, for Fiscal 1995. The decrease
in gross profit as a percentage of net sales is attributable to a change in
merchandise pricing policy. In September 1995, Management changed to "a value
pricing system" to coincide with a new advertising program. In January 1996,
Management again changed the pricing policy which is expected to increase
margins in the near future. However, future increases are not expected to reach
the margin levels of prior periods.
Selling, general and administrative (SG&A) expenses decreased by $12.4 million
or 3.0% from $408.6 million in Fiscal 1995 to $396.2 million in Fiscal 1996. The
dollar decrease in SG&A expenses is attributable to the reduction in number of
employees of 1,743 or 25.8% to 5,014 as of March 31, 1996 from 6,757 as of March
31, 1995. Also, effective March 31, 1996, Levitz amended its defined benefit
pension plan which curtailed future benefit accruals. The amendment resulted in
a curtailment gain of $8.3 million net of the affect on the Supplemental
Executive Retirement Plan (SERP). The gain is recorded as a reduction of SG&A
expenses. The percentage increase in SG&A expenses to 40.2% of net sales from
39.0% of net sales is due to the decline in net sales.
Depreciation and amortization expenses increased to $29.3 million in Fiscal 1996
from $28.5 million in Fiscal 1995.
In July and November 1995, Management implemented two restructuring plans to
consolidate regional offices and to eliminate certain support positions. The
plans resulted in a restructuring charge of $9.0 million. The charges include
$7.8 million of severance pay and related employee benefits and $1.2 million of
lease commitments on closed regional office facilities.
Operating income for Fiscal 1996 was $17.2 million, or 1.7% of net sales, as
compared to operating income of $54.3 million, or 5.2% of net sales, for Fiscal
1995.
13
<PAGE>
Interest expense for Fiscal 1996 increased to $51.8 million or 5.2% of net sales
from $46.8 million or 4.5% of net sales for Fiscal 1995. Interest expense for
Fiscal 1996 includes $1.3 million of issuance costs as a result of the Exchange
Offer and increased interest rates under the bank credit agreement.
Income (loss) before income taxes for Fiscal 1996 amounted to a loss of $34.7
million, or 3.5% of net sales, as compared to income of $7.5 million, or 0.7% of
net sales, for Fiscal 1995.
Income tax benefit was $12.4 million or 1.3% of net sales for Fiscal 1996 as
compared to income tax expense of $2.7 million or 0.2% of net sales for Fiscal
1995.
Loss before extraordinary items for Fiscal 1996 amounted to $22.3 million or
2.2% of net sales as compared to income of $4.7 million or 0.5% of net sales for
Fiscal 1995.
During Fiscal 1995, Levitz incurred an extraordinary loss after-tax of $1.6
million due to the write-off of deferred financing fees related to the previous
bank credit agreement.
As a result of the aforementioned factors, net loss was $22.3 million or 2.2% of
net sales for Fiscal 1996 as compared to income of $3.2 million or 0.3% of net
sales for Fiscal 1995.
SEASONALITY AND INFLATION
Management does not believe that seasonal variation has a significant impact on
its business. Levitz has generally been able to pass along any price increases
relating to inflation. Accordingly, the effect of inflation, if any, on Levitz's
results of operations has been minor.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Levitz's primary sources of liquidity are cash flow from operations (including
the proceeds from the transfer of customer credit obligations to GECC) and
borrowings under the Senior Secured Facilities. During Fiscal 1997, Levitz
generated approximately $1.2 million of net cash flow from operations as
compared to $15.5 million and $34.0 million in 1996 and 1995, respectively. Such
amounts primarily represent net income (loss) plus depreciation and amortization
expenses of approximately $29.6 million, $31.3 million and $30.4 million for
Fiscal 1997, 1996 and 1995, respectively.
Working capital changes impact cash flow from operations. Such changes,
excluding income taxes, resulted in a decrease in funds available of
approximately $0.8 million for Fiscal 1997 as compared to an increase in funds
available of approximately $22.3 million for Fiscal 1996 and a decrease of $9.0
million for Fiscal 1995. The Fiscal 1997 decrease was primarily due to the
increase in inventory of $28.6 million due to the change in merchandise
assortment, offset by the increase in trade accounts payable of $17.1 million
and accrued expenses and other liabilities of $13.6 million.
Net cash provided by financing activities amounted to $2.4 million in Fiscal
1997 and includes increased borrowings under the Senior Secured Facilities of
$22.7 million less principal payments under long-term obligations of $11.1
million and payment of deferred financing fees for the Senior Secured Facilities
of $10.9 million. Net cash used in financing activities of $19.0 million for
Fiscal 1996 includes net repayments under Levitz's previous credit agreement of
$10.5 million and $9.1 million of principal payments on long-term debt and
capital lease obligations.
14
<PAGE>
Cash provided by investing activities for Fiscal 1996 includes $22.2 million of
proceeds from a sale-leaseback transaction in May 1995 from four existing
facilities. Cash used in investing activities for Fiscal 1995 includes $46.8
million for the acquisition of JMS, net of cash acquired. The acquisition as
noted above was financed by borrowings under Levitz's previous credit agreement.
Levitz's capital expenditures (other than for capitalized leases) totalled
approximately $11.0 million, $12.6 million and $33.4 million during Fiscal 1997,
1996 and 1995, respectively. Capital expenditures during Fiscal 1997 were for
existing store improvements and equipment. Management estimates that
approximately $6.0 million to $10.0 million is required annually to adequately
maintain and/or improve its existing warehouse-showrooms and satellite stores.
Levitz does not expect to open any new stores in Fiscal 1998.
Long-Term Debt
In March 1996, LFI and Levitz consummated an exchange offer pursuant to which
Levitz issued $91.6 million principal amount of 13.375% Senior Notes due October
15, 1998 and LFI issued warrants to purchase 283,972 shares of LFI Common Stock
at an exercise price equal to $3.89 per share in exchange for $91.6 million
principal amount of 12.375% Senior Notes due April 15, 1997. The untendered
Subordinated Notes, in the aggregate principal amount of $6.0 million, were paid
in full in April 1997.
On July 1, 1996, Levitz and certain of its wholly owned subsidiaries entered
into new senior secured credit facilities providing for up to $190.0 million of
availability (collectively, the "Senior Secured Facilities"). The Senior Secured
Facilities are comprised of $115.0 million of revolving notes, $35.0 million of
term notes and $40.0 million of other notes. The proceeds of the Senior Secured
Facilities were used to repay all indebtedness under Levitz's previous credit
agreement, to provide liquidity for working capital needs and for other general
corporate purposes. The Senior Secured Facilities expire on July 1, 2001. The
Senior Secured Facilities require LFI to achieve an interest coverage ratio
quarterly. It also contains limitations on capital expenditures, additional
indebtedness, incurrence of liens, sale of assets, payment of dividends,
investments and other restrictions.
Loans made under the Senior Secured Facilities bear interest, at Levitz's
option, at a rate equal to either Bankers Trust Company's ("BTC's") prime
lending rate plus 1.5% or BTC's LIBOR rate plus 3.25%. The term notes bear
interest at a rate of 15.5%, payable in cash or, at Levitz's option, at any time
prior to July 1, 1999, by the issuance of up to $10.0 million of additional term
notes, having a principal amount equal to the amount of interest accrued and
maturing on July 1, 2001. To the extent additional term notes are issued for
interest the amount available under the revolving notes will be permanently
decreased. On June 30, 1997, Levitz exercised its option under the term notes to
pay interest due at that date of $1.4 million by issuing additional term notes.
As of March 31, 1997, Levitz (excluding its Obligation Under Account Purchase
Agreement) had an aggregate of $360.4 million of total debt outstanding and
$77.9 million of capitalized lease obligations. Principal payments on long-term
debt obligations, excluding the $75.2 million of Revolver Borrowings, are $11.2
million, $92.4 million, $1.3 million, $1.2 million and $151.0 million in Fiscal
1998, 1999, 2000, 2001 and 2002, respectively.
The GECC Agreement provides for the purchase of Levitz's customer credit
obligations by GECC up to a maximum of $900.0 million, of which GECC had
purchased $758.5 million at March 31, 1997. Levitz and GECC are in the process
of renegotiating this agreement for the purpose of extending the termination
date, changing the fee arrangement and to meet the requirements for sale
15
<PAGE>
accounting under SFAS No. 125. The GECC Agreement as amended on July
8, 1997 currently expires in October, 1999. Upon the expiration date Levitz will
be required to repurchase all of the outstanding credit obligations purchased by
GECC after December 31, 1996 at a price equal to their outstanding balance less
a loss reserve. See Note 7 to Notes to Consolidated Financial Statements for
discussion of the accounting for the GECC Agreement in accordance with SFAS No.
125. Levitz is exposed to market risk under the terms of the GECC Agreement, and
pays a fee or receives cash payments, based upon the relationship among the
interest earned on the portfolio, the amount of the servicing fee, the prime
rate, promotional advertising fees and to a limited extent, credit losses. As a
result of the timing of payments under its promotional advertising program,
Levitz anticipates a reduction in cash flow resulting from the GECC Agreement
during Fiscal 1998 in the amount of approximately $23.0 million. A one-percent
change in the prime rate (when prime is greater than 7%) would increase or
decrease the income from GECC by approximately $6.0 to $7.5 million per year.
Going Concern
On December 6, 1996, June 13, 1997 and June 30, 1997, Levitz obtained amendments
under the Senior Secured Facilities to lower the interest coverage ratio
requirements thereunder through July 1, 2001 allowing Levitz to remain in
compliance with the Senior Secured Facilities covenants. The June 30, 1997
amendment, among other things, further decreased the interest coverage ratio for
the quarter ended June 30, 1997. Levitz is currently negotiating an additional
amendment to the Senior Secured Facilities to obtain approximately $9.0 million
of advanced funding by assigning the proceeds of the sale agreement on its North
Avenue, Chicago, Illinois property to the bank, which is anticipated to close in
the third quarter of Fiscal 1998. Management has a reasonable basis to believe
Levitz will be in compliance with the Senior Secured Facilities covenants as
amended in Fiscal 1998, which assumes achieving improved comparable store sales.
Management has also been seeking equity investments, the sale of assets,
reorganizing its marketing function, refining its operating structure and
negotiating a new agreement with GECC so that Levitz can meet its obligations
and sustain operations. There can be no assurance, however, that Management's
efforts will ultimately be successful or achieve compliance with the covenants.
Levitz has incurred $48.7 million of losses during the past two fiscal years,
while cash provided by operating activities has decreased from $34.0 million
during the fiscal year ended March 31, 1995 to $1.2 million during the fiscal
year ended March 31, 1997. In addition, availability under the Senior Secured
Facilities was $4.0 million at June 30, 1997. Levitz experienced a comparable
store sale decline of 6.4% in the quarter that ended June 30, 1997 and expects
to report a loss for that quarter. These factors, in the short-term, may
seriously jeopardize Levitz's ability to continue as a going concern.
Levitz's ability to continue as a going concern is dependent upon Levitz's
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to comply with the terms and covenants of its financing agreements, to
obtain equity investments, additional financing or increased availability, as
may be required and ultimately to achieve increased sales and operating profit.
No assurances can be given that Levitz will be able to meet these objectives in
the short-term.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants......................... 18
Consolidated Balance Sheets...................................... 19
Consolidated Statements of Operations............................ 20
Consolidated Statements of Stockholder's Deficit................. 21
Consolidated Statements of Cash Flows............................ 22
Notes to Consolidated Financial Statements....................... 23
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levitz Furniture Corporation:
We have audited the accompanying consolidated balance sheets of Levitz
Furniture Corporation (a Florida corporation) and subsidiaries as of March 31,
1997 and 1996, and the related consolidated statements of operations,
stockholder's deficit and cash flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Levitz Furniture
Corporation and subsidiaries as of March 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and has a net
capital deficiency. These conditions raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 11, 1997
18
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
MARCH 31,
------------------
1997 1996
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $9,267 $12,755
Receivables 37,358 34,025
Inventories 169,488 140,918
Deposits and prepaid expenses 3,514 3,820
Deferred income taxes 933 -
-------- --------
Total current assets 220,560 191,518
-------- --------
PROPERTY AND EQUIPMENT:
Land 47,731 47,731
Buildings and building improvements 142,949 144,056
Leasehold improvements 74,469 73,158
Store, warehouse and transportation
equipment 83,043 84,089
-------- --------
348,192 349,034
Less-Accumulated depreciation and
amortization 133,566 123,525
-------- --------
214,626 225,509
Property under capital leases, net of
accumulated amortization of $98,993
in 1997 and $96,104 in 1996 119,077 134,944
-------- --------
333,703 360,453
-------- --------
OTHER ASSETS:
Receivable under account purchase agreement (See Note 7) 327,000 -
Intangible leasehold interests 15,613 17,053
Deferred financing fees 11,975 6,820
Goodwill 18,177 18,693
Other 4,947 5,707
-------- --------
377,712 48,273
-------- --------
$931,975 $600,244
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Cash overdrafts $19,524 $17,912
Current portion of long-term debt 11,193 2,441
Current portion of obligations under capital leases 3,398 4,845
Accounts payable, trade 73,044 55,933
Accrued expenses and other liabilities 88,897 79,640
Payable to parent 10,304 5,904
Deferred income taxes - 4,628
Revolver borrowings (See Note 5) 75,220 52,516
-------- --------
Total current liabilities 281,580 223,819
-------- --------
LONG-TERM DEBT, net of current portion 273,976 286,775
-------- --------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 74,466 82,922
-------- --------
OBLIGATION UNDER ACCOUNT PURCHASE AGREEMENT (See Note 7) 327,000 -
-------- --------
OTHER NONCURRENT LIABILITIES 24,424 24,423
-------- --------
DEFERRED INCOME TAXES 48,101 54,041
-------- --------
COMMITMENTS AND CONTINGENCIES (See Note 12)
STOCKHOLDER'S DEFICIT:
Common stock, $0.40 par; authorized, issued
and outstanding 1,000 shares 1 1
Capital in excess of par 58,453 57,853
Retained earnings (deficit) (155,389) (128,936)
Minimum pension liability (637) (654)
-------- --------
Total stockholder's deficit (97,572) (71,736)
-------- --------
$931,975 $600,244
======== ========
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
YEARS ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
NET SALES $966,855 $986,622 $1,047,226
-------- -------- ----------
COSTS AND EXPENSES:
Cost of sales 533,555 534,953 555,860
Selling, general and administrative expenses 381,864 396,236 408,586
Charge for store closings 8,295 - -
Restructuring expense - 9,000 -
Depreciation and amortization 26,993 29,272 28,484
-------- -------- ----------
950,707 969,461 992,930
-------- -------- ----------
OPERATING INCOME 16,148 17,161 54,296
INTEREST EXPENSE, NET 54,053 51,829 46,832
-------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (37,905) (34,668) 7,464
INCOME TAX EXPENSE (BENEFIT) (13,454) (12,413) 2,736
-------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS (24,451) (22,255) 4,728
EXTRAORDINARY ITEMS, NET OF TAX
BENEFIT OF $1,090 IN 1997 AND $983 IN 1995 (2,002) - (1,566)
-------- -------- ----------
NET INCOME (LOSS) ($26,453) ($22,255) $3,162
======== ======== ==========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items ($24,451) ($22,255) $4,728
Extraordinary items (2,002) - (1,566)
-------- -------- ----------
NET INCOME (LOSS) ($26,453) ($22,255) $3,162
======== ======== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,000 1,000 1,000
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(Dollars in thousands, except share data)
COMMON STOCK CAPITAL RETAINED MINIMUM
--------------- IN EXCESS EARNINGS PENSION
SHARES AMOUNT OF PAR (DEFICIT) LIABILITY
------ ------ --------- --------- ---------
BALANCE, MARCH 31, 1994 1,000 $1 $57,106 ($109,843) $ -
Net income - - - 3,162 -
----- --- ------- --------- -------
BALANCE, MARCH 31, 1995 1,000 1 57,106 (106,681) -
Net loss - - - (22,255) -
Capital contribution - - 747 - -
Minimum pension liability - - - - (654)
----- --- ------- --------- -------
BALANCE, MARCH 31, 1996 1,000 1 57,853 (128,936) (654)
Net loss - - - (26,453) -
Capital contribution - - 600 - -
Minimum pension liability - - - - 17
----- --- ------- --------- -------
BALANCE, MARCH 31, 1997 1,000 $1 $58,453 ($155,389) ($637)
===== === ======= ========= =======
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEARS ENDED MARCH 31,
------------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($26,453) ($22,255) $3,162
---------- -------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 15,703 16,559 15,953
Amortization 11,290 12,713 12,531
Amortization of deferred financing fees 2,620 2,003 1,876
Pension (income) expense 1,874 (1,779) 5,629
Benefit for deferred taxes (11,526) (8,157) (1,952)
Other (253) 116 236
Extraordinary loss related to early redemption
of debt, before tax benefit 3,092 - 2,549
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables (3,327) (307) 6,352
Inventories (28,570) 14,090 (4,301)
Deposits and prepaid expenses 306 3,382 (1,208)
Income taxes receivable - - (3,054)
Other, net 49 129 559
Increase (decrease) in:
Accounts payable, trade 17,111 (1,680) (5,820)
Accrued expenses and other liabilities 13,646 6,774 (4,021)
Payable to parent 4,400 (4,091) 6,628
Other noncurrent liabilities 1,203 (2,014) (1,139)
---------- -------- --------
Total adjustments 27,618 37,738 30,818
---------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,165 15,483 33,980
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,008) (12,557) (33,433)
Proceeds from sale of property and equipment
and other assets 3,959 353 165
Proceeds from sale-leaseback transaction - 22,209 -
Purchase of J.M. Smyth Company, net of cash acquired - - (46,831)
---------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,049) 10,005 (80,099)
---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Senior Secured Facilities/
Credit Agreement 1,068,493 325,300 594,900
Repayments under Senior Secured Facilities/
Credit Agreement (1,045,789) (335,834) (533,050)
Principal payments on long-term debt (3,831) (3,925) (4,887)
Principal payments under capital lease obligations (7,222) (5,184) (4,930)
Increase (decrease) in cash overdrafts 1,612 609 (921)
Payment of deferred financing fees (10,867) - (4,804)
---------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,396 (19,034) 46,308
---------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,488) 6,454 189
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,755 6,301 6,112
---------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $9,267 $12,755 $6,301
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. GENERAL:
ORGANIZATION AND DESCRIPTION OF BUSINESS
Levitz Furniture Corporation (Levitz), a Florida Corporation, was
acquired by Levitz Furniture Incorporated (LFI) in 1985. Levitz is a
specialty retailer of furniture with a chain of 68 warehouse-showrooms
and 61 satellite stores located in major metropolitan areas in 26
states. 26% of the stores are located in the state of California.
The acquisition of 100% of the Levitz outstanding common stock was
treated as a purchase for accounting purposes. Accordingly, as of the
effective date of the purchase, April 30, 1985, all assets and
liabilities of Levitz were revalued at their fair values using the push
down method of accounting.
In December, 1986, the management of Levitz, certain stockholders of
LFI, and certain investors effected a recapitalization of LFI and
Levitz. In order to effect this transaction, LFI's existing common
stockholders received an aggregate cash payment of approximately $230.0
million in cancellation of their shares. This transaction was recorded
as a distribution of earnings and equity resulting in a retained
earnings (deficit).
GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements during the years
ended March 31, 1997 and 1996, Levitz incurred net losses of $26.5
million and $22.3 million, respectively and as of March 31, 1997 Levitz
had a stockholders' deficit of $97.6 million. Comparable store sales in
the first quarter of Fiscal 1998 have declined 6.4% from the comparable
period in Fiscal 1997 and Levitz expects to report a loss in the first
quarter. As of June 30, 1997, Levitz had $4.0 million of availability
under its existing financing agreements. These factors among others
raise substantial doubt about Levitz's ability to continue as a going
concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the
amount and classification of liabilities that might be necessary should
Levitz be unable to continue as a going concern. As described in Note
5, LFI and Levitz have had to obtain amendments and/or waivers to the
Senior Secured Facilities to remain in compliance with the covenants.
At June 30, 1997 LFI and Levitz obtained an amendment which modified
certain covenants. Levitz's continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms and covenants
of its financing agreements, to obtain equity investments, additional
financing or increased availability, as may be required and ultimately
to attain successful operations. Management is currently seeking equity
investments, the sale of assets, reorganizing its marketing function,
refining its operating structure and negotiating a new agreement with
23
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
General Electric Capital Corporation ("GECC") so that Levitz can meet
its obligations and sustain operations. There can be no assurance,
however, that Management's efforts will ultimately be successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Levitz
and its wholly-owned subsidiaries. All material intercompany accounts
and transactions are eliminated in consolidation.
REVENUE RECOGNITION POLICY
Levitz recognizes revenue at the time a sales order is written and the
following conditions are met: the merchandise is in stock and is
available for sale; for a credit sale, the credit is unconditionally
approved; and for items requested to be delivered by a customer, a firm
delivery date is set, and a minimum down payment is received.
CASH, CASH EQUIVALENTS AND CASH OVERDRAFTS
All highly liquid debt instruments purchased with original maturities
of three months or less are considered to be cash equivalents. Cash
overdrafts include checks outstanding which do not have the right of
offset with cash and cash equivalents. The carrying value approximates
fair value because of the short maturity of those instruments.
INVENTORIES
Inventories of furniture and accessories are stated at the lower of
cost or market. Cost is determined using the last-in, first-out (LIFO)
method. Inventories valued on the LIFO cost method were approximately
$11.2 million and $11.0 million lower than first-in, first-out (FIFO)
costs at March 31, 1997 and 1996, respectively.
PROPERTY AND EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment purchased by Levitz are stated at cost. Capital
leases are recorded at the lower of the present value of the future
minimum lease obligations or fair market value of the property.
Depreciation is provided substantially by the straight-line method over
the estimated useful lives of the related assets. The estimated useful
lives range from 10 to 40 years for buildings, building improvements
and leasehold improvements, and 2 to 20 years for store, warehouse and
transportation equipment. Fully depreciated assets are written off
against accumulated depreciation. Capital leases are depreciated over
their initial terms which generally range from 15 to 40 years.
PREOPENING EXPENSES
Preopening expenses are amortized over a one-year period from the
opening of the related facilities.
24
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
INCOME TAXES
Levitz accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax asset and liabilities for
the expected future tax consequences of events that have been
recognized in Levitz's financial statements or tax returns. In
estimating future tax consequences, Levitz generally considers all
expected future events other than enactment of changes in the tax laws
or rates.
INTANGIBLE LEASEHOLD INTERESTS
Intangible leasehold interests represent the value associated with
renewal terms of capital leases and original and renewal terms of
operating leases acquired by Levitz at rents below market value.
Intangible leasehold interests are amortized by the straight-line
method over the original and renewal terms of the related leases.
DEFERRED FINANCING FEES
Deferred financing fees represent costs associated with obtaining
financing. The deferred financing fees are being amortized over the
terms of the related debt.
GOODWILL
Goodwill is being amortized on a straight-line basis over forty years.
Goodwill has been allocated to the lowest operating segment for Levitz
to continually evaluate whether later events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill
may warrant revision or that the remaining balance of goodwill may not
be recoverable. When factors indicate that goodwill should be evaluated
for possible impairment, Levitz uses an estimate of the related
business segment's undiscounted net income and cash flow over the
remaining life of the goodwill in measuring whether goodwill is
recoverable.
ACCUMULATED AMORTIZATION
Accumulated amortization related to intangible leasehold interests and
goodwill was $16.0 million and $14.3 million as of March 31, 1997 and
1996, respectively.
ADVERTISING EXPENSES
Levitz expenses all advertising costs the first time the advertising
takes place including direct-response advertising. Advertising expense
for fiscal years ended March 31, 1997, 1996 and 1995 was $102.1
million, $100.5 million and $93.1 million, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. See Note 1 regarding going concern assumptions.
25
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
SELF INSURANCE
Levitz is generally self-insured for losses and liabilities related to
worker's compensation, health and welfare claims and comprehensive
general, product and vehicle liability. Losses are accrued based upon
Levitz's estimates of the aggregate liability for claims incurred using
certain actuarial assumptions followed in the insurance industry and
based on Levitz's experience.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share". This standard is effective for financial
statements issued for periods ending after December 15, 1997 and
earlier application is not permitted. At that time, all prior-period
earnings per share data will be restated. The implementation of SFAS
No. 128 is not expected to affect Levitz's consolidated financial
statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure". This standard is effective for
financial statements for periods ending after December 15, 1997. At the
present time, the adoption of this standard will not require any
additional disclosure that is not already presented in the current
financial statements.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each year of 1,000 shares.
RECLASSIFICATIONS
Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to the current year's presentation.
26
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
3. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
1997 1996 1995
------- ------- -------
Cash paid during the year for:
Interest (net of amount
capitalized) $49,678 $49,291 $44,000
Income tax (refunds) paid, net (6,985) (1,293) 5,415
Non-cash activities:
Capital contributions 600 747 -
Capital lease obligations for
the acquisition of real
property and equipment - - 3,050
4. STORE CLOSING AND RESTRUCTURING EXPENSE:
In the fiscal year ended March 31, 1997, Management developed a plan to
close five satellite stores. The stores were closed on October 31,
1996. The plan resulted in a pre-tax charge for store closings of $8.3
million. The charge includes the reduction of the carrying value of the
store assets to their estimated realizable value net of selling
expenses as well as reserves for future rental payments under operating
lease agreements. Included in the store closing charge is a $2.4
million charge from the adoption of SFAS No. 121 effective April 1,
1996 for one of the closed stores. The charge increased net loss by
$5.4 million or $5,352 per share. As of March 31, 1997 approximately
$6.7 million of the store closing charge remained and is included in
accrued expenses and other liabilities and other noncurrent
liabilities.
In the fiscal year ended March 31, 1996, Management implemented two
restructuring plans to consolidate regional offices and to eliminate
certain support positions. The plans resulted in a restructuring charge
of $9.0 million. The charges include $7.8 million of severance pay and
related employee benefits and $1.2 million of lease commitments on
closed regional office facilities. The two restructuring charges
increased the net loss by $5.8 million or $5,828 per share. As of March
31, 1997 approximately $2.2 million of the restructuring charges
remained and are included in accrued expenses and other liabilities and
other noncurrent liabilities.
5. LONG-TERM DEBT AND REVOLVER BORROWINGS:
July 1996 Refinancing
On July 1, 1996, Levitz and certain of its wholly owned subsidiaries
entered into a new senior secured facilities agreement providing for up
to $190.0 million of availability (collectively, the "Senior Secured
Facilities"). The Senior Secured Facilities are comprised of $115.0
million of revolving notes, $35.0 million of term notes and $40.0
million of other notes. The proceeds of the Senior Secured Facilities
27
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
were used to repay all indebtedness under Levitz's previous credit
agreement, to provide liquidity for working capital needs and for other
general corporate purposes. The Senior Secured Facilities expire on
July 1, 2001.
Loans made under the Senior Secured Facilities bear interest, at
Levitz's option, at a rate equal to either Bankers Trust Company's
("BTC's") prime lending rate plus 1.5% or BTC's LIBOR rate plus 3.25%.
The term notes bear interest at a rate of 15.5%, payable in cash or, at
Levitz's option, at any time prior to July 1, 1999, by the issuance of
up to $10.0 million of additional term notes, having a principal amount
equal to the amount of interest accrued and maturing on July 1, 2001.
On June 30, 1997, Levitz exercised its option under the term notes to
pay interest due at that date of $1.4 million by issuing additional
term notes.
The Senior Secured Facilities are secured by substantially all of the
assets of Levitz and its subsidiaries and a perfected pledge of stock
of all Levitz's subsidiaries. LFI and Levitz are subject to certain
covenants and restrictions and cross-default provisions as described in
the Senior Secured Facilities or debt indentures of Levitz, including
among other restrictions the following: provisions which require
certain financial tests be met, restrictions with respect to the sale
of assets, annual capital expenditures, ability to enter into
sale-leaseback transactions or mortgage loans, ability to redeem
certain indebtedness, and limitations on the ability to incur
additional indebtedness, requirements to repurchase certain
indebtedness if a change in control occurs and limitations on the
ability to pay dividends or make certain other restricted payments by
Levitz or LFI.
The maximum borrowings, excluding the term notes, under the Senior
Secured Facilities are calculated based upon inventory and receivable
levels and a fixed asset sublimit. The maximum borrowings were $155.0
million which are permanently reduced each year effective July 1997 by
an amount equal to the lesser of $5.0 million or 100% of Excess Cash
Flow, sale of assets as they occur and by an additional amount when
additional term notes are issued to pay interest. Availability under
the Senior Secured Facilities at June 30, 1997 was $4.0 million.
LFI issued to the original holders of the term notes warrants to
purchase up to 5,000,000 shares of Common Stock of LFI at an exercise
price of $0.125 per share as of June 30, 1997, subject to downward
adjustments if certain targeted stock prices of LFI are not achieved in
the future and other anti-dilution provisions.
As a result of the July 1996 refinancing, Levitz incurred a before-tax
extraordinary loss of $3.1 million on the write-off of deferred
financing fees related to the termination of Levitz's Credit Agreement.
The after-tax loss was $2.0 million or $2,002 per share.
In order to comply with the Emerging Issues Task Force EITF 95-22
regarding classification of certain debt instruments, $75.2 million of
the revolving notes are classified as Revolver Borrowings in current
liabilities in the March 31, 1997 financial statements.
On December 6, 1996, June 13, 1997 and June 30, 1997, Levitz obtained
amendments under the Senior Secured Facilities to lower the interest
coverage ratio requirements thereunder through July 1, 2001 allowing
28
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
Levitz to remain in compliance with the Senior Secured Facilities
covenants. The June 30, 1997 amendment, among other things, further
decreased the interest coverage ratio for the quarter ended June 30,
1997. Levitz is currently negotiating an additional amendment to the
Senior Secured Facilities to obtain approximately $9.0 million of
advanced funding by assigning the proceeds of the sale agreement on its
North Avenue, Chicago, Illinois property to the bank, which is
anticipated to close in the third quarter of Fiscal 1998. Management
has a reasonable basis to believe Levitz will be in compliance with the
Senior Secured Facilities covenants as amended in Fiscal 1998, which
assumes achieving improved comparable store sales. Management has also
been seeking equity investments, the sale of assets, reorganizing its
marketing function, refining its operating structure and negotiating a
new agreement with GECC so that Levitz can meet its obligations and
sustain operations. There can be no assurance, however, that
Management's efforts will ultimately be successful or achieve
compliance with the covenants.
Levitz has incurred $48.7 million of losses during the past two fiscal
years, while cash provided by operating activities has decreased from
$34.0 million during the fiscal year ended March 31, 1995 to $1.2
million during the fiscal year ended March 31, 1997. In addition,
availability under the Senior Secured Facilities was $4.0 million at
June 30, 1997. Levitz experienced a comparable store sale decline of
6.4% in the quarter that ended June 30, 1997 and expects to report a
loss for that quarter. These factors, in the short-term, may seriously
jeopardize Levitz's ability to continue as a going concern.
Levitz's ability to continue as a going concern is dependent upon
Levitz's ability to generate sufficient cash flows to meet its
obligations on a timely basis, to comply with the terms and covenants
of its financing agreements, to obtain equity investments, additional
financing or increased availability, as may be required and ultimately
to achieve increased sales and operating profit. No assurances can be
given that Levitz will be able to meet these objectives in the
short-term.
29
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
Outstanding balances under Long-Term Debt Arrangements are as follows
(dollars in thousands):
MARCH 31, MATURITY
------------------ YEAR ENDING
RATE 1997 1996 MARCH 31
---- -------- -------- ------------
Senior Secured Facilities Variable $149,710 $ - 2002
Credit Agreement Variable - 127,516 1997
Senior notes 13.375% 91,141 90,857 1999
Senior subordinated notes 9.625% 100,000 100,000 2003
Subordinated notes 12.375% 6,016 6,006 1998
Mortgages 8.375%-13% 13,522 15,266 1997 to 2003
Other Variable - 2,087 1997
-------- --------
360,389 341,732
Less -
Current portion of long-
term debt 11,193 2,441
Revolver borrowings 75,220 52,516
-------- --------
classified as current $273,976 $286,775
======== ========
In March 1996, LFI and Levitz consummated an exchange offer in which
Levitz issued $91.6 million aggregate principal amount of 13.375%
Senior Notes (New Notes) due October 15, 1998 and LFI issued warrants
to purchase 283,972 shares of LFI Common Stock at an exercise price
equal to $3.89 per share on the date of the exchange for $91.6 million
principal amount of 12.375% Senior Notes (Subordinated Notes) due April
15, 1997 (Exchange Offer). Levitz reduced the par value of the New
Notes by the estimated fair value of the warrants issued by LFI and
recorded a capital contribution from LFI in the amount of $0.7 million.
Issuance costs of $1.3 million have been charged to interest expense.
In addition, as a result of the Exchange Offer, the untendered
Subordinated Notes, in the aggregate principal amount of $6.0 million,
were subordinated to all Senior Indebtedness (as defined in the
Indenture relating to the New Notes) of Levitz. The untendered
Subordinated Notes, were paid in full on April 15, 1997. Interest on
the New Notes is payable semi-annually on October 15 and April 15 of
each year commencing April 15, 1996.
The New Notes Indenture contains restrictive covenants which include:
limitation on dividends and other restricted payments, additional
indebtedness, issuance of subsidiary stock, transactions with
affiliates, liens, sale of assets, sale-leaseback transactions and
requirements to purchase certain indebtedness if a change in control
occurs.
On June 28, 1994 Levitz entered into an Amended and Restated Credit
Agreement with Chemical Bank (Credit Agreement) with an original
commitment of $160.0 million. Levitz incurred a before-tax
extraordinary loss of $2.5 million on the write-off of deferred
financing fees related to the previous credit agreement. The after-tax
loss was $1.6 million or $1,566 per share. The Credit Agreement was
repaid in full on July 1, 1996 and terminated.
30
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
LFI and Levitz are subject to certain covenants and restrictions and
cross-default provisions as described in the respective agreements
and/or indentures, including among other restrictions the following:
provisions which require certain financial tests be met, restrictions
with respect to the sale of assets, annual capital expenditures,
ability to enter into sale-leaseback transactions or mortgage loans,
ability to redeem certain indebtedness, and limitations on the ability
to incur additional indebtedness, requirements to repurchase certain
indebtedness if a change in control occurs and limitations on the
ability to pay dividends or make certain other restricted payments by
Levitz or LFI.
LFI and Levitz are currently in compliance with all such covenants
under the Senior Secured Facilities and all applicable debt indentures.
Future annual payments required on long-term debt, excluding the
Obligations Under Account Purchase Agreement and including $75.2
million of Revolver Borrowings as due in 2002, are as follows (dollars
in thousands):
YEAR ENDING
MARCH 31, AMOUNT
----------- -------
1998 $11,193
1999 92,423
2000 1,319
2001 1,218
2002 151,036
Thereafter 103,200
6. LEASING ARRANGEMENTS:
Levitz leases its warehouse-showrooms generally under non-cancelable
leases for original terms ranging from 10 to 40 years. Most leases
contain renewal options and some include options to purchase the
properties.
The following is an analysis of property under capital leases by major
classes (dollars in thousands):
1997 1996
-------- --------
Land, buildings and improvements $216,918 $224,851
Equipment 1,152 6,197
-------- --------
218,070 231,048
Less- Accumulated amortization 98,993 96,104
-------- --------
$119,077 $134,944
======== ========
Amortization expense relating to property under capital leases for the
years ended March 31, 1997, 1996 and 1995 was $9.5 million, $10.6
million and $10.5 million, respectively.
31
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
Minimum annual rentals (net of sublease income to be received) for the
five years subsequent to March 31, 1997 and in the aggregate are as
follows (dollars in thousands):
CAPITAL OPERATING
YEAR LEASES LEASES
---- ------- --------
1998 $12,790 $21,588
1999 12,284 20,337
2000 12,034 18,517
2001 11,868 15,539
2002 11,526 14,473
Thereafter 158,109 122,122
------- --------
Total minimum lease payments 218,611 $212,576
========
Less - Amount representing interest 140,747
-------
Present value of net minimum
payments under capital leases 77,864
Less - Current portion 3,398
-------
$74,466
=======
Rent expense includes minimum rentals on operating leases, contingent
payments based on either the Consumer Price Index or a percentage of
sales for both capital and operating leases and amortization of
leasehold interests.
Rent expense consists of the following (dollars in thousands):
1997 1996 1995
------- ------- -------
Rent expense $24,567 $24,681 $21,294
Sublease income (888) (799) (1,258)
------- ------- -------
Rent expense, net $23,679 $23,882 $20,036
======= ======= =======
In May 1995, under a sale-leaseback agreement, Levitz sold three
warehouse-showrooms and one satellite store for approximately $22.2
million and leased them back under a twenty year operating lease
agreement. The transaction resulted in a deferred gain of $3.6 million
which is being amortized over the twenty-year lease period.
32
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
7. TRANSFER AND SERVICING OF FINANCIAL ASSETS:
Levitz and GECC are parties to an Account Purchase and Credit Card
Agreement (the "GECC Agreement"), whereby GECC is required to purchase
Levitz's customer credit obligations, subject to certain restrictions,
without recourse up to a maximum investment of $900.0 million. The
termination provision includes a payment of a $3.5 million termination
fee. At March 31, 1997 GECC had purchased $758.5 million of customer
credit obligations. Pursuant to generally accepted accounting
principles, prior to January 1, 1997, these transactions were recorded
as a sale in accordance with SFAS No. 77.
On August 21, 1996 Levitz gave GECC notice of Levitz's intent to
renegotiate the GECC Agreement. On July 8, 1997 Levitz and GECC entered
into an amendment to the GECC Agreement which extended the
renegotiation period to August 16, 1997, extended the GECC Agreement
until October 1999, removed Levitz's obligations to repurchase at
GECC's direction those receivables transferred prior to January 1, 1997
and extended until October 1999 GECC's ability to direct Levitz to
repurchase those receivables transferred subsequent to December 31,
1996 at a price equal to their outstanding balance less a loss reserve.
Effective January 1, 1997, Levitz was required to account for the
transactions under the GECC Agreement in accordance with SFAS No. 125.
SFAS No. 125 requires the transferred assets to be "beyond the reach of
the transferor and its creditors, even in bankruptcy or other
receivership." Due to this requirement and not finalizing a new
agreement with GECC which met the sale criteria of SFAS No. 125, Levitz
was now required to account for these transactions as a secured
borrowing with a pledge of collateral rather than as a sale for
financial reporting purposes. Consequently, Levitz recorded $327.0
million as a Receivable Under Account Purchase Agreement and an
offsetting Obligation Under Account Purchase Agreement in its March 31,
1997 financial statements.
Levitz is exposed to market risk under the terms of the GECC Agreement.
Levitz may pay a fee or may receive income, based upon the relationship
among the interest earned on the portfolio, the amount of the servicing
fee, the prime rate, promotional discount fees and to a limited extent,
credit losses. Levitz recorded income of $12.8 million, $12.6 million
and $7.4 million, respectively for the years ended March 31, 1997, 1996
and 1995. These amounts are included in selling, general and
administrative expenses.
33
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
8. INCOME TAXES:
The provision (benefit) for income taxes was allocated as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Income (loss) before extraordinary items ($13,454) ($12,413) $2,736
Extraordinary items (1,090) - (983)
-------- -------- ------
($14,544) ($12,413) $1,753
======== ======== ======
</TABLE>
The components of the provision (benefit) for income taxes applicable
to income (loss) before extraordinary items is (dollars in thousands):
1997 1996 1995
-------- -------- ------
Current:
Federal ($1,245) ($4,334) $4,297
State 13 - 391
-------- -------- ------
(1,232) (4,334) 4,688
-------- -------- ------
Deferred:
Federal (10,565) (6,390) (1,752)
State (1,657) (1,689) (200)
-------- -------- ------
(12,222) (8,079) (1,952)
-------- -------- ------
($13,454) ($12,413) $2,736
======== ======== ======
A reconciliation of the statutory provision (benefit) for income taxes
on income (loss) before extraordinary items to the actual tax provision
(benefit) is as follows (dollars in thousands):
1997 1996 1995
-------- -------- ------
Computed income tax provision
(benefit) at Federal statutory
rate ($12,849) ($11,787) $2,612
State and local income tax expense,
net of Federal income tax (1,085) (1,115) 109
Permanent differences arising
primarily as a result of the
application of purchase accounting
in 1993 182 181 214
Other 298 308 (199)
-------- -------- ------
($13,454) ($12,413) $2,736
======== ======== ======
34
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
Components of the deferred income tax assets and liabilities are
(dollars in thousands):
1997 1996
------- -------
Deferred tax assets:
Expense deducted for book and
not for tax $6,525 $7,596
Obligations under capital lease 21,670 26,822
Other noncurrent liabilities 19,957 13,207
------- -------
48,152 47,625
------- -------
Deferred tax liabilities:
Inventory 12,613 12,869
Property and equipment 27,539 33,029
Property under capital lease 43,131 49,131
Intangible leasehold interests 10,811 9,744
Other 1,226 1,521
------- -------
95,320 106,294
------- -------
Net deferred tax liability $47,168 $58,669
======= =======
Levitz files a consolidated Federal income tax return and certain state
returns with LFI. Levitz records its share of the consolidated Federal
and state income tax provision or benefit by multiplying its separate
taxable income or loss for the year by the corporate income tax rates
applicable to such year. A tax benefit is recorded only if realized on
a consolidated basis.
9. EMPLOYEE BENEFIT PLANS:
Levitz has a non-contributory, defined benefit plan (the Pension Plan).
Pension benefits are based on length of service, final average
compensation and are integrated with Social Security. The maximum
pension benefit per individual is limited to $125,000 per year. Plan
assets consist primarily of marketable equity and debt securities and
cash equivalents. Levitz's funding policy is to make the minimum annual
contributions required by applicable regulations.
In March 1996, Levitz amended the Pension Plan to exclude future
benefit accruals for credited service and annual earnings after March
31, 1996 and also excluded any associate from becoming a participant in
the plan after January 1, 1996 (Pension Curtailment). This amendment
resulted in a net curtailment gain of $8.3 million, which was recorded
as a reduction of selling, general and administrative expenses in the
fiscal year ended March 31, 1996.
Certain officers and certain key employees of Levitz are participants
in an unfunded non-contributory supplemental executive retirement plan
(SERP) and a life insurance plan. The SERP provides supplemental
retirement, disability and/or death benefits. Retirement and disability
benefits are equal to 4.0% of the highest consecutive five-year average
of salary plus bonus paid for each year of service, limited to a
maximum of 60% of compensation or $0.3 million on an indexed basis.
35
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
Death benefits are equal to 3% per year of service to a maximum of 45%
of such compensation. Benefits are subject to a dollar-for-dollar
reduction for benefits paid under the Pension Plan, Social Security and
certain other specified pension plan payments. The liability for the
SERP and insurance plan is included in other noncurrent liabilities.
The actuarial information included below for the fiscal years ended
March 31, 1997, 1996 and 1995, was derived from the actuarial reports
for the Pension Plan and SERP for the plan years ended December 31,
1996, 1995 and 1994. In March 1996, as adjusted for the Pension
Curtailment and restructuring, pension expense for the years ended
March 31, was comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ---------------
PENSION PENSION PENSION
PLAN SERP PLAN SERP PLAN SERP
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Service cost of benefits
earned during the period $ - $83 $2,941 $181 $3,035 $258
Interest cost on projected
benefit obligation 4,296 1,108 4,957 994 4,829 819
Actual return on plan assets (3,870) - (9,914) - (3,768) -
Net amortization and deferral (240) 395 5,091 610 (366) 534
One-time charge for
terminations - 45 - 1,706 - -
Curtailment expense (gain) - - (8,805) 460 - -
------ ------ ------- ------ ------ ------
Net pension expense (gain) $186 $1,631 ($5,730) $3,951 $3,730 $1,611
====== ====== ======= ====== ====== ======
Assumptions:
Weighted average discount
rate 7.75% 7.75% 8.35% 8.35% 8.35% 8.35%
Rates of increase in
compensation levels - 2.00% 2.00% 2.00% 5.50% 5.50%
Expected long-term rate
of return on assets 9.00% - 9.00% - 9.00% -
</TABLE>
36
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
The following is a reconciliation of the funded status of the plans
with the March 31 balance sheets (dollars in thousands):
1997 1996
------------------ ------------------
PENSION PENSION
PLAN SERP PLAN SERP
-------- -------- -------- --------
Actuarial present value
of benefit obligation-
Vested ($52,382) ($13,617) ($52,382) ($13,834)
Nonvested (2,019) (443) (2,019) (530)
-------- -------- -------- --------
Accumulated benefit
obligation ($54,401) ($14,060) ($54,401) ($14,364)
======== ======== ======== ========
Actuarial present value
of projected
benefit obligations ($55,879) ($14,908) ($54,401) ($15,233)
Plan assets at fair
market value 55,912 - 57,325 -
-------- -------- -------- --------
Plan assets less
projected benefit
obligation 33 (14,908) 2,924 (15,233)
Unrecognized net loss 2,704 1,879 - 1,943
Unrecognized prior service
cost - 313 - 756
Unrecognized net transition
obligation - 408 - 489
Minimum liability - (1,752) - (2,318)
Other - 102 - 196
-------- -------- -------- --------
Prepaid (accrued) pension
costs recognized on the
balance sheet $2,737 ($13,958) $2,924 ($14,167)
======== ======== ======== ========
An additional minimum liability is required when the projected benefit
obligation exceeds plan assets and the deficiency is greater than the
actuarial computed pension liability. The minimum additional liability
was accrued with the recording of an offsetting intangible asset. The
intangible asset recognized cannot exceed the amount of unrecognized
prior service cost and unrecognized net transition obligation. The
excess, net of tax benefits, is reported as a separate reduction of
stockholders' equity (deficit) at March 31, 1997 and 1996 as follows
(dollars in thousands):
1997 1996
------ ------
Intangible asset $720 $1,245
Reduction in stockholders'
equity (deficit) 637 654
Tax benefits 395 419
------ ------
Additional minimum liability $1,752 $2,318
====== ======
37
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
ASSOCIATES SAVINGS PLAN
Levitz has savings plans which were adopted under Section 401(k) of the
Internal Revenue Code. Under the provisions of the Associates Savings
Plans, substantially all employees who meet the age and service
requirements of the plan are entitled to defer a certain percentage of
their compensation. Levitz contributed to the fund 20% of the first 6%
beginning January 1, 1997, 1996 and 1995 subject to certain
limitations. Such matching contributions of $0.9 million, $1.1 million
and $1.2 million were made by Levitz for the years ended March 31,
1997, 1996 and 1995, respectively.
10. ACCRUED EXPENSES AND OTHER LIABILITIES (DOLLARS IN THOUSANDS):
1997 1996
------- -------
Payroll $15,278 $18,257
Payroll and sales taxes 5,253 5,551
Advertising 4,528 5,851
Real estate taxes 4,853 4,893
Interest 10,235 9,198
Promotional discount fee 23,121 4,889
Other 25,629 31,001
------- -------
$88,897 $79,640
======= =======
11. ACQUISITION OF JOHN M. SMYTH COMPANY (JMS):
On June 28, 1994, Levitz acquired all of the outstanding stock of JMS,
a specialty furniture retailer operating six stores in the Chicago,
Illinois area for $46.8 million in cash, net of cash acquired of $3.1
million. The acquisition was accounted for using the purchase method
and accordingly the purchase price was allocated to assets acquired
based on their fair values. Assets acquired, including goodwill, were
$77.3 million with liabilities assumed of $27.4 million. Goodwill of
$16.4 million is being amortized over 40 years on a straight-line
basis.
12. COMMITMENTS AND CONTINGENCIES:
Levitz has employment agreements with six officers and two key
employees. Each of these agreements is for an initial term of three
years and is automatically renewable from year to year unless either
party gives certain notice prior to the anniversary date of the
agreement. The employment agreements with the two key employees
terminate June 1, 1998. The agreements provide that if an officer or
key employee is terminated by Levitz other than for Cause (as defined
in the agreements) or disability or by the officer for Good Reason (as
defined in the agreements), Levitz must continue to pay such officer's
base salary through the term of the employment period and would be
required to credit the officer with three years of additional service
and age for purposes of Levitz's SERP. In the event of such termination
following a Change in Control (as defined in the agreements), Levitz
must pay the officer three times (i) his base salary plus (ii) an
amount equal to the average bonus awarded such officer over the last
three years. Each agreement also contains certain non-competition
provisions.
38
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
Levitz has termination agreements with two other officers that provide
for the payment of up to two years base salary.
Levitz is subject to a number of lawsuits, investigations and claims
arising out of the normal conduct of its business, including those
relating to government regulations, environment, general and product
liability and employee relations. Although there are a number of
actions pending against Levitz as of March 31, 1997, in the opinion of
Management such actions as currently known would not have a material
effect on the financial position of Levitz.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of Levitz's unaudited quarterly results of
operations for the years ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
-------- -------- -------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $228,128 $237,146 $272,007 $229,574
Gross profit 101,615 106,819 120,976 103,890
Net loss before extraordinary items (10,805)(1) (6,949) (1,726) (4,971)
Net loss (12,807)(2) (6,949) (1,726) (4,971)
Loss per common share:
Loss before extraordinary iitems $(10,805) $ (6,949) $ (1,726) $ (4,971)
Extraordinary items (2,002)(2) - - -
-------- -------- -------- --------
Net loss per common share $(12,807) $ (6,949) $ (1,726) $ (4,971)
======== ======== ======== ========
<CAPTION>
QUARTER ENDED
-----------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- -------- -------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $241,862 $251,263 $270,117 $223,380
Gross profit 113,804 117,140 120,130 100,595
Net loss (5,185) (2,742)(1) (6,947)(1) (7,381)(3)
Net loss per common share (5,185) (2,742)(1) (6,947)(1) (7,381)(3)
<FN>
(1) See Note 4 to consolidated financial statements.
(2) See Note 5 to consolidated financial statements.
(3) See Note 9 to consolidated financial statements.
</FN>
</TABLE>
39
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1997
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of Levitz's financial instruments
at March 31, 1997 and 1996, were as follows (dollars in thousands):
1997 1996
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
Cash and cash equivalents $9,267 $9,267 $12,755 $12,755
Receivable under account
purchase agreement 327,000 327,000 - -
Long-term debt obligations
including current maturities 360,389 248,065 341,732 291,574
Obligation under account
purchase agreement 327,000 327,000 - -
Letters of credit - 14,130 - 7,000
The carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of these instruments. The fair value of
Levitz's long-term debt, including current maturities, is estimated
based on the quoted market prices for the same or similar issues. Since
March 31, 1997, a portion of Levitz's publicly traded debt has been
downgraded and the fair value of that debt declined substantially. The
contract amount of the letter of credit approximates its fair value.
40
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the Index to
Consolidated Financial Statements on page 17.
FINANCIAL STATEMENT SCHEDULES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
SCHEDULES
All schedules have been omitted because the required information is shown in the
Consolidated Financial Statements or Notes thereto or they are not applicable.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
See Page 44 for Index to Exhibits.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LEVITZ FURNITURE CORPORATION
Date: July 11, 1997 By: /s/ MICHAEL BOZIC
-----------------------------
Michael Bozic
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL BOZIC Chairman of the Board July 11, 1997
- ---------------------------- and Chief Executive
Michael Bozic Officer
/s/ PATRICK J. NOLAN Senior Vice President, July 11, 1997
- ---------------------------- Chief Financial Officer
Patrick J. Nolan and Director (Principal
Financial Officer)
/s/ EDWARD P. ZIMMER Vice President, General July 11, 1997
- ---------------------------- Counsel and Director
Edward P. Zimmer
/s/ LAWRENCE R. MCDEVITT Vice President, Controller July 11, 1997
- ---------------------------- (Principal Accounting
Lawrence R. McDevitt Officer)
43
<PAGE>
INDEX TO EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
3.01 Form of Restated Certificate of Incorporation of the Company. (1)
3.02 Form of By-Laws of the Company. (1)
3.03 Certificate of Incorporation of Levitz. (2)
3.04 By-Laws of Levitz. (2)
4.01 Form of Stockholder Rights Plan, including exhibits. (1)
10.01 Form of Employment Agreement between Levitz and certain
officers. (1)
10.02 Form of Indemnification Agreement. (1)
10.03 Incentive Plan of the Company. (1)
10.04 Amendment to Shareholders Agreement dated as of May 14, 1993. (1)
10.05 Senior Deferred Coupon Debenture Indenture dated as of December 1,
1992 between the Company and First Bank National Association, as
Trustee. (1)
10.06 Form of Senior Deferred Coupon Debenture (included as Exhibit A to
10.05 above). (1)
10.07 First Supplemental Indenture dated as of April 21, 1993, relating to
the Debenture Indenture. (1)
10.08 Second Supplemental Indenture, dated as of June 16, 1993, relating
to the Debenture Indenture. (1)
10.09 Account Purchase Agreement dated as of October 31, 1987 by and among
Levitz and its Subsidiaries and General Electric Credit Corporation,
as amended, restated and renamed as of May 2, 1994 as the Account
Purchase and Credit Card Program Agreement. (3)
10.10 Shareholders Agreement, dated as of December 23, 1986 between the
Company and the Investors. (4)
10.11 Form of Agreement of Indemnification dated March 5, 1985 between
Levitz and certain directors of Levitz Furniture Corporation. (4)
10.12 Employment Agreement by and among Levitz Furniture Incorporated,
Levitz Furniture Corporation and Michael Bozic, dated as of November
1, 1995. (5)
10.13 Employment Agreement by and among Levitz Furniture Incorporated,
Levitz Furniture Corporation and Edward F. Gilligan, dated as of
November 28, 1995. (6)
10.14 Supplemental Executive Retirement Plan of Levitz dated April,
1995. (7)
10.15 Levitz Bonus Plan. (7)
10.16 13-3/8% Senior Note Indenture, dated as of March 1, 1996, between
Levitz Furniture Corporation and American Bank National Association,
as Trustee. (7)
10.17 Form of 13-3/8% Senior Note (included as Exhibit A to 10.16
above). (7)
10.18 First Supplemental Indenture, dated as of May 29, 1996, to the
13-3/8% Senior Note Indenture, dated as of March 1, 1996 between
Levitz Furniture Corporation and American Bank National Association,
as Trustee. (7)
10.19 Warrant Agreement, dated as of March 25, 1996, by and between the
Company and American Stock Transfer & Trust Company, as Agent.(7)
10.20 Form of Warrant, dated March 25, 1996 (included as Exhibit A to
Exhibit 10.19 above). (7)
10.22 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo Investment Fund III, L.P. (7)
10.23 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo Overseas Partners III, L.P. (7)
10.24 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo (U.K.) Partners III, L.P. (7)
10.25 Registration Rights Agreement, dated as of July 1, 1996, by and
among the Company, Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P., Apollo (U.K.) Partners II, L.P. and Court Square
Capital Limited. (7)
44
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
10.26 $150,000,000 Credit Agreement, dated as of July 1, 1996, among
Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
Furniture Company of Washington, Inc., John M. Smyth Company, each
of the lenders from time to time parties thereto, Apollo Investment
Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo U.K.
Partners III, L.P. and BT Commercial Corporation, as agent. (7)
10.27 $40,000,000 Credit Agreement, dated as of July 1, 1996, among
Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
Furniture Company of Washington, Inc., John M. Smyth Company, each
of the lenders from time to time parties thereto, Apollo Investment
Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo U.K.
Partners III, L.P. and BT Commercial Corporation, as agent. (7)
10.28 Intercreditor and Collateral Agency Agreement, dated as of July 1,
1996, among Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., John M. Smyth Company,
BT Commercial Corporation and the lenders named therein. (7)
10.29 Intercreditor Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, General Electric Capital Corporation, BT
Commercial Corporation and the lenders named therein. (7)
10.30 Revolving Note, dated July 1, 1996, by and among BT Commercial
Corporation, Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (7)
10.31 Term Note, dated July 1, 1996, by and among Apollo (UK) Partners
III, L.P. and Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (7)
10.32 Term Note, dated July 1, 1996, by and among Apollo Overseas
Partners III, L.P. and Levitz Furniture Corporation, Levitz
Furniture Company of the Midwest, Inc., Levitz Furniture Company of
the Pacific, Inc., Levitz Furniture Company of Washington, Inc., and
John M. Smyth Company. (7)
10.33 Term Note, dated July 1, 1996, by and among Apollo Investment Fund
III, L.P. and Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (7)
10.34 Note, dated July 1, 1996, by and among BT Commercial Corporation and
Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
Furniture Company of Washington, Inc., and John M. Smyth
Company. (7)
10.35 Security Agreement, dated as of July 1, 1996, by Levitz Furniture
Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz
Furniture Company of the Pacific, Inc., Levitz Furniture Company of
Washington, Inc., and John M. Smyth Company in favor of BT
Commercial Corporation. (7)
45
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
10.36 Pledge Agreement, dated as of July 1, 1996, by and between Levitz
Furniture Corporation and BT Commercial Corporation. (7)
10.37 Amendment No. 1 dated as of December 6, 1996 to the Credit
Agreements dated as of July 1, 1996 among Levitz Furniture
Corporation, et al. and BT Commercial Corporation, as Agent. (9)
10.38 Form of Employment Agreement by and among Levitz Furniture
Corporation and Brian Levy dated as of September 11, 1996. (10)
10.39 Amendment No. 2 dated as of December 16, 1996 to the Credit
Agreements dated as of July 1, 1996 among Levitz Furniture
Corporation, et al. and BT Commercial Corporation, as Agent. (10)
10.40 Amendment No. 3 dated as of June 13, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al.
and BT Commercial Corporation, as Agent.
10.41 Amendment No. 4 dated as of June 30, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation et al.
and BT Commercial Corporation, as Agent.
10.42 Amendment dated as of July 8, 1997 to the Account Purchase and
Credit Card Program Agreement dated as of October 31, 1987 by and
among Levitz Furniture Corporation, et al. and General Electric
Capital Corporation.
10.43 Form of Employment Agreement by and among Levitz Furniture
Corporation and Robert A. Homler dated as of July 1, 1997.
21.01 Wholly Owned Subsidiaries of Levitz Furniture Incorporated.
21.02 Wholly Owned Subsidiaries of Levitz Furniture Corporation.
27 Financial Data Schedule.
- ------------
(1) Incorporated by reference from the Company's and Levitz's
Registration Statement Nos. 33-61534 and 33-61534-01 on Form S-1
filed April 23, 1993.
(2) Incorporated by reference from Levitz's Registration Statement No.
33-1325 on Form S-1 declared effective on August 13, 1986.
(3) Incorporated by reference from Levitz's Annual Report on Form 10K
for the year ended March 31, 1994.
(4) Incorporated by reference from Levitz's Registration Statement No.
33-12639 on Form S-1 declared effective on May 12, 1987.
(5) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended September 30,
1995.
(6) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended December 31,
1995.
(7) Incorporated by reference from Levitz Furniture Corporation's
Form 10-K for the fiscal year ended March 31, 1996.
(8) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended September 30,
1996.
(9) Incorporated by reference to Form 8-K filed December 6, 1996.
(10) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended December 31,
1996.
46
<PAGE>
EXHIBIT INDEX
EXHIBIT
10.40 Amendment No. 3 dated as of June 13, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al.
and BT Commercial Corporation, as Agent.
10.41 Amendment No. 4 dated as of June 30, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation et al.
and BT Commercial Corporation, as Agent.
10.42 Amendment dated as of July 8, 1997 to the Account Purchase and
Credit Card Program Agreement dated as of October 31, 1987 by and
among Levitz Furniture Corporation, et al. and General Electric
Capital Corporation.
10.43 Form of Employment Agreement by and among Levitz Furniture
Corporation and Robert A. Homler dated as of July 1, 1997.
21.01 Wholly Owned Subsidiaries of Levitz Furniture Incorporated.
21.02 Wholly Owned Subsidiaries of Levitz Furniture Corporation.
27 Financial Data Schedule.
EXHIBIT NUMBER 10.40
AMENDMENT NO. 3
TO
CREDIT AGREEMENTS
THIS AMENDMENT NO. 3 TO CREDIT AGREEMENTS ("AMENDMENT") is dated as of
June 13, 1997, by and among LEVITZ FURNITURE CORPORATION, a Florida corporation
("LFC"), LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado corporation
("LFC MIDWEST"), LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California
corporation ("LFC PACIFIC"), LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation ("LFC WASHINGTON") and JOHN M. SMYTH COMPANY, an Illinois
corporation ("SMYTH") (LFC, LFC Midwest, LFC Pacific, LFC Washington and Smyth
sometimes hereinafter referred to individually as a "BORROWER" and collectively
as the "BORROWERS"); LFC, acting in its capacity as borrowing agent for the
Borrowers (LFC, in such capacity, the "LFC FUNDS Administrator"); BT COMMERCIAL
CORPORATION, a Delaware corporation (in its individual capacity, hereinafter
referred to as "BTCC"), acting in its capacity as agent (in such capacity,
hereinafter referred to as the "TRANCHE A AGENT") under the "TRANCHE A CREDIT
AGREEMENT" (as hereinafter defined); BTCC, acting in its capacity as agent (in
such capacity, hereinafter referred to as the "TRANCHE B AGENT") under the
"TRANCHE B CREDIT AGREEMENT" (as hereinafter defined); and each of the Lenders
under and as defined in the Tranche A Credit Agreement (hereinafter referred to
as the "TRANCHE A LENDERS") and the "TRANCHE B LENDERS" (as defined in the
Tranche A Credit Agreement). Capitalized terms used herein but not otherwise
defined herein shall have the respective meanings assigned to such terms in the
Tranche A Credit Agreement.
WITNESSETH:
WHEREAS, Borrowers, the Tranche A Agent and the Tranche A Lenders have
entered into that certain Credit Agreement dated as of July 1, 1996, as amended
(the "TRANCHE A CREDIT AGREEMENT"), pursuant to which the Tranche A Lenders have
agreed to make certain loans and other financial accommodations to or for the
account of Borrowers;
WHEREAS, Borrowers, the Tranche B Agent and the Tranche B Lenders have
entered into that certain Credit Agreement dated as of July 1, 1996, as amended
(the "TRANCHE B CREDIT AGREEMENT"), pursuant to which the Tranche B Lenders have
agreed to make certain loans and other financial accommodations to or for the
account of Borrowers;
WHEREAS, the Tranche A Agent and the Tranche B Agent (sometimes
hereinafter referred to collectively as the "AGENTS") and the Tranche A Lenders
and the Tranche B Lenders (sometimes hereinafter referred to collectively as the
"LENDERS") have agreed to amend the respective Credit Agreements, on the terms
and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
respective parties hereto hereby agree as follows:
1. AMENDMENT TO CREDIT AGREEMENTS. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in Section 2 below, and in
reliance upon the representations and warranties of Borrowers set forth herein,
each of the Credit Agreements is hereby amended as follows:
1.1 SECTION 8.1 of each of the Credit Agreements is hereby deleted
in its entirety and the following language is hereby substituted therefor:
1
<PAGE>
8.1 INTEREST COVERAGE.
The Borrowers shall not permit the ratio of EBITDA to Interest
Expense, in each case of the Consolidated Entity as the end of any period
described below; to be less than the ratio set forth opposite such
period:
PERIOD RATIO
------ -----
For each twelve month period ending
as of the end of each fiscal quarter
during the period commencing
October 1, 1997 through and including
June 30, 1998 1.0 to 1.0
For each twelve month period ending
as of the end of each fiscal quarter
during the period commencing
July 1, 1998 through and including
December 31, 1998 1.2 to 1.0
For each twelve month period ending
as of the end of each fiscal quarter
thereafter until the fifth anniversary
of the Closing Date 1.4 to 1.0
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of the
date hereof, upon satisfaction of each of the following conditions:
(a) Agents shall have received twelve (12) copies of this
Amendment, duly executed by the LFC Funds Administrator, each of the
Borrowers and the Majority Lenders; and
(b) Agent shall have received in immediately available United
States dollars for the ratable benefit of the Lenders a fee in the amount
of $150,000.00.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Each of the Borrowers hereby represents and warrants to each
of the Agents and Lenders that, after giving effect to this Amendment:
(a) All representations and warranties contained in each of the
Credit Agreements and the other Transaction Documents are true and
correct in all material respects on and as of the date of this Amendment,
in each case as if then made, other than representations and warranties
that expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) No Default or Event of Default has occurred which has not been
waived (or, in the case of an Event of Default, cured) pursuant to the
respective terms of the Credit Agreements;
(c) this Amendment, and each of the Credit Agreements as amended
hereby, constitute legal, valid and binding obligations of the LFC Funds
Administrator and each of the Borrowers and are enforceable against such
Persons in accordance with their respective terms; and
2
<PAGE>
(d) the execution and delivery by the LFC Funds Administrator and
each of the Borrowers of this Amendment does not require the consent or
approval of any Person, except such consents and approvals as shall have
been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENTS AND THE OTHER
TRANSACTION DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference in
each of the Credit Agreements to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the other
Transaction Documents to the "Credit Agreement," the "Tranche A Credit
Agreement" and/or the "Tranche B Credit Agreement" shall in each case mean and
be a reference to the respective Credit Agreements as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution and
delivery of this Amendment shall in no way affect any of the respective rights,
powers or remedies of either of the Agents or any of the Lenders with respect to
any Event of Default nor constitute a waiver of any provision of either of the
Credit Agreements or any of the other Transaction Documents and (ii) all of the
respective terms and conditions of the Credits Agreement, the other Transaction
Documents and all other documents, instruments, amendments and agreements
executed and/or delivered by the Borrowers and/or the LFC Funds Administrator
pursuant thereto or in connection therewith shall remain in full force and
effect and are hereby ratified and confirmed in all respects. The execution and
delivery of this Amendment by the Agents and each of the Lenders shall in no way
obligate the Agents or any of the Lenders, at any time hereafter, to consent to
any other amendment or modification of any term or provision of the Credit
Agreements or any of the other Transaction Documents, whether of a similar or
different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date first set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its capacity as
LFC Funds Administrator
By: /s/ SHEILA C. REINKEN
-------------------------------------
Name: Sheila C. Reinken
--------------------------------
Title: TREASURER
--------------------------------
4
<PAGE>
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida
corporation
By: /s/ SHEILA C. REINKEN
------------------------------------
Name: Sheila C. Reinken
-------------------------------
Title: TREASURER
-------------------------------
LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
-------------------------------------
Name: Sheila C. Reinken
-------------------------------
Title: TREASURER
-------------------------------
LEVITZ FURNITURE COMPANY OF THE
PACIFIC, INC., a California corporation
By: /s/ SHEILA C. REINKEN
-------------------------------------
Name: Sheila C. Reinken
-------------------------------
Title: TREASURER
-------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
-------------------------------------
Name: Sheila C. Reinken
-------------------------------
Title: TREASURER
-------------------------------
JOHN M. SMYTH COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
-------------------------------------
Name: Sheila C. Reinken
-------------------------------
Title: TREASURER
-------------------------------
5
<PAGE>
AGENTS:
BT COMMERCIAL CORPORATION, in its
respective capacities as Tranche A
Agent and Tranche B Agent
By: /s/ WAYNE D. HILLOCK
-------------------------------------
Wayne D. Hillock
Senior Vice President
6
<PAGE>
LENDERS:
BT COMMERCIAL CORPORATION
By: /s/ WAYNE D. HILLOCK
-------------------------------------
Wayne D. Hillock
Senior Vice President
SANWA BUSINESS CREDIT CORPORATION
By: /s/ LAWRENCE J. PLACEK
-------------------------------------
Name: Lawrence J. Placek
--------------------------------
Title: VICE PRESIDENT
--------------------------------
LASALLE NATIONAL BANK
By: /s/ CHRISTOPHER G. CLIFFORD
-------------------------------------
Name: Christopher G. Clifford
--------------------------------
Title: SENIOR VICE PRESIDENT
--------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By: /s/ STEVEN LINDERMAN
-------------------------------------
Name: Steven Linderman
--------------------------------
Title: VICE PRESIDENT
--------------------------------
HELLER FINANCIAL, INC.
By: /s/ DWAYNE L. COKER
-------------------------------------
Name: Dwayne L. Coker
--------------------------------
Title: VICE PRESIDENT
--------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ MATTHEW N. MCALPINE
-------------------------------------
Name: Matthew N. McAlpine
--------------------------------
Title: VICE PRESIDENT
--------------------------------
7
<PAGE>
FINOVA CAPITAL CORPORATION
By: /s/ PETER MARTINEZ
-------------------------------------
Name: Peter Martinez
--------------------------------
Title: VICE PRESIDENT
--------------------------------
SILVER OAK CAPITAL L.L.C.
By: /s/ JEFFREY H. ARONSON
-------------------------------------
Name: Jeffrey H. Aronson
--------------------------------
Title:
--------------------------------
8
EXHIBIT NUMBER 10.41
CONSENT, WAIVER AND AMENDMENT NO. 4
TO
CREDIT AGREEMENT
THIS CONSENT, WAIVER AND AMENDMENT NO. 4 TO CREDIT AGREEMENTS
("Amendment") is dated as of June 30, 1997, by and among LEVITZ FURNITURE
CORPORATION, a Florida corporation ("LFC"), LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC., a Colorado corporation ("LFC Midwest"), LEVITZ FURNITURE COMPANY
OF THE PACIFIC, INC., a California corporation ("LFC Pacific"), LEVITZ FURNITURE
COMPANY OF WASHINGTON, INC., a Washington corporation ("LFC Washington") and
JOHN M. SMYTH COMPANY, an Illinois corporation ("Smyth") (LFC, LFC Midwest, LFC
Pacific, LFC Washington and Smyth sometimes hereinafter referred to individually
as a "Borrower" and collectively as the "Borrowers"); LFC, acting in its
capacity as borrowing agent for the Borrowers (LFC, in such capacity, the "LFC
Funds Administrator"); BT COMMERCIAL CORPORATION, a Delaware corporation (in its
individual capacity, hereinafter referred to as "BTCC"), acting in its capacity
as agent (in such capacity, hereinafter referred to as the "Tranche A Agent")
under the "Tranche A Credit Agreement" (as hereinafter defined); BTCC, acting in
its capacity as agent (in such capacity, hereinafter referred to as the "Tranche
B Agent") under the "Tranche B Credit Agreement" (as hereinafter defined); and
each of the Lenders under and as defined in the Tranche A Credit Agreement
(hereinafter referred to as the "Tranche A Lenders") and the "Tranche B Lenders"
(as defined in the Tranche A Credit Agreement). Capitalized terms used herein
but not otherwise defined herein shall have the respective meanings assigned to
such terms in the Tranche A Credit Agreement.
WITNESSETH:
WHEREAS, Borrowers, the Tranche A Agent and the Tranche A Lenders have
entered into that certain Credit Agreement dated as of July 1, 1996, as amended
(the "Tranche A Credit Agreement"), pursuant to which the Tranche A Lenders have
agreed to make certain loans and other financial accommodations to or for the
account of Borrowers;
WHEREAS, Borrowers, the Tranche B Agent and the Tranche B Lenders have
entered into that certain Credit Agreement dated as of July 1, 1996, as amended
(the "Tranche B Credit Agreement"), pursuant to which the Tranche B Lenders have
agreed to make certain loans and other financial accommodations to or for the
account of Borrowers.
WHEREAS, the Tranche A Agent and the Tranche B Agent (sometimes
hereinafter referred to collectively as the "Agents") and the Tranche A Lenders
and the Tranche B Lenders (sometimes hereinafter referred to collectively as the
"Lenders") have agreed to waive certain requirements set forth in, and amend
certain provisions of, the respective Credit Agreements, in each case on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
respective parties hereto hereby agree as follows:
1. CONSENTS AND WAIVERS. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in Section 3 below, and in
reliance upon the representations and warranties of Borrowers set forth herein:
1
<PAGE>
1.1 Agent and the Majority Lenders hereby consent to amendment of the
GECC Account Purchase Agreement pursuant to an amendment substantially in the
form attached hereto as Exhibit A.
1.2 Agent and the Majority Lenders hereby waive the Events of Default
arising under Section 7.1(b) of the Credit Agreement as a result of:
(a) Borrower's failure to deliver to each Lender not later than
ninety (90) days after the end of the fiscal year of the Consolidated
Entity ended as of March 31, 1997, the Financial Statements and other
items required to be so delivered pursuant to Section 7.1(b) for such
fiscal year, provided that all of such Financial Statements and other
items shall be delivered to each Lender no later than one hundred twenty
(120) days after the end of such fiscal year; and
(b) Borrower's failure to deliver an unqualified opinion of the
Auditor with respect to the audited consolidated Financial Statements of
the Consolidated Entity for the fiscal year ended March 31, 1997,
provided that in any event such opinion shall be subject only to a "going
concern" qualification.
2. AMENDMENT TO CREDIT AGREEMENTS. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in Section 3 below, and in
reliance upon the representations and warranties of Borrowers set forth herein,
each of the Credit Agreements is hereby amended as follows:
2.1 SECTION 8.1 of each of the Credit Agreements is hereby deleted in its
entirety and the following language is hereby substituted therefor:
8.1 INTEREST COVERAGE.
The Borrowers shall not permit the ratio of EBITDA to Interest Expense,
in each case of the Consolidated Entity as the end of any period described
below; to be less than the ratio set forth opposite such period:
PERIOD RATIO
------ -----
For each twelve month period ending as of the
end of each fiscal quarter during the period
commencing October 1, 1996 through and
including March 31, 1997 1.00 to 1.00
For the twelve month period ending as of June
30, 1997 0.94 to 1.00
For each twelve month period ending as of the
end of each fiscal quarter during the period
commencing July 1, 1997 through and including
June 30, 1998 1.00 to 1.00
For each twelve month period ending as of the
end of each fiscal quarter during the period
commencing July 1, 1998 through and including
December 31, 1998 1.20 to 1.00
For each twelve month period ending as of the
end of each fiscal quarter thereafter until the
fifth anniversary of the Closing Date 1.40 to 1.00
2.2 Clause (f) of Section 8.3 of each of the Credit Agreements is
hereby deleted in its entirety and the following language is hereby
substituted therefor:
2
<PAGE>
(f) indebtedness and other obligations under the GECC Account
Purchase Agreement, without giving effect to any amendments or
modifications or restatements thereof, or supplements thereto, except for
any of the foregoing consented to in writing by the Majority Lenders
pursuant to Section 8.14;
3. CONDITIONS PRESENT. This Amendment shall become effective as of the
date hereof, upon satisfaction of each of the following conditions:
(a) Agents shall have received twelve (12) copies of this
Amendment, duly executed by the LFC Funds Administrator, each of the
Borrowers and the Majority Lenders.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
4.1 Each of the Borrowers hereby represents and warrants to each
of the Agents and Lenders that, after giving effect to this Amendment:
(a) All representations and warranties contained in each of the
Credit Agreements and the other Transaction Documents are true and
correct in all material respects on and as of the date of this Amendment,
in each case as if then made, other than representations and warranties
that expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) No Default or Event of Default has occurred which has not been
waived (or, in the case of an Event of Default, cured) pursuant to the
respective terms of the Credit Agreements;
(c) this Amendment, and each of the Credit Agreements as amended
hereby, constitute legal, valid and binding obligations of the LFC Funds
Administrator and each of the Borrowers and are enforceable against such
Persons in accordance with their respective terms; and
(d) the execution and delivery by the LFC Funds Administrator and
each of the Borrowers of this Amendment does not require the consent or
approval of any Person, except such consents and approvals as shall have
been obtained.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENTS AND THE OTHER
TRANSACTION DOCUMENTS.
5.1 Upon the effectiveness of this Amendment, each reference in
each of the Credit Agreements to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the other
Transaction Documents to the "Credit Agreement", the "Tranche A Credit
Agreement" and/or the "Tranche B Credit Agreement" shall in each case mean and
be a reference to the respective Credit Agreements as amended hereby.
5.2 Except as expressly set forth herein, (i) the execution and
delivery of this Amendment shall in no way affect any of the respective rights,
powers or remedies of either of the Agents or any of the Lenders with respect to
any Default or Event of Default nor constitute a waiver of any provision of
either of the Credit Agreements or any of the other Transaction Documents and
(ii) all of the respective terms and conditions of the Credits Agreement, the
other Transaction Documents and all other documents, instruments, amendments and
agreements executed and/or delivered by the Borrowers and/or the LFC Funds
Administrator pursuant thereto or in connection therewith shall remain in full
force and effect and are hereby ratified and confirmed in all respects. The
execution and delivery of this Amendment by the Agents and each of the Lenders
shall in no way obligate the Agents or any of the Lenders, at any time
hereafter, to consent to any other amendment or
3
<PAGE>
modification of any term or provision of the Credit Agreements or any of the
other Transaction Documents, whether of a similar or different nature.
6. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
7. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
(SIGNATURE PAGES FOLLOW)
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date first set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its capacity as
LFC Funds Administrator
By: /s/ PATRICK J. NOLAN
------------------------------------
Name: Patrick J. Nolan
-------------------------------
Title: VICE PRESIDENT
-------------------------------
5
<PAGE>
AGENTS:
BT COMMERCIAL CORPORATION, in its
respective capacities as Tranche A
Agent and Tranche B Agent
By: /s/ WAYNE D. HILLOCK
------------------------------------
Wayne D. Hillock
Senior Vice President
6
<PAGE>
LENDERS:
BT COMMERCIAL CORPORATION
By: /s/ WAYNE D. HILLOCK
------------------------------------
Wayne D. Hillock
Senior Vice President
SANWA BUSINESS CREDIT CORPORATION
By: /s/ LAWRENCE J. PLACEK
------------------------------------
Name: Lawrence J. Placek
-------------------------------
Title: VICE PRESIDENT
-------------------------------
LASALLE NATIONAL BANK
By: /s/ CHRISTOPHER G. CLIFFORD
------------------------------------
Name: Christopher G. Clifford
-------------------------------
Title: SENIOR VICE PRESIDENT
-------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By:
------------------------------------
Name:
Title:
HELLER FINANCIAL, INC.
By:
------------------------------------
Name:
Title:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
------------------------------------
Name:
Title:
7
<PAGE>
FINOVA CAPITAL CORPORATION
By:
------------------------------------
Name:
Title:
SILVER OAK CAPITAL L.L.C.
By: /s/ JEFFREY H. ARONSON
------------------------------------
Name: Jeffrey H. Aronson
-------------------------------
Title:
-------------------------------
8
<PAGE>
EXHIBIT A
TO
CONSENT, WAIVER AND AMENDMENT NO. 4
TO CREDIT AGREEMENTS
DATED AS OF JUNE 31, 1997
FORM OF AMENDMENT TO GECC ACCOUNT PURCHASE AGREEMENT
Attached
9
EXHIBIT NUMBER 10.42
AMENDMENT TO ACCOUNT PURCHASE
AND CREDIT CARD PROGRAM AGREEMENT
AMENDMENT, made and entered into as of July 8, 1997 by and among LEVITZ
FURNITURE CORPORATION, LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., LEVITZ SHOPPING SERVICE, INC., JOHN M. SMYTH COMPANY (collectively,
"Levitz") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital").
WITNESSETH:
WHEREAS, Levitz and GE Capital are parties to an Account Purchase and
Credit Card Program Agreement dated as of May 2, 1994, said Agreement being an
amendment and restatement of the Account Purchase Agreement dated as of October
31, 1987 as amended and restated (the "Agreement"); and
WHEREAS, Levitz has requested that GE Capital agree to certain
modifications to the Agreement for purposes of assisting Levitz in satisfying
certain financial reporting requirements of Statement of Financial Accounting
Standards ("SFAS") No. 125 and SFAS No. 77.
NOW THEREFORE, in consideration of the mutual promises and subject to the
terms and conditions hereinafter set forth, the parties hereto hereby agree as
follows:
1. Capitalized terms used herein which are not otherwise defined shall
have the same meaning as in the Agreement.
2. The renegotiation period referred to in Section 12.1(b) of the
Agreement, shall be deemed to end on August 16, 1997.
3. The first sentence of Section 12.4 of the Agreement is hereby deleted
in its entirety and replaced with the following:
"Except as provided in the following sentence, upon any termination
hereof, Parent shall purchase all Accounts and Indebtedness owned by GE
Capital for an amount equal to the "Purchase Price" as defined below.
Notwithstanding the foregoing, upon any termination of this Agreement
under Section 12.1 hereof, Parent shall, if (and only if) requested in
writing by GE Capital, purchase all Accounts and Indebtedness owned by GE
Capital (other than Indebtedness incurred prior to January 1, 1997) for
an amount equal to the Purchase Price, provided that GE Capital may not
require Parent to consummate the purchase of such Accounts prior to the
last billing date in October 1999, and provided further that GE Capital
may not request Parent to purchase the Accounts and Indebtedness after
the last billing date in October 2000. In order to determine the amount
of Indedtedness incurred prior to January 1, 1997 (the "Prior
Indebtedness") that remains outstanding at any point in time for the
purposes of calculating the amount of Indebtedness that GE Capital does
not have the right to require Parent to purchase pursuant to the
preceding sentence (and for no other purpose): (a) the amount of the
Prior indebtedness as of December 31, 1996 was $750,991,264; (b) the
number of Accounts as of December 31, 1996 related to the Prior
Indebtedness was 631,917 (the "Applicable Accounts"); and (c) all
payments and write-offs with respect to the Applicable Accounts shall be
applied first to the Prior Indebtedness, notwithstanding that (x) the
Applicable Accounts may
1
<PAGE>
also have Indebtedness incurred on or after January 1, 1997 and (b) the
Account Debtor may have directed that payments be otherwise applied.
4. A new Section 12.6 shall be added to the Agreement as follows:
"Upon any termination of this Agreement, if Parent fails to purchase all
of the Accounts and Indebtedness from GE Capital under circumstances in
which Parent is obligated to purchase such Accounts and Indebtedness
pursuant to this Agreement, GE Capital shall have the right, in addition
to and retaining all other rights it may have under the terms of this
Agreement or applicable law, (i) to liquidate such Accounts and
Indebtedness in any such lawful manner which may be expeditious or
economically advantageous to GE Capital, (ii) to issue a replacement or
substitute credit card, or (iii) to sell such Accounts and Indebtedness
to any Person not a party to this Agreement. Parent and each Operating
Subsidiary expressly agrees to cooperate with GE Capital and take any
action reasonably necessary to effectuate any such liquidation or
replacement or substitute credit card issuance in an orderly manner,
including, without limitation, accepting any substitute credit cards
following the effective date of termination and/or taking any other
action as may reasonably require to encourage use of acceptance of such
replacement or substitute credit cards."
5. Except as specifically provided herein, the terms and conditions of
the Agreement shall continue in full force and effect and shall be fully binding
on the parties hereto. Without limiting the generality of the foregoing, the
provisions of this Amendment shall only relate to the rights of the parties
regarding purchase of the Accounts and Indebtedness after termination of the
Agreement and shall not alter, limit or restrict any of GE Capital's rights to
terminate the Agreement in accordance with its terms, including, without
limitation, pursuant to the provisions of Article XIII thereof. Upon the
execution of this Amendment, each reference in the Agreement to "this
Agreement," "hereunder," "hereof," or words of like import shall mean and be a
reference to the Agreement as amended hereby. In the event of any conflict
between the terms of the Agreement and the terms of this Amendment, the terms of
this Amendment shall prevail.
6. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same amendatory instrument,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
IN WITNESS WHEREOF, Levitz and GE Capital have executed this Agreement as
of the date first set forth above.
2
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ DANIEL PORTER
------------------------------------
Title: Senior Vice President And
General Manager
LEVITZ FURNITURE CORPORATION
By: /s/ PATRICK J. NOLAN
------------------------------------
Title: Vice President
LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC.
By: /s/ PATRICK J. NOLAN
------------------------------------
Title: Vice President
LEVITZ FURNITURE COMPANY OF THE
PACIFIC, INC.
By: /s/ PATRICK J. NOLAN
------------------------------------
Title: Vice President
LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC.
By: /s/ PATRICK J. NOLAN
------------------------------------
Title: Vice President
LEVITZ SHOPPING SERVICE, INC.
By: /s/ PATRICK J. NOLAN
------------------------------------
Title: Vice President
JOHN M. SMYTH COMPANY
By: /s/ PATRICK J. NOLAN
------------------------------------
Title: Vice President
3
EXHIBIT NUMBER 10.43
July 1, 1997
Mr. Robert A. Homler
13 Laurelwood Drive
Bernardsville, NJ 07924
Dear Mr. Homler:
This letter sets forth the terms of your employment with Levitz (Levitz
being defined for this purpose as Levitz Furniture Corporation or any of its
subsidiaries). You agree to devote your primary working time, skill, attention
and best efforts to the business of Levitz as President-Merchandise/Marketing of
Levitz at Levitz's Boca Raton, Florida offices or in such other similar
executive position or office as Levitz's Chief Executive Officer may designate.
In consideration of your services as set forth above, and for other good
and valuable consideration, receipt of which is hereby acknowledged, Levitz
hereby agrees as follows:
1. BASE SALARY. Your annual base salary will be $350,000 to be paid in
accordance with Levitz's normal payroll procedures.
2. PERFORMANCE BONUS. You will participate in Levitz's annual performance
bonus program for officers, as that program may be amended from time to time,
with a maximum annual bonus of 50% of your base salary. For the fiscal year
ending March 31, 1998, you will receive a bonus of at least $70,000 from that
program.
3. SIGNING BONUS. You will receive a signing bonus of $25,000 payable
within three business days after you report for work at Levitz's offices in Boca
Raton, Florida.
4. STOCK OPTION GRANT. As soon as possible after the date hereof, you
will receive, subject to grant by the compensation Committee of the Board of
Directors of Levitz Furniture Incorporated (LFI), options to purchase 250,000
shares of the common stock of LFI at an exercise price equal to the average of
the high and low prices of such stock on the New York Stock Exchange on the date
of grant and on the terms as determined by such Compensation Committee. Provided
that all such options shall be exercisable in various increments starting one
year from date of grant, and all such options will be fully exercisable no later
than three years from date of grant.
5. RELOCATION EXPENSES. It is understood that you will sell your home in
Bernardsville, NJ. Levitz will reimburse you for the cost of reasonable real
estate commissions, transfer taxes and closing costs and fees as normally paid
by a home seller in that area. Levitz will also pay your household moving
expenses from Bernardsville, NJ to Boca Raton, Florida in accordance with
Levitz's relocation procedures for officers, which will include reimbursement
for the expense of up to three house hunting trips of up to three days each and
the movement of two personal cars. Levitz will also provide you an apartment in
Boca Raton, Florida for a period of not more than twelve months from the date of
this letter or until you sell your home in New Jersey, whichever comes first.
6. SEVERANCE BENEFITS. Levitz shall have the right to terminate your
employment at any time.
(a) If such termination is for "gross misconduct," then such
termination shall become effective immediately. Levitz shall have only those
rights or obligations which may have accrued prior to such termination. You
1
<PAGE>
shall be entitled to all earned and unpaid salary to the date of termination as
well as all other benefits which may be due you pursuant to and subject to any
of Levitz's health or welfare plans in which you are a participant. "Gross
misconduct" for purposes of this letter shall mean that you have been convicted
of, or have pleaded NOLO CONTENDERE to, a felony, whether or not related to
Levitz's business, or you were guilty of reckless or willful misconduct in
performance of your duties hereunder. Levitz's right to terminate your
employment shall be in addition to any other rights it may have against you.
(b) If such termination is for any reason other than "gross
misconduct," your death or disability, you shall be entitled to receive
severance benefits from Levitz as set forth below:
(i) If such subsection (b) termination occurs within the
first 12 months after the date of this letter, you will continue to receive your
then annual salary for a period equal to 24 months less the number of months
elapsed from the date of this letter to the date of such termination. However,
any amounts paid in excess of 12 months of salary are subject to reduction by
the amount of compensation received, in any form, from a successor employer.
(ii) If such subsection (b) termination occurs more than 12
months from the date of this letter, Levitz will continue to pay your annual
salary for 12 months.
In the event of a subsection (b) termination, you will
also be entitled to receive your guaranteed bonus or a pro-rata earned but
unpaid performance bonus and you will receive all other benefits which may be
due you pursuant to and subject to the provisions of any Levitz health or
welfare plan in which you are a participant.
(c) In the event of a subsection (b) termination you may elect to
receive a lump sum payment, in lieu of continuing periodic payments, equal to
the present value of such periodic payments, using a 5% discount rate.
(d) In the event of a subsection (b) termination you will be
deemed to have an additional three years of age and service for the purposes of
the Company's Supplemental Executive Retirement Plan ("SERP").
7. CHANGE OF CONTROL. Within 30 days after a Change In Control (as
defined in Exhibit A attached hereto) all your stock options will be exercisable
regardless of the date of grant. If within twelve months after a Change In
Control, (i) your employment is terminated by Levitz for other than "gross
misconduct," death or disability, or (ii) you elect to terminate your employment
within 90 days of the occurrence of a Good Cause Event (as defined on Exhibit A
attached hereto), Levitz will (i) continue to pay your annual salary for a
period of 18 months, (ii) pay you an amount equal to the average of your
performance bonus awarded over the last three years or, if you have been
employed by the Company for less than three years, the average of such bonus
awarded during your term of employment with the Company, (iii) continue your
health and welfare benefits as set forth in paragraph 6 above for such 18 month
period, and (iv) you will be deemed to have an additional three years of age and
service for purposes of the SERP.
You may elect to receive a lump sum payment, in lieu of continuing
periodic payments payable hereunder, equal to the present value of such periodic
payments using a 5% discount rate.
Salary benefits paid after a Change in Control are not subject to
mitigation.
8. DEATH AND DISABILITY. If your employment is terminated pursuant to
your death or disability, neither your estate nor you will be entitled to any
2
<PAGE>
severance benefits except as may be payable pursuant to a Levitz health or
welfare benefit plan in which you are a participant. For purposes of this
letter, "disability" means your inability to perform the services to be rendered
by you hereunder due to illness or injury and such inability continues for a
period of six months in any twelve-month period.
9. SERP AND LIFE INSURANCE. You will be a participant in the SERP
according to the terms of such plan as described in Levitz Furniture
Incorporated's Annual Report for the year ended March 31, 1996. While you are
employed by the Company, the Company will arrange for and pay the premiums for a
life insurance policy on your life in an amount no less than $300,000. Such
policy will be owned by you or a trust for the benefit of your family.
10. MISCELLANEOUS. This letter contains the entire understanding of you
and Levitz regarding your employment with Levitz. The terms of this letter shall
be governed by the laws of the State of Florida and may be modified except by a
writing signed by both of us.
If these terms are acceptable to you, please sign below and return one
copy of this letter to me.
Levitz Furniture Corporation
By: /s/ MICHAEL BOZIC
---------------------------------
Michael Bozic
Chief Executive Officer
Accepted and Agreed to:
/s/ ROBERT A. HOMLER
- --------------------------
Date: July 1, 1997
3
<PAGE>
EXHIBIT A
"Change in Control" shall mean the occurrence of any one of the following evens
(as used in this definition "Company" means Levitz):
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or LFI, or any
corporation owned, directly or indirectly, by the stockholders of the
Company or LFI in substantially the same proportions as their ownership
of stock of the Company or LFI, as the case may be (a "Person"), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company or
LFI representing 50% or more of the combined voting power of the then
outstanding securities of the Company or LFI, as the cash may be;
(ii) during any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board or
the board of LFI, and any new director (other than a director designated
by a Person who has entered into an agreement with the Company or LFI to
effect a transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or the board of LFI or nomination
for election by the Company's or LFI's stockholders, as the case may be,
was approved by a vote of at least two-thirds (2/3) of the directors of
the Board or the board of LFI, as the case may be, then still in office
who either were directors thereof at the beginning of the period or whose
election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof; or
(iii) the shareholders of the Company or LFI approve
a merger or consolidation of the Company or LFI with any other
corporation, other than (A) a merger or consolidation which would result
in the voting securities of the Company or LFI outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) more
than 50% of the combined voting power of the voting securities of the
Company or LFI, as the case may be, or such surviving entity outstanding
immediately after such merger or consolidation or (B) a merger or
acquisition effected to implement a recapitalization of the Company or
LFI (or similar transaction) in which no Person acquires more than 50% of
the then outstanding securities of the Comany or LFI, as the case may be;
or
(iv) the shareholders of the Company or LFI approve a
plan of complete liquidation of the Company or LFI or an agreement for
the sale or disposition by the Company or LFI of all or substantially all
of the Company's or LFI's assets.
"Good Cause Event" shall mean the occurrence of any one of the following events:
(i) your assignment to any duties inconsistent with
your status as an executive officer of Levitz or a substantial adverse
alteration in the nature of your responsibilities from those in effect
immediately prior to the Change in Control;
(ii) a reduction by Levitz in your annual base salary
as in effect immediately prior to the Change in Control;
4
<PAGE>
(iii) the failure by Levitz to pay you any portion of
your current compensation or any installment of differed compensation
under any Levitz deferred compensation under any Levitz deferred
compensation program in which you participate, within 15 days of the date
such payment is due;
(iv) the failure by Levitz to provide you with
compensation plans which, in the aggregate, provide you with
substantially comparable compensation opportunities to those compensation
opportunities for which you were eligible prior to the Change in Control;
or
(v) the failure by Levitz to continue to provide you
with benefits substantially similar to those enjoyed by you under any of
Levitz's pension or welfare benefit plans in which you were a participant
at the time of the Change in Control, the taking of any action by Levitz
which would directly or indirectly materially reduce any of such benefits
or deprive you of any material fringe benefit enjoyed by you at the time
of the Change in Control.
5
EXHIBIT 21.01
Subsidiaries of Levitz Furniture Incorporated:
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
Levitz Furniture Corporation Florida
Subsidiaries of Levitz Furniture Corporation:
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
Levitz Furniture Company
of the Midwest, Inc. Colorado
Levitz Furniture Company
of the Pacific, Inc. California
Levitz Furniture Company
of Washington, Inc. Washington
John M. Smyth Company Illinois
EXHIBIT 21.02
Subsidiaries of Levitz Furniture Corporation:
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
Levitz Furniture Company
of the Midwest, Inc. Colorado
Levitz Furniture Company
of the Pacific, Inc. California
Levitz Furniture Company
of Washington, Inc. Washington
John M. Smyth Company Illinois
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-END> MAR-31-1997
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<PP&E> 348,192
<DEPRECIATION> 133,566
<TOTAL-ASSETS> 931,975
<CURRENT-LIABILITIES> 281,580
<BONDS> 273,976
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 931,975
<SALES> 966,855
<TOTAL-REVENUES> 966,855
<CGS> 533,555
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<INCOME-PRETAX> (37,905)
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<NET-INCOME> (26,453)
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