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, 1998
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, 1999, 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) BANKRUPTCY COURT ACTIONS OR
PROCEEDINGS RELATED TO THE BANKRUPTCY OF LEVITZ AND ITS SUBSIDIARIES; (2)
COMPETITIVE PRESSURE IN LEVITZ's INDUSTRY; (3) GENERAL ECONOMIC CONDITIONS; (4)
CHANGES IN THE FINANCIAL MARKETS AFFECTING LEVITZ's FINANCIAL STRUCTURE AND
LEVITZ's COST OF CAPITAL AND BORROWED MONEY; (5) INVENTORY RISKS DUE TO CHANGES
IN MARKET DEMAND OR LEVITZ'S BUSINESS STRATEGIES; (6) CHANGES IN EFFECTIVE TAX
RATES; (7) UNCERTAINTIES INHERENT IN LEVITZ'S OPERATIONS; AND (8) DIFFICULTIES
ENCOUNTERED BY LEVITZ OR OTHERS DEALING WITH THE YEAR 2000 ISSUE. LEVITZ 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.
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 1998
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
Item 6. Exhibits and Reports on Form 8-K........................ 19
Signatures.................................................... 20
Exhibit Index................................................. 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, MARCH 31,
1998 1998
(UNAUDITED)
------------------ --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,318 $ 5,339
Receivables 22,849 24,118
Inventories 109,573 142,618
Deposits and prepaid expenses 3,776 3,442
Deferred income taxes - 3,418
------------------- ----------------
Total current assets 142,516 178,935
------------------- ----------------
PROPERTY AND EQUIPMENT, net 79,747 143,249
------------------- ----------------
PROPERTY UNDER CAPITAL LEASES, net 70,007 92,721
------------------- ----------------
OTHER ASSETS:
Receivable under account purchase agreement - 554,322
Intangible leasehold interests 8,965 14,151
Deferred financial fees 403 2,061
Property held for disposal 53,240 17,766
Other 8,079 3,496
------------------- ----------------
70,687 591,796
------------------- ----------------
$ 362,957 $ 1,006,701
=================== ================
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Outstanding checks and cash overdrafts $ 7,444 $ 16,395
Current portion of long-term debt 1,954 1,333
Current portion of obligations under capital leases 1,214 -
Accounts payable, trade 23,668 30,511
Accrued expenses and other liabilities 77,002 55,847
Payable to parent 13,883 13,633
Deferred income taxes 2,242 -
DIP Facility 168,656 148,381
------------------- ----------------
Total current liabilities 296,063 266,100
------------------- ----------------
LONG-TERM DEBT, net of current portion 5,078 5,702
------------------- ----------------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 38,284 -
------------------- ----------------
OBLIGATIONS UNDER ACCOUNT PURCHASE AGREEMENT - 554,322
------------------- ----------------
OTHER NONCURRENT LIABILITIES 4,260 683
------------------- ----------------
DEFERRED INCOME TAXES 3,795 8,825
------------------- ----------------
LIABILITIES SUBJECT TO COMPROMISE 292,831 360,976
------------------- ----------------
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) (335,808) (248,361)
------------------- ----------------
Total stockholder's deficit (277,354) (189,907)
------------------- ----------------
$ 362,957 $ 1,006,701
=================== ================
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
3
<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,
1998 1997 1998 1997
---------------- ---------------- ----------------- -----------------
Net sales $ 187,570 $ 232,592 $ 538,541 $ 651,217
---------------- ---------------- ----------------- -----------------
<S> <C> <C>
Costs and expenses:
Cost of sales 108,076 129,591 301,240 362,130
Selling, general and administrative
expenses 83,143 98,903 243,806 283,617
Unusual operating expenses - - - 7,217
Depreciation and amortization 4,686 5,883 14,603 18,840
Interest expense, net 7,580 6,125 22,369 32,223
---------------- ---------------- ----------------- -----------------
203,485 240,502 582,018 704,027
---------------- ---------------- ----------------- -----------------
Loss before reorganization items and
income taxes (15,915) (7,910) (43,477) (52,810)
Reorganization items:
Loss on store closings 17,921 7,735 39,056 33,649
Acceleration of goodwill amortization - 14,975 - 14,975
Professional fees 1,607 3,516 4,914 4,230
---------------- ---------------- ----------------- -----------------
Total 19,528 26,226 43,970 52,854
Loss before income taxes (35,443) (34,136) (87,447) (105,664)
Income tax benefit - 7,738 - 32,945
---------------- ---------------- ----------------- -----------------
Loss before extraordinary items (35,443) (26,398) (87,447) (72,719)
Extraordinary item, net of tax benefit
of $2,973 in 1997 - (343) - (5,805)
---------------- ---------------- ----------------- -----------------
Net loss $ (35,443) $ (26,741) $ (87,447) $ (78,524)
================ ================ ================= =================
Loss per common share:
Loss before extraordinary item $ (35,443) $ (26,398) $ (87,447) $ (72,719)
Extraordinary item - (343) - (5,805)
---------------- ---------------- ----------------- -----------------
Net loss per common share $ (35,443) $ (26,741) $ (87,447) $ (78,524)
================ ================ ================= =================
Weighted average number of common
shares outstanding 1,000 1,000 1,000 1,000
================ ================ ================= =================
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (87,447) $ (78,524)
---------------- ---------------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 8,743 11,273
Amortization 5,860 7,567
Provision for deferred taxes - (35,575)
Loss (gain) on disposal of property and equipment 60 (50)
Amortization of deferred financing fees 1,658 1,766
Pension expense 298 930
Other 319 216
Reorganization items, non-cash 29,700 47,501
Extraordinary loss related to early redemption of
debt, before tax benefit - 8,435
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease (increase) in:
Receivables 1,810 8,480
Inventories 25,560 33,648
Deposits and prepaid expenses (334) (2,251)
Other, net (2,710) 325
Increase (decrease) in:
Accounts payable, trade (8,261) 10,190
Accrued expenses and other liabilities 10,175 9,505
Payable to parent 195 3,106
Other noncurrent liabilities 89 (347)
---------------- ---------------
Total adjustments 73,162 104,719
---------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (14,285) 26,195
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,514) (9,749)
Proceeds from sale of property and equipment and
other assets 11,832 22,138
---------------- ---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,318 12,389
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 669,591 729,305
Repayments under credit facilities (649,634) (750,766)
Principal payments on long-term debt (75) (6,347)
Principal payments under capital lease obligations (1,985) (2,528)
Decrease in cash overdrafts (8,951) (7,119)
Payment of deferred financing fees - (3,165)
---------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,946 (40,620)
---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 979 (2,036)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,339 9,267
---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,318 $ 7,231
================ ===============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
5
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
1. CHAPTER 11 PROCEEDINGS 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, a Delaware corporation ("LFI"), and 11 of its
subsidiaries (collectively, the "Debtors"), including, Levitz Furniture
Corporation, a Florida corporation and wholly-owned subsidiary of LFI
("Levitz" or the "Company"), filed voluntary petitions for relief under
Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the District of Delaware,
Wilmington, Delaware ("the Court"). The bankruptcy cases of LFI and
Levitz and their affiliates are being jointly administered, for
procedural purposes only, under Case No. 97-1842(MFW). Pursuant to
Sections 1107 and 1108 of the Bankruptcy Code, Levitz, as debtor and
debtor-in-possession, has continued to manage and operate its assets
and businesses pending the confirmation of a reorganization plan or
plans and subject to the supervision and orders of the Court.
The Debtors expect to reorganize their affairs under the protection of
Chapter 11 and to propose a Chapter 11 plan of reorganization for
themselves. Although management expects to file a plan of
reorganization during 1999 which would contemplate emergence in 1999,
there can be no assurance at this time that a plan of reorganization
proposed by the Debtors will be approved or confirmed by the Court, or
that such plan will be consummated. The Court approved a motion on
November 12, 1998 granting the Debtors' request to extend its exclusive
right to file a plan of reorganization through March 1, 1999. On
February 16, 1999 the Debtors filed a motion with the Court to extend
its exclusive right to file a plan of reorganization through June 7,
1999. There can be no assurance that the Court will grant such an
extension. After the expiration of the exclusivity period, creditors
would have the right to propose alternative plans of reorganization.
The consolidated condensed financial statements have been presented in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" (SOP 90-7) and 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 ordinary 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 effects of any
proposed plan of reorganization.
The Debtors' ability to continue as a going concern is dependent upon,
among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to extend or replace the DIP
Facility (as defined below) and the ability to generate sufficient cash
from operations. No assurances can be given that the Debtors will be
able to meet these objectives.
6
<PAGE>
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 which must be confirmed by the Bankruptcy Court
after submission to any required vote by affected parties. For
financial reporting purposes, those liabilities and obligations have
been segregated and classified as "liabilities subject to compromise"
in the consolidated condensed balance sheets. 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.
Unaudited schedules have been filed by the Debtors with the Court
setting forth the assets and liabilities of the Debtors as of the
Petition Date as reflected in the Debtor's accounting records. Levitz
has notified all known claimants subject to the August 10, 1998 bar
date of their need to file a proof of claim with the Court. Differences
between amounts shown by the Debtors and claims filed by creditors are
being investigated and will be either amicably resolved or adjudicated
before a 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 pre-petition executory contracts, subject
to 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. As of December 31, 1998, the
Debtors had rejected leases for seventeen store locations, reached
agreement with the landlords on two store locations to terminate
without liability and assumed and assigned to a third party leases on
two store locations. The Court has extended the time for which the
Debtors may assume or reject unexpired leases of nonresidential real
property to March 31, 1999. The Debtors filed a motion with the Court
on February 16, 1999 to extend the time which the Debtors may assume or
reject leases of non-residential real property to July 7, 1999. There
can be no assurance that the Court will grant such an extension.
Liabilities subject to compromise include reserves for an estimated
amount that may be claimed by lessors for the stores that have been
closed through January 15, 1999. The Debtors will continue to analyze
their real estate leases and executory contracts and may assume or
reject additional leases and contracts. Such rejections could result in
additional liabilities subject to compromise.
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, 1998, the results of operations and cash
flows for the periods then ended. The results of operations for the
period ended December 31, 1998, are not necessarily indicative of the
results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These consolidated condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in Levitz's audited financial
statements for the year ended March 31, 1998, which is included in its
Form 10K filed for that period.
Certain amounts in the prior year's consolidated condensed financial
statements have been reclassified to conform to the current year's
presentation.
2. DEBT:
Levitz, LFI 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") as amended with BT
Commercial Corporation ("BTCC") as agent. The DIP Facility has been
approved by the Court and includes a total commitment of $252.0 million
that is comprised of revolving notes of $193.6 million and a term note
of $58.4 million. Letter of Credit obligations under the revolver
portion of the DIP
7
<PAGE>
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 DIP Facility was amended on September 4 and September 18, 1998. The
minimum EBITDA covenants for the quarter ending September 30 and
December 31, 1998 were reduced and a new term loan was extended in the
principal amount of $22.0 million under a second term note. The
proceeds from the second term note of $22.0 million were used to pay
down the revolving notes. This increased excess availability under the
revolving notes by $22.0 million at the time of the transaction. On
September 15, 1998 the total commitment under the revolver portion of
the DIP Facility was reduced from $223.6 million to $193.6 million.
This reduced the total commitment of the DIP Facility to $252.0
million. Effective December 31, 1998, the DIP Facility lenders granted
Levitz a waiver in meeting the minimum EBITDA requirements for the
period ended December 31, 1998.
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 1.5% or BTCC's LIBOR rate plus 3.75%. The term
notes bear interest at 16%. Levitz is required to pay an unused line
fee of 0.5%, and a letter of credit fee of 2.0%.
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 is permanently reduced on each date on which an asset
disposition, as defined, occurs. Qualification of accounts receivable
and inventory items as "eligible" is subject to unilateral change at
the discretion of the lenders. Excess availability under the DIP
Facility at December 31, 1998 was $17.7 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, sales of assets, capital expenditures
and a prohibition on paying dividends. LFI and Levitz 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.
Management and the lenders under the DIP Facility are negotiating an
extension of the DIP Facility to June 7, 1999 and an amendment thereof
to, among other things, increase the excess availability under the DIP
Facility. The DIP Facility is scheduled to expire on March 5, 1999. No
assurance can be given that these objectives will be met.
8
<PAGE>
3. LIABILITIES SUBJECT TO COMPROMISE:
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total vary significantly from the stated
amount of proofs of claim that were filed with the Court and may be
subject to future adjustment depending on Court action, further
developments with respect to potential disputed claims, and
determination as to the value of any collateral securing claims, or
other events. All real estate related post-petition obligations and
other liabilities such as capital lease obligations, deferred rent and
deferred gains on sale-leaseback that specifically relate to operating
stores have been removed from liabilities subject to compromise and are
included in their traditional classification in the consolidated
condensed balance sheets. Additional claims may arise from the
rejection of additional real estate leases and executory contracts by
the Debtors.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
(DOLLARS IN
LIABILITIES SUBJECT TO COMPROMISE THOUSANDS)
--------------------------------- ------------
<S> <C>
Accounts payable, trade $ 38,536
Accrued expenses 15,440
13.375% Senior Notes due 10/15/98 96,031 (1)
9.625% Senior Subordinated Notes due 7/15/03 101,337 (1)
Reserve for lease rejection claims 20,054
Supplemental executive retirement programs and contracts 16,110
Real estate taxes and other lease obligation accruals 2,676
Personal property and other taxes 558
Other 2,089
------------
$ 292,831
============
</TABLE>
(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 pre-petition debt without Court approval or until
a plan of reorganization providing for the repayment terms has been
confirmed by the Court and becomes effective. Interest on pre-petition
unsecured 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 for continuing stores. If a
capital lease is rejected the obligation will be limited to the lease
rejection claim. Contractual interest expense of $16.4 million, to
include interest beyond scheduled maturity dates, was not recorded on
certain pre-petition debt for the period ended December 31, 1998.
4. PRIVATE-LABEL CREDIT CARD PROGRAM:
On September 4, 1998 Levitz and its operating subsidiaries entered into
an agreement ("Merchant Agreement") with Household Bank (SB), N.A.
("Household") whereby Household would provide financing to individual
consumers purchasing merchandise from Levitz ("Private-Label Credit
Card Program"). The Court approved the Merchant Agreement and granted a
first priority and security interest and lien to Household on certain
reserves retained or accumulated by Household, to include transferred
reserves to Household totaling $5.8 million at December 31, 1998, and
gave administrative expense status to substantially all obligations of
Levitz arising under the Merchant Agreement.
Also on September 4, 1998, General Electric Capital Corporation
("GECC") and Levitz terminated the Second Amended and Restated Account
Purchase and Credit Card Agreement (the "GECC Agreement") which was
replaced by the Merchant Agreement. Levitz and GECC jointly released
each other from substantially all obligations under
9
<PAGE>
the GECC Agreement. At the same time GECC sold the majority of the
portfolio under the GECC Agreement, approximately $561.0 million, to
Household.
As a result of the transfer of the GECC portfolio to Household, the
Company determined that the transaction qualified for sale treatment
under Financial Accounting Standards Board, Statement of Accounting
Standards No. 125, "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities". As a result, the Receivable
under Account Purchase Agreement and the offsetting Obligation Under
Account Purchase Agreement were removed from the consolidated condensed
balance sheets.
Levitz is exposed to market risk under the terms of the Household
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 cost of capital, promotional discount fees and
credit losses. Levitz is generally obligated for all credit losses
under the portfolio, including the GECC portfolio transferred to
Household, up to a maximum of 15% and for 50% of all credit losses
above 15%. Levitz is also required under the Merchant Agreement to fund
a portfolio risk reserve of 2.5% for the first year and 3.5% thereafter
of all amounts financed up to a stipulated dollar amount.
5. REORGANIZATION ITEMS:
Store Closings
In December 1998 Management finalized a plan to close twenty-seven
stores in non-strategic markets. The plan also included the elimination
of certain support functions in the corporate offices. The twenty-seven
stores were closed on January 15, 1999. The support functions will be
eliminated over the next twelve month period. The pre-tax charge for
store closings and support functions of $21.1 million includes non-cash
charges of $7.8 million for the writedown of assets to their net
realizable values net of capital lease obligations of $14.7 million
and $5.8 million estimated loss on the sale of inventory to a
liquidator. Cash charges include severance pay of $2.2 million and
continuing expenses of $5.3 million. In December 1998, Levitz also
recognized a gain on the sale of previously closed stores of $3.2
million.
In June 1998 Management finalized a plan to close fifteen stores in
under-performing markets. Thirteen stores were closed at the end of
June 1998, one store was closed in July 1998 and one store was closed
in September 1998. The plan also included the elimination of certain
support functions and the closing of warehouses in certain locations.
The majority of the support functions were eliminated in July 1998. The
specific warehouses are expected to be closed by the end of the fiscal
year. The pre-tax charge for the store closings and other charges of
$21.1 million includes non-cash charges of $10.0 million for the
write-down of assets to their net realizable values, $1.8 million loss
on the sale of inventory to a liquidator and anticipated lease
rejection claims of $4.3 million. Cash charges include severance pay of
$1.1 million and continuing expenses of $3.9 million.
Professional fees
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
and miscellaneous charges.
6. INVENTORY:
In December 1998, Levitz incurred a pre-tax charge of $4.8 million for
the write-down of excess inventory as part of the warehouse
consolidations as well as discontinued and damaged merchandise in the
continuing stores. The write-down is included in cost of sales in the
consolidated condensed statements of operations.
10
<PAGE>
7. UNUSUAL OPERATING EXPENSES:
In July 1997, the former President-Merchandising/Marketing resigned.
Levitz accrued a charge for future payroll and employee benefit costs
of $1.3 million in connection with the Officer's employment agreement.
Also, Levitz recorded a $5.9 million reduction for the write-off of
future service revenue receivable under the GECC Agreement. The
write-off occurred since Levitz was 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.
8. INCOME TAXES:
Income taxes are provided based on the asset and liability method of
accounting pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". Levitz had generated
net operating loss ("NOL") carryforwards of $62.4 million at March 31,
1998 as a result of net losses incurred in fiscal years 1998 and 1997.
The cumulative NOL benefit at March 31, 1998 was supported by deferred
tax credits that are projected to turn during the carryforward periods.
Levitz has not recorded any tax benefits for the loss incurred during
the period ended December 31, 1998 and expects not to record any tax
benefits for the remainder of fiscal 1999.
9. LOSS PER SHARE:
Loss per common share is based on the weighted average number of common
shares outstanding during each period of 1,000 shares.
10. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
Interest paid $ 20,164 $ 32,105
=============== ================
Income tax paid (refunded), net $ 63 $ (2,427)
=============== ================
</TABLE>
In June 1997 Levitz exercised its option to issue additional term
notes, under the previous credit agreement, of approximately $1.4
million in lieu of paying interest in cash.
11. NEW ACCOUNTING PRONOUNCEMENT:
The Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," in June 1997. SFAS No. 130
establishes standards for reporting and disclosure of comprehensive
income. Levitz adopted this statement effective April 1, 1998. For the
periods ended December 31, 1998 and 1997, there were no differences
between comprehensive loss and net loss.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI"), and 11 of its subsidiaries (collectively, the
"Debtors"), including, Levitz Furniture Corporation, a Florida corporation and
wholly-owned subsidiary of LFI ("Levitz"), filed voluntary petitions for relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the District of Delaware,
Wilmington, Delaware ("the Court"). The bankruptcy cases of LFI and Levitz and
their affiliates are being jointly administered, for procedural purposes only,
under Case No. 97-1842(MFW). Pursuant to Sections 1107 and 1108 of the
Bankruptcy Code, Levitz, as debtor and debtor-in-possession, has continued to
manage and operate its assets and businesses pending the confirmation of a
reorganization plan or plans and subject to the supervision and orders of the
Court.
12
<PAGE>
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,
---------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 57.6 55.7 55.9 55.6
----------- ----------- ----------- -----------
Gross profit 42.4 44.3 44.1 44.4
Selling, general and administrative
expenses 44.4 42.5 45.3 43.6
Unusual operating expenses - - - 1.1
Depreciation and amortization 2.5 2.6 2.7 2.9
Interest expense 4.0 2.6 4.2 5.0
----------- ----------- ----------- -----------
Loss before reorganization items
and income taxes (8.5) (3.4) (8.1) (8.2)
Reorganization items (10.4) (11.3) (8.2) (8.1)
----------- ----------- ----------- -----------
Loss before income taxes (18.9) (14.7) (16.3) (16.3)
Income tax benefit - 3.3 - 5.1
----------- ----------- ----------- -----------
Loss before extraordinary items (18.9) (11.4) (16.3) (11.2)
Extraordinary items, net of tax - (0.1) - (0.9)
----------- ----------- ----------- -----------
Net loss (18.9)% (11.5)% (16.3)% (12.1)%
=========== =========== =========== ===========
Comparable store sales decrease (5.4)% (6.7)% (0.2)% (8.0)%
=========== =========== =========== ===========
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1997
Net sales of $187.6 million for the period ended December 31, 1998 decreased
$45.0 million or 19.3% from net sales of $232.6 million in the same period for
the prior year. The decrease in net sales was due to the closing of thirty-nine
stores from October 1997 through September 1998. Sales on a comparable store
basis decreased 5.4% from the same period of the prior year. Comparable store
sales for the period ended December 31, 1997 were favorably impacted by the
resumption of normal shipments from trade vendors who had slowed shipments
during the period the Company filed for reorganization under Chapter 11 of the
Bankruptcy Code.
13
<PAGE>
Gross profit as a percentage of net sales decreased to 42.4% from 44.3% for the
three month periods ended December 31, 1998 and 1997, respectively. Gross profit
includes a write-down in December 1998 of excess, discontinued and damaged
inventory in continuing stores of $4.8 million. Excluding the inventory
write-down, gross profit as a percentage of net sales was $45.0% for the three
month period ended December 31, 1998.
Selling, general and administrative (SG&A) expenses of $83.1 million for the
three month period ended December 31, 1998 decreased $15.8 million or 16% from
SG&A expenses of $98.9 million in the same period for the prior year. As a
percentage of net sales, SG&A expenses increased to 44.4% from 42.5% for the
periods ended December 31, 1998 and 1997, respectively. The dollar decrease in
SG&A expenses is primarily due to the store closings as noted above which
contributed to a reduction in advertising expense of $4.5 million, a reduction
in salaries, employee benefits and payroll taxes of $6.5 million, a reduction in
property related expenses of $3.1 million and other expenses of $1.7 million.
SG&A expenses as a percentage of net sales increased primarily due to an
increase in advertising expense of 0.9% and a reduction of service fee income
under the Company's private-label credit card program of 0.3%.
Interest expense for the three month period ended December 31, 1998 increased to
$7.6 million from $6.1 million for the same period of the prior year. The
increase in interest expense of $1.5 million for the three months ended December
31, 1998 is due to an increase in the average outstanding borrowings and the
increase of $22.0 million in term loans which bear a higher interest rate than
the revolving notes. As a result of the Chapter 11 filing, no principal or
interest payments are being made on most pre-petition debt without Court
approval or until a plan of reorganization providing for the repayment terms has
been confirmed by the Court and becomes effective. Interest on pre-petition
unsecured obligations has not been accrued after the Petition Date except that
interest expense and principal payments are continuing to be recorded on capital
lease obligations for continuing stores. Contractual interest expense of $5.5
million was not recorded on certain pre-petition debt for the three month
periods ended December 31, 1998 and 1997.
Reorganization items for the three month period ended December 31, 1998 included
an estimated reserve of $21.1 million for the closing of twenty-seven stores and
the elimination of certain support functions. The reserve included the
write-down of property, capital lease assets and equipment to their net
realizable values, net of capital lease obligations, a loss on the sale of
inventory to a liquidator and included provisions for severance pay and
continuing expenses. Also included in reorganization items is a gain on sales of
previously closed stores of $3.2 million and professional fees and other
miscellaneous items of $1.6 million for accounting, legal and consulting
services provided to Levitz and the Creditors' Committee while Levitz is in
Chapter 11. 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, professional fees of $3.5 million and other charges of $4.7 million.
Levitz has not recorded any tax benefits for the loss incurred during the three
month period ended December 31, 1998 and expects not to record any tax benefits
for the remainder of fiscal 1999.
As a result of the aforementioned factors, net loss for the three month period
ended December 31, 1998 amounted to $35.4 million or 18.9% of net sales as
compared to net loss of $26.7 million or 11.5% of net sales for the same period
of the prior year.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1997
Net sales of $538.5 million for the nine month period ended December 31, 1998
decreased $112.7 million or 17.3% over net sales of $651.2 million in the same
period for the prior year. Sales on a comparable store basis decreased 0.2%. The
decrease in net sales was due to the closing of thirty-nine stores from October
1997 through December 1998.
14
<PAGE>
Gross profit as a percentage of net sales decreased to 44.1% for the nine month
period ended December 31, 1998 from 44.4% in the same period for the prior year.
Gross profit includes a write-down in December 1998 of excess, discontinued and
damaged inventory in continuing stores of $4.8 million. Excluding the inventory
write-down, gross profit as a percentage of net sales was 45.0% for the nine
month period ended December 31, 1998.
Selling, general and administrative ("SG&A") expenses decreased $39.8 million
for the nine month period ended December 31, 1998 as compared to the same period
for the prior year. As a percentage of net sales, SG&A expenses increased to
45.3% from 43.6%. The dollar decrease in SG&A expenses is primarily due to the
store closings as noted above which contributed to a reduction in advertising
expense of $11.4 million, a reduction in salaries, employee benefits and payroll
taxes of $16.8 million, a reduction in property related expenses of $10.4
million and other expenses of $6.6 million. In addition, SG&A was affected by a
reduction in the service fee income under the private-label credit card program
of $5.4 million.
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 was 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.
Interest expense for the nine month period ended December 31, 1998 decreased to
$22.4 million from $32.2 million for the same period of the prior year. As a
result of the Chapter 11 filing, no principal or interest payments are being
made on most pre-petition debt without Court approval or until a plan of
reorganization providing for the repayment terms has been confirmed by the Court
and becomes effective. Interest on pre-petition unsecured obligations has not
been accrued after the Petition Date except that interest expense and principal
payments are continuing to be recorded on capital lease obligations for
continuing stores. Contractual interest expense of $16.4 million and $7.1
million was not recorded on certain pre-petition debt for the nine month periods
ended December 31, 1998 and 1997.
Reorganization items for the nine month period ended December 31, 1998 included
estimated reserves of $39.1 million for the closing of forty-two stores in
under-performing and non-strategic markets and the elimination of certain
support functions and the closing of warehouses in certain locations. Also
included in reorganization items is a gain on sales of previously closed stores
of $3.2 million and professional fees and miscellaneous expenses of $4.9
million. 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.
Reorganization items for the nine month period ended December 31, 1997 included
estimated reserves 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 John M. Smyth Company, a wholly-owned subsidiary, the
acceleration of goodwill amortization of $15.0 million, professional fees and
other costs of $6.7 million.
Levitz has not recorded any tax benefits for the loss incurred during the nine
month period ended December 31, 1998 and expects not to record any tax benefits
for the remainder of fiscal 1999.
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 previous bank
credit agreement.
Net loss for the nine month period ended December 31, 1998 was $87.4 million or
16.3% of net sales as compared to a net loss of $78.5 million or 12.1% of net
sales for the same period of the prior year.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Levitz's primary sources of liquidity are cash flow from operations (including
the proceeds from the financing of the private-label credit card programs by
Household), trade credit and borrowings under the DIP Facility. During the nine
month period ended December 31, 1998, Levitz used approximately $40.8 million of
net cash flow in operations before changes in operating assets and liabilities.
Changes in operating assets and liabilities increased net cash flow from
operations by $26.5 million. Management is attempting to increase cash flow from
operations by pursuing initiatives intended to increase sales in comparable
stores, closing stores in under-performing or non-strategic markets, eliminating
certain support function positions and by reducing the cost of warehouse
operations in markets where it is determined that fewer warehouses can service
the market.
Cash provided by investing activities for the nine month period ended December
31, 1998 includes $11.8 million of proceeds from asset sales of closed
facilities. All of these proceeds were applied as repayments to the DIP Facility
as required by the agreement. Management is continuing to market all property
held for disposal and leasehold interests where rents are below market values to
reduce current borrowings and increase availability under the DIP Facility.
Levitz's total capital expenditures were approximately $5.5 million during the
period ended December 31, 1998. Capital expenditures were for existing store
improvements and equipment. Management estimates that approximately $5.0 million
to $7.0 million is required annually to adequately maintain and/or improve its
existing stores. Levitz closed fifteen stores during the nine month period ended
December 1998 and twenty-seven stores in January 1999.
Net cash provided by financing activities amounted to $8.9 million in the nine
month period ended December 31, 1998 and includes increased borrowings under the
DIP Facility of $20.0 million less principal payments under long-term
obligations of $2.1 million and decrease in outstanding checks and cash
overdrafts of $9.0 million which fluctuates based on the timing of payments.
Debt
Levitz, LFI 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") as amended with BT Commercial Corporation ("BTCC") as
agent. The DIP Facility has been approved by the Court and includes a total
commitment of $252.0 million that is comprised of revolving notes of $193.6
million and a term note of $58.4 million. Letter of Credit obligations under the
revolver portion of 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 DIP Facility was amended on September 4 and September 18, 1998. The minimum
EBITDA covenants for the quarter ending September 30 and December 31, 1998 were
reduced and a new term loan was extended in the principal amount of $22.0
million under a second term note. The proceeds from the second term note of
$22.0 million were used to pay down the revolving notes. This increased excess
availability under the revolving notes by $22.0 million at the time of the
transaction. On September 15, 1998 the total commitment under the revolver
portion of the DIP Facility was reduced from $223.6 million to $193.6 million.
This reduced the total commitment of the DIP Facility to $252.0 million.
Effective December 31, 1998, the DIP Facility lenders granted Levitz a waiver in
meeting the minimum EBITDA requirements for the period ended December 31, 1998.
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 1.5% or BTCC's LIBOR rate plus 3.75%. The term notes bear interest at 16%.
Levitz is required to pay an unused line fee of 0.5%, and a letter of credit fee
of 2.0%.
16
<PAGE>
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 is permanently
reduced on each date on which an asset disposition, as defined, occurs.
Qualification of accounts receivable and inventory items as "eligible" is
subject to unilateral change at the discretion of the lenders. Excess
availability under the DIP Facility at December 31, 1998 was $17.7 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, sales of assets, capital
expenditures and a prohibition on paying dividends. LFI and Levitz 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.
Management and the lenders under the DIP Facility are negotiating an extension
of the DIP Facility to June 7, 1999 and an amendment thereof to, among other
things, increase in the excess availability under the DIP Facility. The DIP
Facility is scheduled to expire on March 5, 1999. No assurance can be given that
these objectives will be met.
On September 4, 1998 Levitz and its operating subsidiaries entered into an
agreement ("Merchant Agreement") with Household Bank (SB), N.A. ("Household")
whereby Household would provide financing to individual consumers purchasing
merchandise from Levitz ("Private-Label Credit Card Program"). The Court
approved the Merchant Agreement and granted a first priority and security
interest and lien to Household on certain reserves retained or accumulated by
Household, to include transferred reserves to Household totaling $5.8 million at
December 31, 1998, and gave administrative expense status to substantially all
obligations of Levitz arising under the Merchant Agreement.
Also on September 4, 1998, General Electric Capital Corporation ("GECC") and
Levitz terminated the Second Amended and Restated Account Purchase and Credit
Card Agreement (the "GECC Agreement") which was replaced by the Merchants
Agreement. Levitz and GECC jointly released each other from substantially all
obligations under the GECC Agreement. At the same time GECC sold the majority of
the portfolio under the GECC Agreement, approximately $561.0 million, to
Household.
As a result of the transfer of the GECC portfolio to Household, the Company
determined that the transaction qualified for sale treatment under Financial
Accounting Standards Board, Statement of Accounting Standards No. 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities". As a result, the Receivable under Account Purchase Agreement
and the offsetting Obligation Under Account Purchase Agreement were removed from
the consolidated condensed balance sheets.
Levitz is exposed to market risk under the terms of the Household 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 cost
of capital, promotional discount fees and credit losses. Levitz is generally
obligated for all credit losses under the portfolio, including the GECC
portfolio transferred to Household, up to a maximum of 15% and for 50% of all
credit losses above 15%. Levitz is also required under the Merchant Agreement to
fund a portfolio risk reserve of 2.5% for the first year and 3.5% thereafter of
all amounts financed up to a stipulated amount.
17
<PAGE>
Going Concern
The Company believes that cash on hand, amounts available under the DIP
Facility, as amended, and funds from operations (including proceeds from the
financing of customer credit card obligations by Household) will enable the
Company to meet its immediate liquidity and capital expenditure requirements.
Continued availability under the DIP Facility is dependent upon LFI and Levitz
extending or replacing the DIP Facility which is scheduled to expire on March 5,
1999. No assurance can be given that the Company will be successful in extending
or replacing the DIP facility prior to March 5, 1999. Until a plan or
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.
Inherent in a successful plan of reorganization is a capital structure that
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors.
Year 2000
There have been no significant changes to the Company's Year 2000 project as
reported in its Form 10-K for the fiscal year ended March 31, 1998. Levitz is in
the process of changing and testing financial and operational systems for year
2000 compliance. The Company is also communicating with vendors, financial
institutions and others with which it does business to coordinate year 2000
conversion. The cost of achieving Year 2000 compliance, excluding in-house
salaries, wages and benefits, has been estimated at approximately $0.3 million
for software maintenance and development and $0.3 million for other operational
systems. The Company expects to spend $2.4 million in capital expenditures for
the enhancement of operational and financial software and hardware systems as
needed for current changes in business strategy which will eliminate the need
for achieving Year 2000 compliance on some existing software. Most of the
software has been purchased and is currently being installed. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans.
Any failure in a critical internal system relating to year 2000 problems,
whether in a system maintained by the Company or by a third-party vendor, could
have an adverse effect on the Company's business operations. Moreover, year 2000
issues present a number of risks that are beyond the Company's reasonable
control, such as a failure of utility companies to deliver electricity, the
failure of telecommunications companies to provide voice and data services, the
failure of financial institutions to process transactions and transfer funds,
the failure of vendors to deliver merchandise or perform services required by
the Company and the collateral effects on the Company of the effects of year
2000 issues on the economy in general or on the Company's business partners and
customers in particular.
During 1999, the Company intends to develop contingency plans to address
potential disruptions due to internal systems and business disruption of third
parties. However, it is unlikely that any contingency plan can fully mitigate
the impact of significant business disruptions.
18
<PAGE>
PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.59: Waiver dated as of December 31, 1998
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 November 17, 1998, the registrant filed a report
on Form 8-K reporting under Item 5. "Other Events"
the appointment of Edward L. Grund as Chairman of the
Board and Chief Executive Officer of Levitz Furniture
Incorporated and Levitz Furniture Corporation. Mr.
Grund replaced Michael Bozic who continues as a
member of the Board of Directors of Levitz Furniture
Incorporated.
On December 21, 1998, the registrant filed a report
on Form 8-K reporting under Item 5. "Other Events"
the closing of twenty-seven stores in non-strategic
markets and the departure of Robert Homler, formerly
President of Marketing and Merchandising.
19
<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 16, 1998 /s/ MICHAEL MCCREERY
---------------------------------
Michael McCreery
Senior Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
Number
EXHIBIT TABLE EXHIBIT
------------- -------
10.59 Waiver dated as of December 31, 1998 to the
Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation,
as agent.
27 Financial Data Schedule.
21
EXHIBIT NO. 10.59
WAIVER TO POSTPETITION
CREDIT AGREEMENT
THIS WAIVER, dated as of December 31, 1998 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"), and LEVITZ FURNITURE REINSURANCE LTD.
("LFRL") (LFI, LFC, LFR, LSS, LFC Midwest, LFC Pacific, LFC Washington, LFC
Midwest Realty, LFC Pacific Realty, LFC Washington Realty and LFRL 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 waive
the Credit Agreement in certain respects.
C. The Lenders and the Agent have agreed to waive the Credit Agreement
as requested on the terms and conditions set forth in this Waiver.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Waiver, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. WAIVER.
The Agent and the Lenders hereby waive the Events of Default arising
under SECTION 9.1(B) of the Credit Agreement as a result of Borrowers' failure
to satisfy the minimum EBITDA covenant set forth in SECTION 8.1 of the Credit
Agreement.
2. CONDITIONS PRECEDENT.
This Waiver shall become effective upon satisfaction of the following
condition:
1
<PAGE>
1. The Agent shall have received ten (10) copies of this Waiver,
duly executed by the LFC Funds Administrator, each of the Borrowers, and
each of the Lenders.
2. The Agent shall have received a non-refundable Waiver Fee in
the amount of $100,000.
3. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Waiver:
(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 Waiver, 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 Waiver, and the Credit Agreement as waived 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 Waiver 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.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Waiver, 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.
4.2 Except as expressly set forth herein, (i) the execution and
delivery of this Waiver 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 Waiver 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 or provision of the Credit Agreement or any of the other
Credit Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
2
<PAGE>
6. HEADINGS. Section headings in this Waiver are included herein for
convenience of reference only and shall not constitute a part of this Waiver for
any other purpose.
7. COUNTERPARTS. This Waiver 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 it 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: Treasurer
-----------------------------
LEVITZ FURNITURE REALTY CORPORATION,
a Florida corporation
By: /s/ SHEILA C. REINKEN
-----------------------------
Name: Sheila C. Reinken
-----------------------------
Title: Vice President
-----------------------------
4
<PAGE>
LEVITZ SHOPPING SERVICE,
a Florida corporation
By: /s/ SHEILA C. REINKEN
-----------------------------
Name: Sheila C. Reinken
-----------------------------
Title: Vice President
-----------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
-----------------------------
Name: Sheila 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
-----------------------------
5
<PAGE>
LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
-----------------------------
Name: Sheila C. Reinken
-----------------------------
Title: Vice President
-----------------------------
LEVITZ FURNITURE REINSURANCE LTD.
By: /s/ SHEILA C. REINKEN
-----------------------------
Name: Sheila C. Reinken
-----------------------------
Title: Vice President
-----------------------------
AGENT:
BT COMMERCIAL CORPORATION,
in its capacity as Agent
By: /s/ DEAN J. WHALEN
-----------------------------
Name: Dean J. Whalen
-----------------------------
Title: Associate
-----------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION,
a Delaware corporation in its
respective capacities as Revolving Lender
and Collateral Agent
By: /s/ DEAN J. WHALEN
------------------------------
Name: Dean J. Whalen
------------------------------
Title: Associate
------------------------------
FINOVA CAPITAL CORPORATION, in its
capacity as Revolving Lender
By: /s/ BRIAN RUJAWITZ
------------------------------
Name: Brian Rujawitz
------------------------------
Title: AVP
------------------------------
6
<PAGE>
HELLER FINANCIAL, INC.,
in its capacity as Revolving Lender
By: /s/ SCOTT ZIEMKE
-----------------------------
Name: Scott Ziemke
-----------------------------
Title: AVP-Relationship Manager
-----------------------------
LASALLE NATIONAL BANK,
in its capacity as Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
-----------------------------
Name: Christopher G. Clifford
-----------------------------
Title: Sr. VP
-----------------------------
CONGRESS FINANCIAL CORPORATIONN
(CENTRAL), in its capacity
as Revolving Lender
By: /s/ STEVEN LINDERMAN
-----------------------------
Name: Steven Linderman
-----------------------------
Title: Vice President
-----------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION, in its capacity
as Revolving Lender
By: /s/ ROBERT HEINZ
-----------------------------
Name: Robert Heinz
-----------------------------
Title: SVP
-----------------------------
SILVER OAK CAPITAL L.L.C.,
in its capacity as Revolving Lender
By: /s/ JEFFREY H. ARONSON
-----------------------------
Name: Jeffrey H. Aronson
-----------------------------
Title: Authorized Signatory
-----------------------------
7
<PAGE>
AG CAPITAL FUNDING PARTNERS, L.P.,
in its capacity as Revolving Lender
By: Angelo Gordon & Co., L.P.,
as Investment Advisor
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/
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
GREEN TREE FINANCIAL SERVICING
CORPORATION,
in its capacity as Revolving Lender
By: /s/ CHRISTOPHER A. GOUSKOS
-----------------------------
Name: Christopher A. Gouskos
-----------------------------
Title: SVP/GM
-----------------------------
TERM LENDER:
AG CAPITAL FUNDING PARTNERS, L.P.,
in its capacity as Second Term Lender
By: Angelo Gordon & Co., L.P.,
as Investment Advisor
By: /s/ JEFFREY H. ARONSON
-----------------------------
Name: Jeffrey H. Aronson
-----------------------------
Title: Authorized Signatory
-----------------------------
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, 1998 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-END> DEC-31-1998
<CASH> 6,318
<SECURITIES> 0
<RECEIVABLES> 22,849
<ALLOWANCES> 0
<INVENTORY> 109,573
<CURRENT-ASSETS> 142,516
<PP&E> 79,747
<DEPRECIATION> 0
<TOTAL-ASSETS> 362,957
<CURRENT-LIABILITIES> 296,063
<BONDS> 5,078
0
0
<COMMON> 1
<OTHER-SE> (277,355)
<TOTAL-LIABILITY-AND-EQUITY> (277,354)
<SALES> 538,541
<TOTAL-REVENUES> 538,541
<CGS> 301,240
<TOTAL-COSTS> 301,240
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,369
<INCOME-PRETAX> (87,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (87,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,447)
<EPS-PRIMARY> (87,447)
<EPS-DILUTED> 0
</TABLE>
