SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 33-61534
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On January 31, 1998, there were 1,000 shares of Common Stock, par value $0.40
outstanding.
<PAGE>
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF
SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THE
COMPANY'S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC CONDITIONS ARE
LESS FAVORABLE THAN EXPECTED; (3) CHANGES IN THE FINANCIAL MARKETS AFFECTING THE
COMPANY'S FINANCIAL STRUCTURE AND THE COMPANY'S COST OF CAPITAL AND BORROWED
MONEY; AND (4) THE UNCERTAINTIES INHERENT IN THE COMPANY'S OPERATIONS. THE
COMPANY HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q
AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES.
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 1997
TABLE OF CONTENTS PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets......................... 3
Consolidated Condensed Statements of Operations............... 4
Consolidated Condensed Statements of Cash Flows............... 5
Notes to Consolidated Condensed Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of Operations...................................... 13
Liquidity and Capital Resources............................... 16
PART II - OTHER INFORMATION................................................. 18
Signatures ........................................................ 19
Exhibit Index........................................................ 20
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
December 31, March 31,
1997 1997
(Unaudited)
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,231 $ 9,267
Receivables 27,934 37,358
Inventories 134,340 169,488
Deposits and prepaid expenses 5,661 3,514
Deferred income taxes 4,318 933
------------ -------------
Total current assets 179,484 220,560
------------ -------------
PROPERTY AND EQUIPMENT, net 184,222 214,626
------------ -------------
PROPERTY UNDER CAPITAL LEASES, net 100,136 119,077
------------ -------------
OTHER ASSETS:
Receivable under account purchase agreement 591,854 327,000
Intangible leasehold interests 14,698 15,613
Deferred financial fees 2,613 11,975
Goodwill 2,836 18,177
Other 3,953 4,947
------------ -------------
615,954 377,712
------------ -------------
$ 1,079,796 $ 931,975
============ =============
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Outstanding checks and cash overdrafts $ 12,405 $ 19,524
Current portion of long-term debt 1,734 11,193
Current portion of obligations under capital leases - 3,398
Accounts payable, trade 42,385 73,044
Accrued expenses and other liabilities 72,848 88,897
Payable to parent 13,391 10,304
Senior Secured Facilities - 75,220
DIP Facility 128,338 -
------------ -------------
Total current liabilities 271,101 281,580
------------ -------------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 7,458 273,976
Obligations under capital leases, net of current portion - 74,466
Obligations under account purchase agreement 591,854 327,000
Other 684 24,424
Deferred income taxes 16,322 48,101
------------ -------------
Total long-term liabilities 616,318 747,967
------------ -------------
LIABILITIES SUBJECT TO COMPROMISE 367,836 -
------------ -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, at par value 1 1
Capital in excess of par 58,453 58,453
Retained earnings (deficit) (233,913) (155,389)
Minimum pension liability - (637)
------------ -------------
Total stockholder's deficit (175,459) (97,572)
------------ -------------
$ 1,079,796 $ 931,975
============ =============
The accompanying notes are an integral part of these condensed financial statements.
3
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<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 232,592 $ 272,007 $ 651,217 $ 737,281
----------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 129,591 151,031 362,130 407,871
Selling, general and administrative
expenses 98,903 102,949 283,617 290,172
Unusual operating expenses (Note 5) - - 7,217 -
Store closing charge (Note 5) - - - 8,295
Depreciation and amortization 5,883 6,698 18,840 20,386
Interest expense, net 6,125 13,994 32,223 40,635
----------- ---------- ---------- ----------
240,502 274,672 704,027 767,359
----------- ---------- ---------- ----------
Loss before reorganization items and
income taxes (7,910) (2,665) (52,810) (30,078)
Reorganization items: (Note 4)
Loss on store closings 7,735 - 33,649 -
Acceleration of goodwill amortization 14,975 - 14,975 -
Professional fees 3,516 - 4,230 -
----------- ---------- ---------- ----------
Total 26,226 - 52,854 -
Loss before income taxes (34,136) (2,665) (105,664) (30,078)
Income tax benefit 7,738 939 32,945 10,598
----------- ---------- ---------- ----------
Loss before extraordinary items (26,398) (1,726) (72,719) (19,480)
Extraordinary item, net of tax benefit
of $2,630 in 1997 and $1,090 in
1996 (Note 7) (343) - (5,805) (2,002)
----------- ---------- ---------- ----------
Net loss $ (26,741) $ (1,72) $ (78,524) $ (21,482)
=========== ========== ========== ==========
Loss per common share (Notes 7 and 8):
Loss before extraordinary item $ (26,398) $ (1,726) $ (72,719) $ (19,480)
Extraordinary item (343) - (5,805) (2,002)
----------- ---------- ---------- ----------
Net loss per common share $ (26,741) $ (1,726) $ (78,524) $ (21,482)
=========== ========== ========== ==========
Weighted average number of common
shares outstanding 1,000 1,000 1,000 1,000
=========== ========== ========== ==========
The accompanying notes are an integral part of these condensed financial statements.
4
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<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended December 31,
------------------------------
1997 1996
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (78,524) $ (21,482)
---------- -----------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 11,273 11,823
Amortization 7,567 8,563
Provision for deferred taxes (35,575) (10,135)
Loss (gain) on disposal of property and equipment (50) 54
Amortization of deferred financing fees 1,766 1,877
Pension expense 930 1,377
Other 216 280
Extraordinary loss related to early redemption of
debt, before tax benefit 8,435 3,092
Reorganization items, non-cash 47,501 -
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables 8,480 (916)
Inventories 33,648 (19,326)
Deposits and prepaid expenses (2,251) (1,026)
Other, net 325 51
Increase (decrease) in:
Accounts payable, trade 10,190 4,396
Accrued expenses and other liabilities 9,505 9,397
Payable to parent 3,106 5,871
Other noncurrent liabilities (347) 2,710
------------ ----------
Total adjustments 104,719 18,088
------------ ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 26,195 (3,394)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (9,749) (7,596)
Proceeds from sale of property and equipment and
other assets 22,138 184
------------ ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,389 (7,412)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 729,305 822,606
Repayments under credit facilities (750,766) (800,376)
Principal payments on long-term debt (6,347) (3,530)
Principal payments under capital lease obligations (2,528) (3,484)
Increase (decrease) in cash overdrafts (7,119) 1,239
Payment of deferred financing fees (3,165) (10,866)
------------ ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (40,620) 5,589
------------ ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,036) (5,217)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,267 12,755
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,231 $ 7,538
============ ==========
The accompanying notes are an integral part of these condensed financial statements.
5
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<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
1. PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION:
Levitz Furniture Corporation (Levitz), a Florida corporation, is a
wholly-owned subsidiary of Levitz Furniture Incorporated (LFI).
On September 5, 1997 (the Petition Date), Levitz Furniture
Incorporated, Levitz Furniture Corporation and 10 of its subsidiaries
(the Debtors) filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code (Chapter 11) in the United States Bankruptcy
Court in Wilmington, Delaware. The Debtors are presently operating
their respective businesses as debtors-in-possession. A statutory
Creditor's Committee has been appointed in the Chapter 11 cases. The
Chapter 11 cases of the Debtors are being jointly administered for
procedural purposes only.
Certain subsidiaries were not included in the Chapter 11 filings. These
subsidiaries are inactive and the results of their operations and
financial position are not material to the consolidated financial
statements.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles applicable to
a going concern, which principles, except as otherwise disclosed,
assume that assets will be realized and liabilities will be discharged
in the normal course of business. As a result of the Chapter 11 cases
and circumstances relating to this event, including Levitz's debt
structure, its recurring losses, and current economic conditions, such
realization of assets and liquidation of liabilities are subject to
significant uncertainty. Additionally, the amounts reported on the
consolidated condensed balance sheet could materially change because of
changes in business strategies and the creation of a plan of
reorganization, since such reported amounts do not give effect to
adjustments to the carrying value of the underlying assets or amounts
of liabilities that may ultimately result.
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments consisting of
normal recurring accruals necessary to present fairly the financial
position as of December 31, 1997, the results of operations and cash
flows for the periods then ended. The results of operations for the
period ended December 31, 1997, are not necessarily indicative of the
results to be expected for the full year.
Certain reclassifications to the prior periods' financial statements
have been made to conform with classifications used in the current
periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and revenues and expenses during the reporting period.
Actual amounts could differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
consolidated condensed financial statements be read in conjunction with
the financial statements and notes thereto included in Levitz's audited
financial statements for the year ended March 31, 1997, which is
included in its Form 10K filed in July 1997.
6
<PAGE>
2. LIABILITIES UNDER CHAPTER 11:
In the Chapter 11 cases, substantially all unsecured liabilities as of
the Petition Date are subject to compromise or other treatment under a
plan of reorganization to be confirmed by the Bankruptcy Court after
submission to any required vote by affected parties. For financial
reporting purposes, those liabilities and obligations whose treatment
and satisfaction is dependent on the outcome of the Chapter 11 cases
have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the consolidated
condensed balance sheet. Generally, all actions to enforce or otherwise
effect repayment of pre-Chapter 11 liabilities as well as all pending
litigation against the Debtors are stayed while the Debtors continue
their business operations as debtors-in-possession. Schedules have been
filed by the Debtors with the Bankruptcy Court setting forth the assets
and liabilities of the Debtors as of the Petition Date as reflected in
the Debtor's accounting records. Levitz will notify all known claimants
subject to the bar date of their need to file a proof of claim with the
Bankruptcy Court. A bar date is the date by which claims against the
company must be filed if the claimants wish to receive any distribution
in the Chapter 11 cases. Differences between amounts shown by the
Debtors and eventual claims filed by creditors will be investigated and
will be either amicably resolved or adjudicated before the Bankruptcy
Court. The ultimate amount of and settlement terms for such liabilities
are subject to an approved plan of reorganization and accordingly are
not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other prepetition executory contracts, subject to
Bankruptcy Court approval. Claims for damages resulting from the
rejection of real estate leases and other executory contracts will be
subject to separate bar dates. The Debtors have not reviewed all real
estate leases for assumption or rejection. The Bankruptcy Court has
approved an order on October 21, 1997 extending the time for which the
Debtors may assume or reject unexpired leases of nonresidential real
property to March 4, 1998. The liabilities subject to compromise
include a reserve for an estimated amount that may be claimed by
lessors for the stores that have been closed through January 8, 1998.
The Debtors will continue to analyze their real estate leases and
executory contracts and may assume or reject additional leases and
contracts.
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total may vary significantly from the
stated amount of proofs of claim that will be filed with the Bankruptcy
Court and may be subject to future adjustment depending on Bankruptcy
Court action, further developments with respect to potential disputed
claims, determination as to the value of any collateral securing
claims, or other events. Additional claims may arise from the rejection
of additional real estate leases and executory contracts by the
Debtors.
7
<PAGE>
December 31,
1997
(Dollars in
Liabilities Subject to Compromise thousands)
--------------------------------- -----------
Accounts payable, trade $ 39,904
Accrued expenses 23,105
13 3/8% Senior Notes due 10/15/98 96,031 (1)
9 5/8% Senior Subordinated Notes due 7/15/03 101,337 (1)
Financing on store building 4,000
Obligations under capital leases 65,875
Reserve for lease rejection claims 11,012
Deferred rent on operating leases 6,939
Supplemental executive retirement programs 13,168
Employment agreement severance costs 2,881
General liability claims 736
Reserve for previous store closings 2,848
-----------
$ 367,836
===========
(1) Includes accrued interest at September 4, 1997.
As a result of the Chapter 11 filing, no principal or interest payments will be
made on most prepetition debt without Bankruptcy Court approval or until a plan
of reorganization providing for the repayment terms has been confirmed by the
court and becomes effective. Interest on prepetition obligations has not been
accrued after the Petition Date except that interest expense and principal
payments will continue to be recorded on capital lease obligations unless the
leases are rejected by the Debtors. Contractual interest expense of $7.1 million
was not recorded on certain prepetition debt totaled $1.9 million for the nine
month period ended December 31, 1997.
As of the Petition Date, Levitz's debt consisted of the following (dollars in
thousands):
Maturity
Description Date Amount
----------- ---- ------
Senior Secured Facilities July 1, 2001 $152,299
9 5/8% Senior Subordinated Notes July 15, 2003 100,000
13 3/8% Senior Notes October 15, 1998 91,267
Mortgages various 13,180
--------
Total 356,746
--------
Obligations under capital leases various 76,678
--------
Total debt $433,424
========
Levitz had a senior secured facilities agreement with BT Commercial Corporation
("BTCC") for up to $190.0 million of availability (collectively, the "Senior
Secured Facilities"). The Senior Secured Facilities were comprised of $115.0
million of revolving notes, $35.0 million of term notes and $40.0 million of
other notes. The Senior Secured Facilities were due July 1, 2001.
The Senior Secured Facilities were 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 were subject to certain covenants and restrictions
and cross-default provisions as described in the Senior Secured Facilities or
8
<PAGE>
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.
LFI, Levitz and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a Postpetition Credit Agreement
dated as of September 5, 1997 (the "DIP Facility") with BTCC as agent.
The DIP Facility has been approved by the Bankruptcy Court and provides
for up to $260.0 million of availability. The DIP Facility contains
revolving notes of $223.6 million and a term note of $36.4 million.
Letter of Credit obligations under the DIP Facility are limited to
$25.0 million. The DIP Facility is intended to provide Levitz with the
cash and liquidity to conduct its operations and pay for merchandise
shipments at normal levels during the course of the Chapter 11
proceedings.
Loans made under the DIP Facility revolving notes bear interest, at
Levitz's option, at a rate equal to either Bankers Trust Company's
prime lending rate plus 1.50% or BTCC's LIBOR rate plus 3.75%. The term
note bears interest at 16%. Levitz is required to pay an unused line
fee of 0.50%, and a letter of credit fee of 2.0%. Levitz paid financing
fees of $3.2 million on the closing date. These financing fees have
been deferred and are being amortized over the life of the DIP
Facility.
The maximum borrowings, excluding the term commitments, under the DIP
Facility are limited to 85% of eligible accounts receivable, 75% of
eligible inventory (as defined in the DIP Facility) and a fixed asset
sublimit which will be permanently reduced by the sale of fixed assets
and leasehold interests. The maximum borrowings at January 31, 1998
were $223.6 million. Availability under the DIP Facility at January 31,
1998 reduced by $14.5 million of stand-by letters of credit was $85.8
million.
The DIP Facility is secured by substantially all of the assets of
Levitz and its subsidiaries and a perfected pledge of stock of all
Levitz's subsidiaries. The DIP Facility contains restrictive covenants
including, among other things, the maintenance of minimum earnings
before interest, taxes, depreciation and amortization as defined
(EBITDA), limitations on the incurrence of additional indebtedness,
liens, contingent obligations, sale of assets, capital expenditures and
a prohibition on paying dividends. On October 9 and December 30, 1997,
the DIP Facility was amended to include, among other things, a decrease
in the minimum EBITDA requirements through March 1998 and an increase
in the capital expenditures limit through March 1998. Levitz and LFI
are currently in compliance with the DIP Facility covenants as amended.
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estate of the Debtors. The DIP Facility
expires on March 5, 1999.
In order to comply with the Emerging Issues Task Force EITF 95-22
regarding classification of certain debt instruments, borrowings
outstanding under the DIP Facility are classified as current
liabilities.
3. TRANSFER AND SERVICING OF FINANCIAL ASSETS:
On September 5, 1997 Levitz and General Electric Capital Corporation
(GECC) entered into a Second Amended and Restated Account Purchase and
Credit Card Program 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 GECC Agreement expires October 31, 1999 and
requires a termination fee of $3.5 million. The Bankruptcy Court
approved the GECC Agreement and granted a perfected security
9
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interest and lien to GECC for any purchased customer credit obligation
and gave administrative expense status to any obligation of Levitz
arising from the GECC Agreement.
Effective January 1, 1997, Levitz was required to account for the
transactions under the previous GECC Agreement in accordance with the
Financial Accounting Standards Board, "Statement of Financial
Accounting Standards (SFAS) No. 125". Prior to January 1, 1997 Levitz
accounted for these transactions under SFAS No. 77. The GECC Agreement
expires on October 31, 1999 and requires Levitz to repurchase the
outstanding customer credit obligations at the expiration date. There
is significant doubt as to Levitz's ability to repurchase the
outstanding customer credit obligations due to the Chapter 11 filing
and current financial condition. The maturity date (on a contractual
basis) of substantially all of the customer credit obligations is now
beyond the GECC Agreement expiration date of October 31, 1999.
Consequently, Levitz is required to account for these transactions as a
secured borrowing with a pledge of collateral rather than as a sale for
financial reporting purposes. Levitz has recorded $591.9 million as a
Receivable under Account Purchase Agreement and an offsetting
obligation under Account Purchase Agreement in its current financial
statements. See Note 5.
Levitz is exposed to market risks under the terms of the GECC
Agreement. Levitz may pay a fee or may receive income, based on the
relationship among the interest earned on the portfolio, the amount of
the promotional discount fees, the amount of the servicing fee, the
prime rate, and to a limited extent, credit losses. For the nine month
periods ended December 31, 1997 and 1996, Levitz recorded income under
the GECC Agreement of $9.6 million and $10.1 million, respectively.
These amounts are included in selling, general and administrative
expenses.
4. REORGANIZATION ITEMS:
Reorganization items for the period ended December 31, 1997 were as
follows (dollars in thousands):
December 31,
Reorganization items 1997
-------------------- ------------
Estimated loss on store closings $ 33,649
Acceleration of goodwill amortization 14,975
Professional fees 4,230
-----------
$ 52,854
===========
During October, 1997, Levitz closed eighteen stores in under-performing
markets. An estimated loss was recognized which includes the writedown
of property, capital lease assets, furniture and fixtures to their net
realizable values and provisions for continuing expenses and severance
pay.
On January 9, 1998, Levitz sold substantially all of the assets of the
John M. Smyth Company, a wholly-owned subsidiary of Levitz, which
operated five store locations in the Chicago, Illinois vicinity. The
gross proceeds from the sale which includes reimbursed amounts were
approximately $35.6 million. The proceeds were used to pay mortgages,
accounts payable, accrued liabilities and reduce borrowings under the
DIP Facilities. In December 1997, Levitz recognized a loss of $18.0
million on the sale of the assets which also included the write-off of
plant, property and equipment, lease rejection claims, continuing
expenses, severance costs and the acceleration of goodwill
amortization.
Professional fees include accounting, legal and consulting services
provided to Levitz and the Creditors' Committee which, subject to court
approval, are required to be paid by Levitz while it is in Chapter 11.
10
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5. UNUSUAL OPERATING EXPENSES AND STORE CLOSING CHARGE:
During the nine month period ended December 31, 1997, Levitz accrued a
charge for future payroll and employee benefit costs of $1.3 million in
connection with an employment agreement upon the resignation of an
officer. Additionally, Levitz recorded a $5.9 million write-off of the
future service revenue receivable under the GECC Agreement since Levitz
is required to account for the transfer of assets under the GECC
Agreement as a secured borrowing with a pledge of collateral rather
than as a sale for financial reporting purposes.
During the nine month period ended December 31, 1996, Levitz closed
five satellite stores. The store closing charge of $8.3 million
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.
6. INCOME TAXES:
Levitz has recorded a deferred tax asset (benefit) for its cumulative
net operating loss (NOL) for the nine month period ended December 31,
1997. The cumulative NOL benefit at December 31, 1997, which is
exclusively provided for Federal tax purposes, is supported by deferred
tax credits which are projected to turn during the Federal carryforward
period. Levitz is limited to the amount of future NOL's it can benefit
and may have to start providing offsetting allowances. Additionally, if
Levitz has any NOL carryforwards when it emerges from bankruptcy, there
could be limitations placed on the realization of these NOL's.
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.
7. EXTRAORDINARY ITEM:
On September 5, 1997, Levitz incurred a before-tax extraordinary loss
of $8.4 million on the write-off of deferred financing fees related to
the termination of the Senior Secured Facilities. The after-tax loss
was $5.8 million or $5,805 per share. In the period ended September 30,
1996, Levitz incurred a before-tax extraordinary loss of $3.1 million
on the write-off of deferred financing fees related to the termination
of the previous bank credit agreement, the after-tax loss was $2.0
million or $2,002 per share.
8. EARNINGS PER COMMON SHARE:
Earnings per common share are based on the weighted average number of
common shares outstanding during each period of 1,000 shares.
The implementation of the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share" had no affect on Levitz's consolidated financial statements.
11
<PAGE>
9. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
Nine Months Ended
September 30,
----------------------------
1997 1996
---------- -----------
Interest paid, net $ 32,105 $ 39,347
========== ===========
Income tax refunds, net $ (2,427) $ (6,968)
========== ===========
In June 1997, Levitz exercised its option to issue additional term
notes under the Senior Secured Facilities of approximately $1.4 million
in lieu of paying interest in cash.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
COMPARISON OF OPERATIONS
The following table sets forth Levitz's results of operations expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Percentage of Net Sales
--------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
December 31, December 31,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 55.7 55.5 55.6 55.3
-------- -------- ------- -------
Gross profit 44.3 44.5 44.4 44.7
Selling, general and administrative
expenses 42.5 37.8 43.6 39.4
Unusual operating expenses - - 1.1 -
Store closing charge - - - 1.1
Depreciation and amortization 2.6 2.5 2.9 2.8
Interest expense 2.6 5.2 5.0 5.5
-------- -------- ------- -------
Loss before reorganization items
and income taxes (3.4) (1.0) (8.2) (4.1)
Reorganization items (11.3) - (8.1) -
-------- -------- ------- -------
Loss before income taxes (14.7) (1.0) (16.3) (4.1)
Income tax benefit 3.3 0.3 5.1 1.5
-------- -------- ------- -------
Loss before extraordinary items (11.4) (0.7) (11.2) (2.6)
Extraordinary items, net of tax (0.1) - (0.9) (0.3)
-------- -------- ------- -------
Net loss (11.5)% (0.7)% (12.1)% (2.9)%
======== ======== ======= =======
Comparable store sales (6.7)% 2.0 % (8.0)% (3.0)%
======== ======== ======= =======
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net sales of $232.6 million for the three month period ended December 31, 1997
decreased $39.4 million or 14.5% over net sales of $272.0 million in the same
period for the prior year. Sales on a comparable store basis decreased 6.7%. The
decrease in net sales of 14.5% is primarily attributable to the closing of
eighteen stores in under-performing markets during October 1997. Management is
in the process of implementing a new merchandise and advertising strategy which
includes improving the product mix, the
13
<PAGE>
implementation of a mechanized re-order system, a shift in the media mix
towards radio and television as the most effective media of competitive
response and increased emphasis on direct mail due to its ability to target the
core customer. The implementation of this strategy is intended to stabilize and
improve comparable store sale performance.
Gross profit as a percentage of net sales decreased to 44.3% for the three month
period ended December 31, 1997 compared to 44.5% in the same period for the
prior year. The decrease reflects an increase in sales of clearance merchandise
and percentage-off sales due to the current process of changing the merchandise
assortment and product mix.
Selling, general and administrative (SG&A) expenses decreased $4.1 million for
the three month period ended December 31, 1997 as compared to the same period
for the prior year. As a percentage of net sales, SG&A expenses increased to
42.5% from 37.8%, respectively. SG&A expenses decreased by approximately $7.8
million due to the closing of eighteen store locations during October 1997. This
was offset by an increase in advertising expense of $3.7 million. The percentage
increase in SG&A was caused by the decline in net sales as previously noted.
Depreciation and amortization expense decreased $0.8 million for the three month
period ended December 31, 1997 from the same period for the prior year primarily
due to the store closings.
Interest expense for the three month period ended December 31, 1997 decreased
$7.9 million or 56.2% from the same period for the prior year. As a percentage
of net sales, interest expense decreased to 2.6% from 5.2%, respectively. As a
result of the Chapter 11 filing, Levitz did not record contractual interest
expense of $5.5 million.
As a result of the aforementioned factors, loss before reorganization items and
income taxes for the three month period ended December 31, 1997 amounted to $7.9
million or 3.4% of net sales as compared to a loss of $2.7 million or 1.0% of
net sales for the same period of the prior year.
Reorganization items for the three month period ended December 31, 1997 included
a loss of approximately $18.0 million from the sale of substantially all the
assets of John M. Smyth Company, a wholly-owned subsidiary, on January 9, 1998.
The loss included the write-off of plant, property and equipment, lease
rejection claims, continuing expenses, severance costs and the acceleration of
goodwill amortization. Also, included were professional fees of $3.5 million for
accounting, legal and consulting services provided to Levitz and the Creditors'
Committee while Levitz is in Chapter 11.
Income tax benefit for the three month period ended December 31, 1997 was $7.7
million or 3.3% of net sales as compared to an income tax benefit of $0.9
million or 0.3% of net sales for the same period of the prior year. The
effective tax rate was 24.6% for the three month period ended December 31, 1997
as compared to a 35.2% effective tax rate for the same period of the prior year.
The decrease in the rate is attributable to permanent differences for the
acceleration of goodwill amortization and professional fees provided to Levitz
and the Creditors' Committee while Levitz is in Chapter 11. Levitz has been able
to record a benefit for its current NOL since there are sufficient deferred tax
credits that are projected to turn during the Federal carryforward period.
However, future NOL benefits may have to be offset by allowances. Additionally,
if Levitz has any NOL carryforwards when it emerges from bankruptcy, there could
be limitations placed on the realization of these NOL's.
The extraordinary loss of $0.3 million for the three month period ended December
31, 1997 was a result of an adjustment to the effective tax rate as a result of
the permanent differences discussed above.
Net loss for the three month period ended December 31, 1997 was $26.4 million or
11.5% of net sales as compared to a net loss of $1.7 million or 0.7% of net
sales for the same period of the prior year.
14
<PAGE>
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1996
Net sales of $651.2 million for the nine month period ended December 31, 1997
decreased $86.1 million or 11.7% over net sales of $737.3 million in the same
period for the prior year. Sales on a comparable store basis decreased 8.0%. The
decrease in net sales is attributable to the slow-down in shipments by
merchandise vendors prior to the Petition Date and the closing of eighteen store
locations during October 1997. Management is in the process of implementing a
new merchandise and advertising strategy which includes improving the product
mix, the implementation of a mechanized re-order system, a shift in the media
mix towards radio and television as the most effective media of competitive
response and increased emphasis on direct mail due to its ability to target the
core customer. The implementation of this strategy is intended to stabilize and
improve comparable store sale performance.
Gross profit as a percentage of net sales decreased to 44.4% for the nine month
period ended December 31, 1997 compared to 44.7% in the same period for the
prior year. The decrease reflects an increase in sales of clearance merchandise
and percentage-off sales due to the slow-down in shipments of merchandise prior
to the Petition Date and the current process of changing the merchandise
assortment.
Selling, general and administrative (SG&A) expenses decreased $6.6 million for
the nine month period ended December 31, 1997 as compared to the same period for
the prior year. SG&A expenses decreased by approximately $7.8 million due to the
closing of eighteen store locations in October 1997 and a decrease of other
expenses of approximately $2.7 million. This was offset by an increase in
advertising expense of $3.9 million. As a percentage of net sales, SG&A expenses
increased to 43.6% from 39.4%, respectively. The percentage increase in SG&A was
caused by the decline in net sales.
During the nine month period ended December 31, 1997, Levitz recorded a $5.9
million charge as an unusual operating expense for the write-off of the future
service revenue receivable under the GECC Agreement since Levitz is now required
to account for the transfers of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financing
reporting purposes. Also, Levitz recorded a $1.3 million charge for the
settlement of an employment agreement upon resignation of an officer.
The store closing charge of $8.3 million for the nine month period ended
December 31, 1996 includes the reduction of the carrying value of the store
assets to the estimated fair value net of selling expenses as well as reserves
for future rental payments under operating lease agreements. Five satellite
stores were closed in October 1996.
Interest expense for the nine month period ended December 31, 1997 decreased
$8.4 million or 20.7% from the same period for the prior year. As a percentage
of net sales, interest expense decreased to 5.0% from 5.5%, respectively. As a
result of the Chapter 11 filing, Levitz did not record contractual interest
expense of $7.1 million.
As a result of the aforementioned factors, loss before reorganization items and
income taxes for the nine month period ended December 31, 1997 amounted to $52.8
million or 8.2% of net sales as compared to a loss of $30.1 million or 4.1% of
net sales for the same period of the prior year.
Reorganization items for the nine month period ended December 31, 1997 included
an estimated reserve for store closings of $23.4 million for the closing of
eighteen stores, an estimated loss of $7.7 million on the sale of substantially
all the assets of JMS, the acceleration of goodwill amortization of $15.0
million, professional fees of $3.8 million for accounting, legal and consulting
services provided to Levitz and the Creditors' Committee while Levitz is in
Chapter 11 and $2.9 million of other expenses related to the bankruptcy. The
store closing reserve and loss on the sale of JMS assets include the writedown
of property, capital lease assets, furniture and fixtures to their net
realizable values and includes provisions for lease rejection claims, continuing
expenses and severance pay.
15
<PAGE>
Income tax benefit for the nine month period ended December 31, 1997 was $32.9
million or 5.1% of net sales as compared to an income tax benefit of $10.6
million or 1.5% of net sales for the same period of the prior year. The
effective tax rate was 31.2% for the nine month period ended December 31, 1997
as compared to 35.2% for the same period of the prior year. The decrease in the
rate is attributable to permanent differences for the acceleration of goodwill
amortization and professional fees provided to Levitz and the Creditors'
Committee while Levitz is in Chapter 11. Levitz has been able to record a
benefit for its current NOL since there are sufficient deferred tax credits that
are projected to turn during the Federal carryforward period. However, future
NOL benefits may have to be offset by allowances. Additionally, if Levitz has
any NOL carryforwards when it emerges from bankruptcy, there could be
limitations placed on the realization of these NOL's.
The extraordinary loss net of tax benefit was $5.8 million or 0.9% of net sales
for the nine month period ended December 31, 1997. The extraordinary loss was
due to the write-off of deferred financing fees related to the Senior Secured
Facilities. The extraordinary loss for the same period of the prior year net of
tax benefit was $2.0 million. The extraordinary loss was due to the write-off of
deferred financing fees related to the previous bank credit agreement.
Net loss for the nine month period ended December 31, 1997 was $78.5 million or
12.1% of net sales as compared to a net loss of $21.5 million or 2.9% of net
sales for the same period of the prior year.
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 DIP Facility.
On September 5, 1997, LFI, Levitz and 10 of its subsidiaries filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code. Levitz
will continue to conduct business in the ordinary course as debtor-in-possession
under the protection of the Bankruptcy Court while a plan of reorganization is
developed.
Levitz's net cash from operations during the nine month period ended December
31, 1997 increased $29.7 million over the same period of the prior year due to
the Chapter 11 filing. Requirements for the payment of unsecured debt, accounts
payable and other liabilities that arose prior to the Chapter 11 filing are in
most cases stayed while Levitz is under the protection of the Bankruptcy Court.
The Bankruptcy Court has issued orders authorizing the payment of prepetition
wages, employee benefits and other payments that are essential to the daily
operations of Levitz. The remaining prepetition liabilities of $367.8 million
have been classified as liabilities subject to compromise under the
reorganization proceedings in the consolidated condensed balance sheet as of
December 31, 1997.
Receivables other than receivables under account purchase agreement decreased
$8.5 million from March 31, 1997 to December 31, 1997. Trade receivables
declined $2.6 million primarily due to the reduction in net sales and the day of
the week in which the month ends. The write-off of the future service revenue
receivable due to the loss of sale accounting treatment under the GECC Agreement
was $5.9 million. Inventory decreased $33.6 million due to a planned reduction
in the first three months of the current fiscal year and the sale of inventory
to a liquidator on the closing of eighteen store locations.
Capital expenditures for the nine month period ended December 31, 1997 were for
the renovation and maintenance of existing store facilities. The reduction in
property and equipment and property under capital leases was due to the
write-off to net realizable value of the 18 stores which were closed during
October 1997. Levitz has no plans to open any new stores during the fiscal year
ending March 31, 1998. Proceeds from the sale of property and equipment includes
$2.3 million for the sale of two idle facilities that were sold prior to the
Petition Date and $19.8 million for the sale of the North Avenue, Chicago,
Illinois store and the corporate offices in Boca Raton, Florida.
16
<PAGE>
Net cash used in financing activities of $40.7 million included repayments of
debt under the Senior Secured Facilities and the DIP Facility of $21.5 million,
$8.9 million of principal payments on mortgages and capital lease obligations
and a $3.2 million payment for deferred financing fees relating to the DIP
Facility. The decrease in outstanding checks of $7.1 million is primarily due to
the Chapter 11 filings and the timing of payments.
Liquidity
LFI, Levitz and substantially all of its subsidiaries, as debtors-in-possession,
are parties to a Postpetition Credit Agreement dated as of September 5, 1997
(the "DIP Facility"). the DIP Facility has been approved by the Bankruptcy Court
and provides for up to $260.0 million of availability. The DIP Facility contains
revolving notes of $223.6 million and a term note of $36.4 million. Letter of
credit obligations under the DIP Facility are limited to $25.0 million. The DIP
Facility is intended to provide Levitz with the cash and liquidity to conduct
its operations and pay for merchandise shipments at normal levels during the
course of the Chapter 11 proceedings.
The maximum borrowings, excluding the term note, under the DIP Facility are
limited to 85% of eligible accounts receivable, 75% of eligible inventory (as
defined in the DIP Facility) and a fixed asset sublimit which will be
permanently reduced by the sale of fixed assets and leasehold interests. The
maximum borrowings at January 31, 1998 were $223.6 million. Availability under
the DIP Facility at January 31, 1998 reduced by $14.5 million in stand-by
letters of credit was $85.8 million. On October 9 and December 30, 1997, the DIP
Facility was amended to include, among other things, a decrease in the minimum
EBITDA requirements through March 1998 and an increase in the capital
expenditure limit through March 1998. LFI and Levitz are currently in compliance
with the DIP Facility covenants as amended.
On September 5, 1997 Levitz and General Electric Capital Corporation ("GECC")
entered into a Second Amended and Restated Account Purchase and Credit Card
Program 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 GECC Agreement
expires on October 31, 1999 and may require Levitz to repurchase the outstanding
customer credit obligations at the expiration date. There is significant doubt
as to Levitz's ability to repurchase the outstanding customer credit obligations
due to the Chapter 11 filing and current financial condition.
Levitz is exposed to market risks under the terms of the GECC Agreement. Levitz
may pay a fee or may receive income, based on the relationship among the
interest earned on the portfolio, the amount of the promotional discount fees,
the amount of the servicing fee, the prime rate, and to a limited extent, credit
losses. For the nine month periods ended December 31, 1997 and 1996, Levitz
recorded income under the GECC Agreement of $9.6 million and $10.1 million,
respectively. These amounts are included in selling, general and administrative
expenses.
In accordance with the GECC Agreement, Levitz and GECC are in the process of
negotiating substantive changes to the GECC Agreement. Levitz is also engaged in
discussions with another party to finance and service its customer credit
obligations. The outcome of these discussions and negotiations are not
predictable, consequently the impact on the financial statements are not known.
17
<PAGE>
PART II OTHER INFORMATION:
Item 1. Legal Proceedings.
See the Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997 for information concerning the filing by the
Registrant and several of its subsidiaries of voluntary petitions for
relief under Chapter 11, Title 11 of the United States Code.
Item 3. Default Upon Senior Securities.
See the Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1997 for information concerning a default on Levitz
Furniture Corporation's ("Levitz's") 13 3/8% Senior Notes due October
15, 1998, Levitz's 9 5/8% Senior Subordinated Notes due July 15, 2003
and Levitz Furniture Incorporated's Senior Deferred Coupon Debentures
due June 15, 2002.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.49: Amendment No. 2 dated as of December 30, 1997 to
the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as Agent.
Exhibit 27: Financial Data Schedule
(b) Report on Form 8-K:
On January 20, 1998, the registrant filed a report on Form 8-K
reporting under Item 5. "Other Events" the consummation of the
sale by Levitz Furniture Corporation and its wholly-owned
subsidiary John M. Smyth Company (JMS) of substantially all of
the assets of JMS to Heilig-Meyers Company.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security 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
(Registrant)
Date: February 13, 1997 /S/ LAWRENCE R. MCDEVITT
---------------------------
Lawrence R. McDevitt
Vice President/Controller
Chief Accounting Officer
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibits to Form 10-Q
NUMBER
EXHIBIT TABLE EXHIBIT
------------- -------
<S> <C>
10.49 Amendment No. 2 dated as of December 30, 1997 to the Postpetition Credit Agreement
among Levitz Furniture Incorporated, et al. and BT Commercial Corporation, as agent.
27 Financial Data Schedule.
</TABLE>
20
EXHIBIT NUMBER 10.49
SECOND AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS SECOND AMENDMENT AND CONSENT, dated as of December 30, 1997 (this
"Amendment") to the POSTPETITION CREDIT AGREEMENT dated as of September 5, 1997
(the "Credit Agreement"), is among LEVITZ FURNITURE INCORPORATED, a Delaware
corporation and a debtor and debtor in possession ("LFI"), LEVITZ FURNITURE
COMPANY, a Florida corporation and a debtor and debtor in possession ("LFC"),
LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation and a debtor and
debtor in possession ("LFR"), LEVITZ SHOPPING SERVICE, INC., a Florida
corporation and a debtor and debtor in possession ("LSS"), LEVITZ FURNITURE
COMPANY OF THE MIDWEST, INC., a Colorado corporation and a debtor and debtor in
possession ("LFC Midwest"), LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation and a debtor and debtor in possession ("LFC Pacific"),
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington corporation and a
debtor and debtor in possession ("LFC Washington") LEVITZ FURNITURE COMPANY OF
THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and debtor in
possession ("LFC Midwest Realty"), LEVITZ FURNITURE COMPANY OF THE PACIFIC
REALTY, INC., a California corporation and a debtor and a debtor in possession
("LFC Pacific Realty"), LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation and debtor and a debtor in possession ("LFC Washington
Realty"), JOHN M. SMYTH COMPANY, an Illinois corporation and a debtor and debtor
in possession ("JMS") and JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
and a debtor and debtor in possession ("JMS Realty") (LFI, LFC, LFR, LSS, LFC
Midwest, LFC Pacific, LFC Washington, LFC Midwest Realty, LFC Pacific Realty,
LFC Washington Realty, JMS and JMS Realty sometimes hereinafter individually
called a "Borrower" and collectively called the "Borrowers"); each Revolving
Lender and Term Lender signatories hereto (collectively the "Lenders"), and BT
COMMERCIAL CORPORATION, a Delaware corporation (in its individual capacity,
hereinafter called "BTCC"), acting in its capacity as agent for the Lenders (in
such capacity, together with its successors in such capacity, hereinafter called
the "Agent"). Capitalized terms used in this Amendment and not otherwise defined
have the meanings assigned such terms in the Credit Agreement.
PRELIMINARY STATEMENTS:
A. The Borrowers and the Lenders are parties to the Credit Agreement.
B. The Borrowers have requested the Lenders and the Agent to amend the
Credit Agreement in certain respects.
C. The Lenders and the Agent have agreed to amend the Credit Agreement
as requested on the terms and conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 Section 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Permitted Prepetition Claim Payment" in its entirety and
replacing it as follows:
PERMITTED PREPETITION CLAIM PAYMENT means any payment, approved by an
order of the Bankruptcy Court (as adequate protection or otherwise) on account
of any Claim arising or deemed to have arisen prior to the Petition Date in
respect of (i) prepetition real estate taxes not to exceed $1,200,000 (ii)
prepetition employee wages, salaries, sick pay, vacation pay (including
"personal days"), holiday pay, and other accrued compensation; (iii)
1
<PAGE>
obligations to reimburse prepetition employee business expenses (including
travel, lodging, moving, and relocation expenses); (iv) obligations to make
payments for which employee payroll deductions were made; (v) obligations to
make prepetition contributions and pay benefits under employee benefit plans;
(vi) all costs and expenses incident to the payments and contributions described
in (i) through (v) (including payroll-related taxes and processing costs); (vii)
obligations to customers incurred in the ordinary course of business (including
honoring obligations arising from deposits, prepayments, gift certificates,
warranties, refunds, returns, exchanges and other credit balances); (viii)
obligations under the Borrowers' or any Subsidiary's self-insured workers'
compensation program; (ix) amounts owed to department lessees and licensees in
the ordinary course of Borrowers' or any Subsidiary's business; (x) amounts owed
to certain individuals or entities who, although not employees of Borrowers, (I)
provide ongoing vital services to Borrowers on a regular and recurring basis,
(II) are paid for the services they perform for Borrowers directly by Borrowers
and not by any agency (such as an employment agency), and (III) perform services
that, with respect to Borrowers, are performed by employees; (xi) amounts owed
to certain individuals or entities that (I) provide services to Borrowers'
customers on behalf of Borrowers, (II) have direct contact with Borrowers'
customers or take possession of customers' goods or property, (III) the
customers believe are employees of Borrowers, and (IV) are compensated by
Borrowers, who, in turn, receive customer payments for those services; (xii) the
claims of all contractors that have given or could give rise to mechanics' or
materialmen's liens against property of Borrowers or any Subsidiary, (xiii)
employee withholding taxes, sales, use and exise and other similar trust fund
amounts.
1.2 Section 7.1(e) of the Credit Agreement is hereby amended by
deleting clause (ii) in its entirety and replacing it as follows:
(ii) statement of operations and statements of cash flows for
the same periods in the prior year;
1.3 Sections 7.1, 7.2 and 7.3 of the Credit Agreement are hereby
amended by deleting the term "chief executive officer or chief financial
officer" and replacing such term with "chief executive officer, chief financial
officer or treasurer."
1.4 Section 8.2 of the Credit Agreement is hereby amended by deleting
the term "$5,000,000" and replacing such term with the term "$8,300,000."
2. CONSENT.
The Agent and the Lenders hereby consent to the asset purchase
agreement dated as of December 15, 1997 (the "Asset Purchase Agreement") between
LFC, Smyth and Heilig-Meyers Company ("Heilig-Meyers") whereby substantially all
of the assets of Smyth will be sold to Heilig-Meyers and agree that the Asset
Purchase Agreement and the transactions contemplated thereby will not constitute
an Event of Default under the Credit Agreement or any of the other Credit
Documents.
3. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of the
following condition:
The Agent shall have received ten (10) copies of this
Amendment, duly executed by the LFC Funds Administrator, each of the Borrowers,
and each of the Lenders.
4. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Amendment:
2
<PAGE>
(a) all representations and warranties contained in the Credit
Agreement and the other Credit 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 or Default has occurred which has not
been waived (or, in the case of an Event of Default, cured) pursuant to
the terms of the Credit Agreement;
(c) this Amendment, and the Credit Agreement 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 other than the Bankruptcy Court,
except such consents and approvals as shall have been obtained.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
5.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the
other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement 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 the Agent or any of the
Lenders with respect to any Event of Default nor constitute a waiver of
any provision of the Credit Agreement or any of the other Credit
Documents and (ii) all of the terms and conditions of the Credit
Agreement, the other Credit 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 Agent and each of the Lenders shall
in no way obligate the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term
of provision of the Credit Agreement or any of the other Credit
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.
[The remainder of this page is intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their 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: VICE PRESIDENT
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its individual capacity
and in its capacity as the LFC Funds
Administrator
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE INCORPORATED, a Delaware
corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ SHOPPING SERVICE, INC., a Florida
corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
4
<PAGE>
LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC., a Colorado corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE COMPANY OF THE
PACIFIC, INC., a California corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., a Washington corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE COMPANY OF THE MIDWEST
REALTY, INC., a Colorado corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE COMPANY OF THE PACIFIC
REALTY, INC., a California corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
5
<PAGE>
JOHN M. SMYTH COMPANY, an Illinois
corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
JOHN M. SMYTH REALTY COMPANY, an
Illinois corporation
By: /S/ SHEILA C. REINKEN
Name: SHEILA C. REINKEN
Title: VICE PRESIDENT
AGENT:
BT COMMERCIAL CORPORATION, in its
capacity as Agent
By: /S/ WAYNE D. HILLOCK
Name: WAYNE D. HILLOCK
Title: SR. VICE PRESIDENT
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware
corporation in its respective
capacities as Revolving Lender and
Collateral Agent
By: /S/ WAYNE D. HILLOCK
Name: WAYNE D. HILLOCK
Title: SR. VICE PRESIDENT
CARGILL FINANCIAL SERVICES CORPORATION,
in its capacity as Revolving Lender
By: /S/ PATRICK J. HALLORAN
Name: PATRICK J. HALLORAN
Title: VICE PRESIDENT
FINOVA CAPITAL CORPORATION, it its
capacity as Revolving Lender
By: /S/ BRIAN RUIAWITZ
Name: BRIAN RUIAWITZ
Title: ASSISTANT VICE PRESIDENT
6
<PAGE>
HELLER FINANCIAL, INC., in its capacity
as Revolving Lender
By: /S/ DWAYNE L. COKER
Name: DWAYNE L. COKER
Title: VICE PRESIDENT
LASALLE NATIONAL BANK, in its capacity
as Revolving Lender
By: /S/ CHRISTOPHER G. CLIFFORD
Name: CHRISTOPHER G. CLIFFORD
Title: SENIOR VICE PRESIDENT
CONGRESS FINANCIAL CORPORATION
(CENTRAL), in its capacity as Revolving
Lender
By:
Name:
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION, in its capacity as
Revolving Lender
By: /S/ ROBERT HEINZ
Name: ROBERT HEINZ
Title: SENIOR VICE PRESIDENT
SILVER OAK CAPITAL L.L.C., in its
capacity as Revolving Lender
By: /S/ JEFFREY H. ARONSON
Name: JEFFREY H. ARONSON
Title: AUTHORIZED SIGNATORY
NATIONSCREDIT COMMERCIAL CORPORATION,
THROUGH ITS NATIONSCREDIT COMMERCIAL
FUNDING DIVISION; in its capacity as
Revolving Lender
By: /S/ ROBERT BELLISH
Name: ROBERT BELLISH
Title: VICE PRESIDENT
7
<PAGE>
TERM LENDER:
SILVER OAK CAPITAL L.L.C., in its
capacity as Term Lender
By: /S/ JEFFREY H. ARONSON
Name: JEFFREY H. ARONSON
Title: AUTHORIZED SIGNATORY
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTH PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,231
<SECURITIES> 0
<RECEIVABLES> 27,934
<ALLOWANCES> 0
<INVENTORY> 134,340
<CURRENT-ASSETS> 179,484
<PP&E> 184,222
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,079,796
<CURRENT-LIABILITIES> 271,101
<BONDS> 7,458
0
0
<COMMON> 1
<OTHER-SE> (175,460)
<TOTAL-LIABILITY-AND-EQUITY> 1,079,796
<SALES> 651,217
<TOTAL-REVENUES> 651,217
<CGS> 362,130
<TOTAL-COSTS> 362,130
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,223
<INCOME-PRETAX> (105,664)
<INCOME-TAX> (32,945)
<INCOME-CONTINUING> (72,719)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,805)
<CHANGES> 0
<NET-INCOME> (78,524)
<EPS-PRIMARY> (78,524)
<EPS-DILUTED> 0
</TABLE>
