SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 33-61534
LEVITZ FURNITURE CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 23-1657490
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7887 NORTH FEDERAL HIGHWAY, BOCA RATON, FL 33487-1613
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(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
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(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(d) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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On June 8, 1998, there were 1,000 shares of the registrant's Common Stock
outstanding, with no shares held by the registrant in its treasury. As of that
date all shares of such Common Stock were owned by the registrant's parent,
Levitz Furniture Incorporated, a Delaware Corporation.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
The registrant meets the conditions set forth in General Instruction J(1) (a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K 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 CAPTIONS "BUSINESS" AND "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: (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) YEAR 2000 RISKS; AND (8) THE UNCERTAINTIES INHERENT IN LEVITZ'S
OPERATIONS. LEVITZ HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 TO UPDATE THE FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT ON
FORM 10-K.
CHAPTER 11 FILING
On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI" or the "Company"), 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") 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. Because Levitz is
operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code, the
existing directors and officers of Levitz continue to manage the operations of
Levitz subject to the supervision and orders of the Court.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint Plan of
Reorganization" ("Plan of Reorganization" or "Plan"), pursuant to Section 1125
of the Bankruptcy Code with the Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Debtors' Chapter 11 cases and the anticipated organization,
operation and financings of "Reorganized Levitz". The Disclosure Statement
describes the Plan of Reorganization, certain effects of Plan confirmation,
certain risk factors associated with securities to be issued under the Plan, and
the manner in which distribution will be made under the Plan. In addition, the
Disclosure Statement discusses the confirmation process and the voting
procedures that holders of claims in impaired classes must follow for their
votes to be counted. The Plan of Reorganization sets forth certain information,
among other things, the classification and treatment of claims and interests,
means for implementation of the Plan, acceptance or rejection of the Plan and
effect of rejection by one or more classes of claims or interests, provisions
for governing distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of the
effective date of the Plan.
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The Plan of Reorganization provides, among other things, that as of the Plan
effective date:
(1) All holders of an allowed administrative and priority tax claim are
unimpaired and unclassified, are not entitled to vote on the Plan and will
receive cash or such other treatment as to which Levitz and such creditor
shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff claim
(Class 2) and miscellaneous secured claim (Class 3) are unimpaired, are
deemed to have accepted the Plan and, therefore not entitled to vote on
the Plan and will receive cash or setoff or reinstatement or such other
treatment as to which Levitz and such creditor shall have agreed in
writing.
(3) All holders of a small unsecured claim (less than $1,000, Class 4) are
impaired and are entitled to vote on the Plan and shall receive in cash
25% of the allowed amount of the claim.
(4) All holders of an allowed general unsecured claim (Class 5) are impaired,
are entitled to vote on the Plan and shall receive their pro rata share of
the new common stock distribution of "Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are impaired, are
deemed to have rejected the Plan and, therefore, not entitled to vote on
the Plan, and shall not receive or retain any property or interest in
property on account of their subordinated claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their holders
shall not receive or retain any property or interest in property on
account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former holder or
owner of "old equity securities" authorized and issued prior to the Plan
confirmation date, Class 8) are impaired, are deemed to have rejected the
Plan and, therefore, are not entitled to vote on the Plan. All Interests
shall be cancelled and the Interest holders shall not receive or retain
any property or interest in property on account of their Interests.
Although the Plan of Reorganization provides for the Debtors' emergence from
bankruptcy, there can be no assurances given that the Plan will be confirmed by
the Court, or that such Plan will be consummated.
At this time, it is not possible to predict the outcome of the Debtors' Chapter
11 cases or their effect on the Debtors' business. Reference is made to Item 7 -
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Report of Independent Public Accountants included on page 28
which indicates the substantial doubt about Levitz's ability to continue as a
going concern.
3
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THE COMPANY
Levitz Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"), was organized in 1965 as a Florida
corporation, is the successor to a business originally commenced in 1910 and was
acquired by LFI in 1985. Levitz is one of the largest specialty retailers of
furniture in the United States with, as of June 8, 1999, a chain of 64 stores
serviced by 21 warehouses located in major metropolitan areas in 13 states.
Levitz pioneered the warehouse-showroom concept by opening the first
warehouse-showroom in 1963 in Allentown, Pennsylvania. Levitz stores generated
revenues of $653.1 million in the year ended March 31, 1999 ("Fiscal 1999").
Management believes the Levitz name to be one of the most recognized in
furniture retailing.
Levitz stores offer a wide selection primarily of brand-name furniture and
accessories including living room, bedroom, dining room, kitchen and occasional
furniture and bedding. Some of the well known, nationally advertised brands
offered by Levitz stores include Ashley, Bassett, Benchcraft, Berkline, Douglas,
Klaussner, Lane, Lea Industries, Rowe, Sealy, Simmons, Stanley, and Universal.
Levitz does not manufacture any of the merchandise sold in its stores but
instead devotes all of its resources to the retail sale of furniture.
Levitz has experienced declining profitability and cash flows over the past
several fiscal years. Reference is made to "Restructuring Activities" and Item 7
- -- "Management's Discussion and Analysis of Results of Operations and Financial
Condition" for a discussion of action taken with an intent to restore profitable
operations.
BUSINESS STRATEGY
Levitz's retailing concept targets value-conscious consumers by offering:
- broad selections of furniture and accessories;
- nationally advertised brands;
- competitive prices; and
- immediate availability of merchandise.
Levitz offers one of America's largest selection of quality brand name furniture
at guaranteed low prices. The Company's large stores facilitate the display of a
broad selection of furniture and accessories. Levitz's sales volumes create a
key channel of distribution for its principal vendors. Management has developed
strong partnerships with these principal vendors from whom it purchases large
quantities of quality merchandise, often at substantial savings. This buying
power enables Levitz to price its merchandise very competitively.
MERCHANDISING
Levitz targets value-conscious consumers between 18 and 44 years of age with a
family income between $45,000 and $65,000 per year. Its customers seek
moderately priced merchandise to upper moderately priced merchandise, appreciate
style and recognize value.
Levitz offers a wide array of choices to the value-conscious consumer. The large
product selection is an inducement for consumers to purchase at Levitz and
differentiates Levitz from its competitors. The merchandise sales mix among
product line groupings for Fiscal 1999 was upholstery/seating 44.1%, bedroom
20.0%, occasional 11.1%, dining room (formal and casual) 12.3%, bedding 9.9%,
and other 2.6%. Percentage breakdowns have been relatively consistent for the
past several years.
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To attract consumers who prefer more customized merchandise, Levitz can special
order fabrics on upholstered products from a wide variety of preselected
patterns ("Choices Program"). Moreover, Levitz has enhanced its special order
leather program, which allows customers to receive their merchandise generally
within four weeks of purchase. During Fiscal 1999 the Choices Program
represented approximately 9.7% of upholstery sales for continuing stores.
ADVERTISING AND PROMOTION
Levitz retains independent advertising firms for creative and production
services in connection with its print, radio and television advertisements. For
Fiscal 1999, Levitz's advertising expenditures amounted to $93.4 million or
14.3% of net sales, as compared to $108.1 million or 13.3% of net sales, for
Fiscal 1998. Advertising expenditures include promotional finance fees of $28.4
million and $27.2 million in Fiscal 1999 and 1998, respectively. Levitz's
advertising seeks to attract a broader customer segment and emphasize the
difference between shopping at Levitz and at other stores.
Levitz continues to promote its stores through newspaper inserts and circulars
distributed through the mail ("Preprints"). These Preprint promotions reflect
(i) the great styles offered at Levitz, (ii) the wide array of choices, (iii)
Levitz's low prices and (iv) fast delivery.
CUSTOMER SERVICE
Levitz is committed to providing high-quality customer service in all phases of
its business, including instant store credit and prompt delivery. Levitz offers
its customers instant credit at the time of purchase using point-of-sale
terminals on the showroom floors. In the case of any damaged or defective
merchandise Levitz will repair or replace the item or, if impracticable to
repair or replace, will offer a refund to the customer. Management believes its
commitment to customer service has contributed to the substantial percentage of
repeat purchases by Levitz's customers.
STORE OPERATIONS
STORES
Each of Levitz's sixty-four stores feature selling space of 18,000 to 112,000
square feet. Merchandise is typically displayed in model room settings of which
approximately 240 to 330 are located in each facility containing 50,000 or more
square feet of selling space. Smaller facilities feature approximately 110 to
230 model room settings. Levitz's customers typically have the option to receive
their merchandise at the store immediately upon purchase or within a few days or
to have their merchandise delivered to their homes for a modest delivery charge.
Levitz's stores are typically located within easy access of expressway
interchanges or major highways and have adjacent parking facilities. Levitz
opened one new store in May 1999 and relocated one store in November 1998.
Levitz expects to relocate one additional store in Fiscal 2000. See "Properties"
for information regarding the locations of Levitz's stores.
Levitz's retail facilities are generally open Monday through Saturday from 10:00
a.m. to 9:00 p.m., and on Sundays from 12:00 noon to 6:00 p.m.
SALES SUPPORT CENTERS
Levitz's twenty-one Sales Support Centers (formerly known as warehouses) provide
the selling support for all sixty-four stores. The support provided includes the
warehousing of merchandise, customer service, data processing, inventory control
and delivery. Each Sales Support Center is currently attached to a store and is
in close proximity to other detached stores that it services.
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CUSTOMER CREDIT POLICIES
Levitz sells its merchandise either for cash, or through bank credit cards and a
private label credit card program. During Fiscal 1999 and 1998, approximately
48% and 40%, respectively, of sales at Levitz's facilities were for cash
(including bank credit cards), and approximately 52% and 60%, respectively, of
sales were under customer credit plans. The availability of a "private label"
credit-financing program is critical to Levitz's business. Private label credit
supports marketing programs and offers a convenient way for Levitz customers to
spread over time the cost of furniture purchases.
Levitz's private label credit card program is offered under an agreement with
Household Bank (SB), N.A. ("Household"). Under the program, Household approves
the credit application and pays Levitz for the sale. Levitz pays Household a fee
for servicing the accounts and an amount intended to compensate Household for
its invested capital. Levitz receives all income and pays all expenses relating
to the financing of the portfolio. Levitz is also responsible for any bad debts
associated with the portfolio up to 15% of average outstanding receivables in
any contract year. Any amounts in excess of 15% are to be shared equally by
Levitz and Household.
In the event Household denies credit approval to a customer, Levitz endeavors to
obtain credit approval from other third-party finance companies. Under such
arrangements, Levitz sells the sale transaction to the finance company for a
discount and on a non-recourse basis.
VENDOR PARTNERSHIPS/INVENTORY
Management has established strong partnerships with its principal vendors to
review new merchandise and plan promotions and marketing strategies, as well as
manage inventory levels. Substantially all manufacturers have cooperative
advertising budgets with Levitz. Electronic data interchange ("EDI") is an
important aspect of these partnerships. Ninety-eight manufacturers currently
participate in Levitz's EDI system which enables manufacturers to plan and
produce goods more efficiently while making it possible for Levitz to maintain
an in-stock position with less inventory. The EDI system includes the daily
electronic transmission of purchase orders and bar code data to vendors and
returned receipt of acknowledgements of the purchase orders from vendors. The
acknowledgement authenticates, among other things, price, items and expected
shipment date. The use of EDI combined with the newly implemented demand
forecasting and inventory replenishment system will streamline the merchandise
re-ordering process and allow Levitz to be in a better in-stock position with
less inventory investment. During May 1999, 96.0% of all furniture purchases
were made through the EDI system, as compared to 98.1% for the same month of the
prior year. Levitz has six vendors that send invoices through EDI. This process
is integrated with the accounts payable system. Levitz intends to continue
working with vendors to increase the number of vendors that use EDI for invoices
and also to introduce additional EDI features such as advance ship notices which
are expected to enhance relations and improve efficiencies for the Company.
Levitz currently purchases merchandise from over 247 independent manufacturers.
For Fiscal 1999, Levitz's top ten vendors accounted for 50.3% of purchases.
Levitz has no long-term contractual commitments with any of its manufacturers,
and with the exception of the disruption caused by its 1997 Chapter 11 filing,
has had no difficulty in the past in obtaining merchandise for sale.
Levitz is concentrating its vendor relations on key vendors, which account for
approximately eighty percent of net sales. These enhanced relationships involve
regular assessment reports and periodic strategy planning meetings.
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MANAGEMENT INFORMATION SYSTEMS
Levitz maintains an IBM AS/400 computer in each Sales Support Center to track
all inventory and sales activity for the stores that the Sales Support Center
services.
When merchandise arrives at the Sales Support Center, it has been or is
immediately bar coded, enabling scanning by hand-held readers. This information
is directly loaded into the AS/400 thereby eliminating clerical errors,
increasing available inventory for sale and minimizing inventory shrinkage. The
sales floors in all stores are equipped with on-line point-of-sale terminals
enabling sales persons to access inventory status, reserve inventory, schedule
delivery and begin the credit approval process for customers. All data is
transmitted to corporate headquarters each night. Management at corporate
headquarters and at the store level monitor inventory composition, age and
condition.
Levitz is developing a radio-frequency ("RF") system to track all merchandise
movement in and out of its stores and Sales Support Centers. All furniture
movement will be scanned and updated immediately in the inventory files. The
initial test system will be implemented in Fiscal 2000.
COMPETITION
The home furnishings industry is a highly competitive and fragmented market with
sales for furniture, bedding and decorative accessories by furniture stores in
the United States estimated at $37.6 billion in 1998. According to a leading
industry publication, the nation's 100 largest furniture retailers accounted for
approximately 48.0% of all furniture sales by furniture stores in the United
States in 1998. According to the same publication, in 1998 Levitz represented
1.6% of total domestic furniture sales, and was the fifth largest specialty
retailer of furniture in the United States.
Levitz's competition varies significantly according to geographic areas.
Levitz's principal competitors consist of local independent specialty furniture
retailers. Levitz also competes with national and regional specialty furniture
retailers, general merchandisers, internet and "800" number based retailers and,
in certain limited categories, wholesale clubs. In the future Levitz may have
increasing competition from other major retail operations, some of which may
have greater financial and other resources than Levitz and may derive revenues
from sales of products other than household furnishings.
EMPLOYEES
As of March 31, 1999, Levitz had 2,993 employees, of whom 946 were engaged in
sales, 333 in merchandising and display, 779 in warehouse and maintenance
functions and 935 in office and administrative work. As of March 31, 1999, 2,322
of Levitz's employees were full-time and 671 were part-time. Sales personnel are
paid primarily on a commission basis. Levitz's store managers and key marketing,
distribution and operations personnel may receive, in addition to their base
salaries, bonus compensation based upon achieving planned sales and operating
performance for the location or locations for which the employee has
responsibility. Certain of Levitz's national staff personnel, including
officers, may receive bonuses based upon favorable operating results during the
fiscal year.
Levitz maintains one facility in the state of Washington which its sales
employees are covered by a collective bargaining agreement with a local of the
United Food and Commercial Workers Union ("UFCW"). This collective bargaining
agreement expires in December 2000.
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Levitz maintains two facilities in New Jersey in which all non-management
employees are represented by an affiliate of the Teamsters Union. The Union was
certified as bargaining agent for the employees in August 1998. The parties are
engaged in contract negotiations with that union.
In 1995, Levitz withdrew recognition of a UFCW local as bargaining agent for the
employees at a facility in California. That decision was upheld by the NLRB
Regional Director and the local has appealed the matter to the NLRB.
In the past, a number of petitions were received from various unions, including
affiliates of the UFCW and the Teamsters Union, for organization of some or all
of the employees in certain other of Levitz's facilities. Except as noted above,
none of these petitions or other union activities has resulted in a current
collective bargaining agreement. Levitz has not experienced a material work
stoppage due to union activity in the past 10 years.
Levitz expects that union efforts to organize the employees at its facilities
will continue from time to time, but cannot predict what effect these activities
may have on Levitz's business operations, employee relations or income from
operations. Although nationwide organizational campaigns may be instituted by
one or more unions, all union activities to date have been confined to the local
or regional level.
RESTRUCTURING ACTIVITIES
Since the Petition Date, management of the Company and its advisors in the
bankruptcy proceedings have conducted an extensive analysis of business
operations with the objective of making the changes necessary to improve
operating performance. Levitz has devised a comprehensive strategy to focus and
increase its presence in its most productive markets, streamline its warehousing
and delivery systems, and improve its internal operations and selling functions.
The major restructuring initiatives that have been implemented or are currently
underway include the following:
FOCUS ON MARKETS WITH STRONG COMPETITIVE POSITIONING
Management has studied each of the market areas in which Levitz stores operate.
This study compared the operating performance of Levitz's stores against key
competitors in each market. Levitz determined that a key determinant of the
ability of Levitz to profitably compete was for Levitz to be one of the dominant
furniture retailers, in terms of number of stores and sales revenues, within
each geographic market. The conclusion was based upon the significant
advertising and promotional expenses required to operate in the furniture retail
business and the ability to leverage fixed expenses across a greater sales base
within each market. Accordingly, management decided to close selected markets in
which Levitz did not have sufficient market presence and to refocus those assets
into other core markets by opening new stores or by remodeling existing stores.
Levitz has closed a total of sixty-six stores since the Petition Date, enabling
it to concentrate resources on the remaining core stores, primarily in the
Northeast and on the West Coast. As part of their efforts to increase market
share and to improve profitability, Levitz plans to relocate selected existing
stores and to open additional stores over the next three to five years within
core markets, dependent on general business conditions and Levitz's ability to
finance the openings.
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DISTRIBUTION SYSTEM RATIONALIZATION
Levitz is implementing a "warehouse rationalization program," aimed at limiting
the number of warehouses serving each market. This initiative should provide the
following benefits: (i) reduced in-bound freight costs; (ii) reduced warehouse
operating costs; (iii) lower inventory investments; (iv) improved merchandise
in-stock position; (v) better ability to clear discontinued merchandise; and
(vi) overall logistics simplification. In addition, the warehouse
rationalization program may provide Levitz the opportunity to relocate certain
existing stores into more favorable retail locations.
The warehouse rationalization program is being implemented in several phases.
The first phase, begun in June 1998 with the closure of the warehouse facility
in the Paramus, New Jersey store was completed in June 1999. Also, during this
time, 14 other warehouse facilities were shut down and the distribution and
warehousing activities for attached stores were transferred to other
warehouse-showroom stores within the same or adjacent markets. At the completion
of this initial phase, Levitz is operating 64 stores, which are supported by
twenty-one warehouse facilities (Sales Support Centers).
Levitz is analyzing the opportunity to further improve its logistic practices
through the introduction of regional distribution centers in future years. It is
believed such a program would provide significant savings related to in-bound
freight expense, lower the required inventory investment levels and also create
the opportunity to introduce further economies in merchandise buying practices.
IMPROVED SALES FORCE STAFFING AND MANAGEMENT TECHNIQUES
Levitz has implemented several initiatives to improve the performance of its
sales force, including: (i) hiring additional sales people at its ongoing stores
since the Petition Date, increasing the number of sales people (net of
terminations); (ii) reorganizing the field management structure to provide for
more frequent and detailed store visits; (iii) installing sophisticated sales
force performance measurement tools designed to identify "best practices" within
the stores and to set benchmarks for performance; and (iv) testing various sales
force compensation structures.
CREATION OF NEW STORE PROTOTYPES
Levitz has created a new store design prototype which features a "race-track"
floor layout, as compared to the traditional "alley" design, and a more open,
brighter feeling store environment with higher ceilings and more lighting. To
date, the prototype has been implemented in a remodeling of the store in King of
Prussia, Pennsylvania and at a relocated store in Phoenix, Arizona. The
performance of these stores has improved significantly as compared to periods
immediately before the implementation of the new prototype design. In addition,
in May 1999 Levitz opened a new store in Valencia, California with this new
design. Levitz intends to introduce additional stores in the new prototype
layout over the next several years, either as new stores or as remodels of
existing stores. Levitz's ability to complete such plans may be subject to Court
approval and is dependent on general business conditions and the ability to
finance the required capital expenditures.
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MORE FOCUSED VENDOR RELATIONSHIPS
Since the Petition Date, Levitz has undertaken a comprehensive review of their
merchandise vendor structure and have determined to significantly reduce the
number of vendors that they deal with and increase the strength of their
remaining vendor relationships. As part of a more focused relationship with
ongoing vendors, Levitz is exploring opportunities to: (i) increase frequency
and shorten lead times for deliveries; (ii) improve operational and financial
performance of the vendor-merchant relationship for both parties; (iii) develop
special promotions and financing opportunities; and (iv) improve dating.
IMPROVED INVENTORY PLANNING SYSTEMS
Levitz has added specialized employees and dedicated software systems designed
to increase the ability to forecast inventory levels and purchasing requirements
and to allocate inventory to stores so as to improve the in-stock levels at the
stores. The ability to better plan inventory provides Levitz significant
advantages in the following ways: (i) by improving in-stock position, fewer
opportunities are missed to generate sales when a customer wants to purchase an
item but it is unavailable; (ii) by giving vendors more lead time on expected
purchases, Levitz can realize cost savings because of the more orderly
production schedules the vendors can run; and (iii) tighter controls on
inventory allow Levitz to operate with a lower inventory investment in the
stores and to transition out of discontinued items with lower mark-downs.
MERCHANDISING ASSORTMENT PLANNING
Levitz is employing new planning techniques to evaluate the appropriateness of
current merchandise assortment. Every category of merchandise is being evaluated
to ensure the assortment achieves the desired breadth of selection considering
quality, style and price and local market differentiation. The assortment plans
will incorporate consideration of the availability options to be provided to
customers. Vendors will be selected based on their capability to most
efficiently support the vendor assortment programs.
IMPROVED ADVERTISING PROGRAMS
Levitz has adopted a longer time horizon into planning advertising campaigns in
order to better integrate merchandising planning and marketing efforts. New
themes have been developed and a "new look" adopted to improve the clarity of
the message to the customer on why to shop at Levitz, and Levitz has hired a new
advertising agency. Research is being conducted to better understand customer
profiles in markets where stores are located. This research will impact the
merchandise assortment, pricing and methods Levitz will use to communicate with
customers from market to market.
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ITEM 2. PROPERTIES
On June 8, 1999, Levitz operated 64 retail stores, and 21 Sales Support Centers
located in major metropolitan areas in 13 states, with a concentration in
California. The following table sets forth the number of retail facilities owned
or leased by Levitz on June 8, 1999:
OWNED LEASED
----- ------
Stores with attached Sales Support Centers............ 1 20
Stores that are detached or freestanding.............. - 43
On June 8, 1999, these facilities contained a total of approximately 7,000,000
square feet, including approximately 3,100,000 square feet of selling space.
Levitz also leases a 45,000 square feet facility for its corporate offices in
Boca Raton, Florida and owns a 35,000 square foot facility in Pottstown,
Pennsylvania which is used for accounting offices.
The following sets forth, as of June 8, 1999, the retail premises operated by
Levitz:
<TABLE>
<CAPTION>
OWNED PREMISES LEASED PREMISES (CONT'D.) (3)
- ------------------------------------------------------------ -----------------------------------------------------
MONTH AND STORE MONTH AND STORE
LOCATION YEAR OPENED TYPE (1) LOCATION YEAR OPENED TYPE (1)
- ------------------------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA (2) Dec-70 WS Enfield, CT Aug-77 WS
Concord, CA Dec-78 ST
LEASED PREMISES (3) Lynnwood, WA (4) Jun-80 ST
- ------------------------------------------------------------ La Puente, CA (4) Jan-81 ST
MONTH AND STORE Woodbridge, NJ (4) Jan-81 WS
LOCATION YEAR OPENED TYPE (1) Modesto, CA (4) Nov-81 ST
- ------------------------------------------------------------ Anaheim, CA Nov-81 ST
Laguna Hills, CA Apr-83 ST
Allentown, PA Sep-63 ST Pleasanton, CA Jan-84 ST
Santa Clara, CA Sep-68 WS San Carlos, CA Apr-84 ST
Wilmington, DE Jun-69 WS Stockton, CA Jun-85 ST
San Bernardino, CA Aug-69 ST Cerritos, CA Jun-85 ST
Huntington Beach, CA Nov-69 WS Phoenix, AZ Nov-85 ST
Sacramento, CA (4) Sep-70 WS Milford, CT Apr-86 ST
Seattle, WA Nov-70 WS Portland, OR (4) Jul-86 ST
Oxnard, CA (4) Jan-71 WS Reading, PA Jan-87 ST
San Leandro, CA (4) Aug-71 WS Bakersfield, CA Mar-87 ST
So. San Francisco, CA (4) Aug-71 ST Pinole, CA Dec-87 ST
Cherry Hill, NJ (4) Sep-71 ST Tacoma, WA Jan-88 ST
Portland, OR (4) Nov-71 WS Smithtown, NY Aug-89 ST
St. Paul, MN (4) Dec-71 WS Brooklyn Park, MN Nov-89 ST
Willowbrook, NJ (4) Dec-71 WS Corona, CA Nov-89 ST
Minneapolis, MN (4) Dec-71 ST Nashua, NH Nov-90 ST
San Dimas, CA May-72 WS Las Vegas, NV Aug-91 WS
Northridge, CA (4) Jun-72 ST Glendale, AZ Nov-92 ST
Fresno, CA (4) Aug-72 WS Victorville, CA Dec-92 ST
Redondo Beach, CA (4) Aug-72 ST Rohnert Park, CA Mar-94 ST
King of Prussia, PA Aug-72 ST Arroyo Grande, CA Apr-94 ST
Mesa, AZ (4) Mar-73 WS Cathedral City, CA Apr-94 ST
Farmingdale, NY (4) Apr-73 WS Tempe, AZ Jun-94 ST
Langhorne, PA May-73 WS Fremont, CA Aug-94 ST
Southington, CT (4) Aug-75 ST Middle Village, NY Oct-94 WS
Paramus, NJ (4) Aug-77 ST Phoenix, AZ Nov-98 ST
Garden City, NY (4) Aug-77 ST Valencia, CA May-99 ST
Dedham, MA Aug-77 ST
Danvers, MA Aug-77 ST
Westboro, MA Aug-77 WS
</TABLE>
- ----------
(1) The column refers to stores with attached Sales Support Centers ("WS") or to
detached or freestanding stores ("ST").
11
<PAGE>
(2) The Los Angeles, CA property is part of the collateral for borrowings under
the DIP Facility and is pending an agreement of sale.
(3) The remaining terms of the leases range from 16 months to 39 years,
including renewal options. Lease payments are either fixed or fixed
minimums coupled with contingent rentals based on the Consumer Price
Index or a percentage of net sales.
(4) Subject to Unitary Lease described in Note 18 to the consolidated financial
statements.
In addition to the above properties, as of June 8, 1999 Levitz had available for
disposition nine owned and nineteen leased properties formerly operated as
retail stores.
As part of its "warehouse rationalization program", the Company has completed
the closing of its warehouses in Dedham, MA, Danvers, MA, Paramus, NJ, Garden
City, NY, Northridge, CA, Minneapolis, MN, San Bernardino, CA, Cherry Hill, NJ,
South San Francisco, CA, Hartford, CT, Redondo Beach CA, Lynwood, WA, Allentown,
PA, Concord, CA and Modesto CA.
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 FILING
On September 5, 1997, LFI and 11 of its subsidiaries, including Levitz, filed
voluntary petitions for relief under the Bankruptcy Code, Chapter 11, Title 11
of the United States Code, with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware 19801 under Case No. 97-1842(MFW).
Under section 362 of the Bankruptcy Code, during a Chapter 11 case, creditors
and other parties in interest may not, without Court approval: (i) commence or
continue judicial, administrative or other proceedings against the Debtors that
were or could have been commenced prior to commencement of the Chapter 11 case,
or recover a claim that arose prior to commencement of the case; (ii) enforce
any pre-petition judgments against the Debtors; (iii) take any action to obtain
possession of or exercise control over property of the Debtors or their estates;
(iv) create, perfect or enforce any lien against the property of the Debtors;
(v) collect, assess or recover claims against the Debtors that arose before the
commencement of the case; or (vi) set off any debt owing to the Debtors that
arose prior to the commencement of the case against a claim of such creditor or
party in interest against the Debtors that arose before the commencement of the
case.
Although the Debtors are authorized to operate their businesses and manage their
properties as debtors-in-possession, they may not engage in transactions outside
of the ordinary course of business without complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Court approval.
As debtors-in-possession, the Debtors have the right, subject to Court approval
and certain other limitations, to assume or reject executory, pre-petition
contracts and unexpired leases. In this context, "assumption" requires the
Debtors to perform their obligations and cure all existing defaults under the
assumed contract or lease and "rejection" means that the Debtors are relieved
from their obligations to perform further under the rejected contract or lease,
but are subject to a claim for damages for the breach thereof subject to certain
limitations contained in the Bankruptcy Code. Any damages resulting from
rejection are treated as general unsecured claims in the reorganization cases.
Under the Bankruptcy Code, a creditor's claim is treated as secured only to the
extent of the value of such creditor's collateral, and the balance of such
creditor's claim is treated as unsecured. Generally, unsecured and undersecured
debt does not accrue interest after the Petition Date.
12
<PAGE>
Pre-petition claims that were contingent or unliquidated at the commencement of
the Chapter 11 cases are generally allowable against the Debtors in amounts to
be fixed by the Court or otherwise agreed upon. These claims, including, without
limitation, those which arise in connection with the rejection of executory
contracts and leases, are expected to be substantial. The Debtors have
established reserves approximating what the Debtors believe will be its
liability under these claims. The Court fixed August 10, 1998 as the last date
by which most creditors of the Debtors could file proofs of claim for claims
that arose prior to the Petition Date.
PLAN OF REORGANIZATION PROCEDURES
For 120 days after the date of the filing of a voluntary Chapter 11 petition, a
debtor has the exclusive right to propose and file a reorganization plan with
the Court and an additional 60 days within which to solicit acceptances to any
plan so filed (the "Exclusive Period"). The Court may increase or decrease the
Exclusive Period for cause shown, and as long as the Exclusive Period continues,
no other party may file a reorganization plan. The Debtors currently retain the
exclusive right to propose and solicit acceptances of a plan or plans of
reorganization until September 30, 1999.
If Levitz fails to obtain acceptance of such plan from impaired classes of
creditors during the exclusive solicitation period, any party in interest,
including a creditor, an equity security holder or a committee of creditors, may
file a reorganization plan for such Chapter 11 debtor.
Inherent in a successful plan of reorganization is a capital structure which
permits the Debtors to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Debtors. 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 the Chapter 11 case on the business of the Debtors or on the
interests of creditors.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint Plan of
Reorganization" ("Plan of Reorganization" or "Plan"), pursuant to Section 1125
of the Bankruptcy Code with the Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Debtors' Chapter 11 cases and the anticipated organization,
operation and financings of "Reorganized Levitz". The Disclosure Statement
describes the Plan of Reorganization, certain effects of Plan confirmation,
certain risk factors associated with securities to be issued under the Plan, and
the manner in which distribution will be made under the Plan. In addition, the
Disclosure Statement discusses the confirmation process and the voting
procedures that holders of claims in impaired classes must follow for their
votes to be counted. The Plan of Reorganization sets forth certain information,
among other things, the classification and treatment of claims and interests,
means for implementation of the Plan, acceptance or rejection of the Plan and
effect of rejection by one or more classes of claims or interests, provisions
for governing distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of the
effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the Plan
effective date:
(1) All holders of an allowed administrative and priority tax claim are
unimpaired and unclassified, are not entitled to vote on the Plan and will
receive cash or such other treatment as to which Levitz and such creditor
shall have agreed in writing.
13
<PAGE>
(2) All holders of an allowed other priority claim (Class 1), setoff claim
(Class 2) and miscellaneous secured claim (Class 3) are unimpaired, are
deemed to have accepted the Plan and, therefore not entitled to vote on
the Plan and will receive cash or setoff or reinstatement or such other
treatment as to which Levitz and such creditor shall have agreed in
writing.
(3) All holders of a small unsecured claim (less than $1,000, Class 4) are
impaired and are entitled to vote on the Plan and shall receive in cash
25% of the allowed amount of the claim.
(4) All holders of an allowed general unsecured claim (Class 5) are impaired,
are entitled to vote on the Plan and shall receive their pro rata share of
the new common stock distribution of "Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are impaired, are
deemed to have rejected the Plan and, therefore, not entitled to vote on
the Plan, and shall not receive or retain any property or interest in
property on account of their subordinated claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their holders
shall not receive or retain any property or interest in property on
account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former holder or
owner of "old equity securities" authorized and issued prior to the Plan
confirmation date, Class 8) are impaired, are deemed to have rejected the
Plan and, therefore, are not entitled to vote on the Plan. All Interests
shall be cancelled and the Interest holders shall not receive or retain
any property or interest in property on account of their Interests.
Generally, after a plan has been filed with the Court, it will be sent, with a
disclosure statement approved by the Court following a hearing, to members of
all classes of impaired creditors for acceptance or rejection. Following
acceptance or rejection of any such plan by impaired classes of creditors, the
Court, after notice and a hearing, would consider whether to confirm the plan.
Among other things, to confirm a plan the Court is required to find that (i)
each impaired class of creditors and equity security holders will, pursuant to
the plan, receive at least as much as the class would have received in a
liquidation of the debtor and (ii) confirmation of the plan is not likely to be
followed by the liquidation or need for further financial reorganization of the
debtor or any successor to the debtor, unless the plan proposes such liquidation
or reorganization.
To confirm a plan, the Court generally is also required to find that each
impaired class of creditors has accepted the plan by the requisite vote. If any
impaired class of creditors does not accept a plan but all of the other
requirements of the Bankruptcy Code are met, the proponent of the plan may
invoke the so-called "cram down" provisions of the Bankruptcy Code. Under these
provisions, the Court may confirm a plan notwithstanding the non-acceptance of
the plan by an impaired class of creditors if certain requirements of the
Bankruptcy Code are met, including that (i) at least one impaired class of
claims has accepted the plan, (ii) the plan "does not discriminate unfairly" and
(iii) the plan "is fair and equitable with respect to each class of claims or
interests that is impaired under, and has not accepted, the plan." As used by
the Bankruptcy Code, the phrases "discriminate unfairly" and "fair and
equitable" have meanings unique to bankruptcy law.
OTHER LEGAL PROCEEDINGS
In the ordinary course of business, Levitz is party to various legal actions
which it believes are routine in nature and incidental to the operation of its
business. In the opinion of management, the outcome of the proceedings to which
Levitz is currently party will not have a material adverse effect upon its
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of Levitz's Common Stock is owned by LFI. Prior to September 24, 1997, LFI's
Common Stock was traded on the New York Stock Exchange ("NYSE"). Effective at
the opening of the trading session on December 3, 1997, the NYSE formally
removed from listing and registration the Common Stock of LFI pursuant to an
Order, dated December 2, 1997, of the Securities and Exchange Commission
granting the application for removal by the NYSE. As of June 8, 1999, there were
738 holders of record of Voting Common Stock and 7 holders of record of
Non-Voting Common Stock.
LFI has not paid dividends on any class of its Common Stock since 1987 and does
not intend to pay dividends in the foreseeable future. LFI's only material asset
is the common stock of Levitz and, therefore, its ability to pay cash dividends,
interest and principal is dependent upon dividends and other payments from
Levitz. LFI's ability to obtain cash from Levitz is restricted by the Bankruptcy
Court, the DIP Facility, the indentures relating to Levitz's outstanding
indebtedness and Florida law.
The Plan of Reorganization as filed with the Bankruptcy Court on July 7, 1999
provides that all holders of equity securities and/or interests shall not be
entitled to, and shall not, receive any property or interest in property on
account of such equity or equity interest.
The range of high and low sales prices for LFI's Common Stock as reported in the
New York Stock Exchange Composite Index through September 24, 1997 and as
reported by the OTC Bulletin Board (OTCBB), which is a regulated quotation
service, for each quarterly period after September 24, 1997 within the two most
recent fiscal years, is as follows:
QUARTER ENDED HIGH LOW
------------- ---- -----
June 30, 1997 $3.000 $1.438
September 24, 1997 1.688 0.219
September 30, 1997 0.516 0.391
December 31, 1997 0.250 0.234
March 31, 1998 0.359 0.344
June 30, 1998 0.470 0.440
September 30, 1998 0.260 0.250
December 31, 1998 0.210 0.188
March 31, 1999 0.210 0.190
The Company has insufficient information to determine the accuracy of the
quotations after September 24, 1997.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this document.
GENERAL
On September 5, 1997, the Debtors filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code and are presently operating
their business as debtors-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware. For further
discussion of Chapter 11 proceedings, see "Item 1. Business-Chapter 11 Filing",
"Item 3. Legal Proceedings" and Note 1 to Notes to Consolidated Financial
Statements.
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Chapter 11 filing, related circumstances and the losses from
operations, raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations (see "Liquidity and Capital
Resources" and Note 1 to "Notes to Consolidated Financial Statements"). As a
result of the filing and related circumstances, however, such realization of
assets and liquidation of liabilities is subject to significant uncertainty.
While under the protection of Chapter 11, the Debtors may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the accompanying consolidated financial statements. Further,
a plan of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements. The consolidated financial
statements do not include any adjustments relating to the recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization.
Comparable store sales have declined 0.1%, 6.4% and 1.3% for the last three
fiscal years ended March 31, 1999, 1998 and 1997, respectively. Comparable store
sales increased 1.9% in April 1999 and decreased 2.2% and 0.9% in May and June
1999, respectively.
Operating loss was $22.0 million in Fiscal 1999 and $32.2 million in Fiscal
1998. In Fiscal 1997 operating income was $16.0 million.
16
<PAGE>
The following table sets forth Levitz's results of operations expressed as a
percentage of net sales for the periods indicated:
PERCENT OF NET SALES
-----------------------------
YEARS ENDED MARCH 31,
-----------------------------
1999 1998 1997
------ ------ -----
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 57.6 57.5 56.6
------ ------ ------
Gross profit 42.4 42.5 43.4
Selling, general and administrative expenses 43.0 41.5 37.9
Unusual operating expenses -- 2.0 --
Charge for store closings -- -- 0.9
Depreciation and amortization 2.7 3.0 2.9
Interest expense, net 4.5 4.8 5.7
Reorganization items 6.6 6.8 --
------ ------ ------
Loss before income taxes (14.4) (15.6) (4.0)
Income tax benefit -- 4.9 1.4
------ ------ ------
Loss before extraordinary items (14.4) (10.7) (2.6)
Extraordinary items -- (0.7) (0.2)
------ ------ ------
Net loss (14.4) (11.4) (2.8)
====== ====== ======
Comparable store sales decrease (1) (0.1)% (6.4)% (1.3)%
======= ====== ======
- ----------
(1) Comparable store sales are calculated by excluding the net sales of a
store for any full month of one period if the store was not open during
the same full month of the prior period.
COMPARISON OF OPERATIONS FOR FISCAL 1999 TO FISCAL 1998
Net sales for Fiscal 1999 decreased to $653.1 million or 19.7% from $812.9
million for Fiscal 1998. Comparable store sales for Fiscal 1999 declined 0.1%
from Fiscal 1998. Levitz closed forty-two stores during Fiscal 1999. The
comparable store sales decreased 2.5% and 5.4% in the first and third quarter of
Fiscal 1999, respectively. Comparable store sales increased 8.7% and 0.3% in the
second and forth quarter of Fiscal 1999, respectively. The decrease in
comparable store sales for the first quarter of Fiscal 1999 is primarily
attributed to the announcement of fifteen store closings at the end of June
1999. The increase in comparable store sales for the second quarter of Fiscal
1999 is primarily due to the filing of a Chapter 11 petition in the same quarter
of the previous year. The decrease in comparable store sales for the third
quarter of Fiscal 1999 was impacted by the resumption of normal shipments during
the third quarter of Fiscal 1998 which transferred sales that would have
normally been recorded in the second quarter of Fiscal 1998 to the third quarter
of Fiscal 1998.
Gross profit for Fiscal 1999 was $276.8 million, or 42.4% of net sales, as
compared to $345.4 million, or 42.5% of net sales, for Fiscal 1998. Gross profit
for Fiscal 1999 includes a write-down of $4.8 million for excess, discontinued
and damaged inventory in continuing stores of which $0.9 million of the reserve
remained at March 31, 1999. Excluding the effect of the inventory write-down,
gross profit as a percentage of net sales would have been 42.5%.
17
<PAGE>
Selling, general and administrative (SG&A) expenses decreased by $56.5 million
or 16.8% to $280.8 million in Fiscal 1999 from $337.2 million in Fiscal 1998.
The dollar decrease in SG&A expenses is primarily due to the reduction in costs
attributable to the closing of forty-two stores during Fiscal 1999. The increase
in SG&A in Fiscal 1999 as a percentage of net sales to 43.0% from 41.5% is due
to an increase in advertising expense of 1.0%, an increase in salaries and
related expenses and benefits of 0.8% as offset by an increase in the service
fee income of 0.3% under Levitz's private-label credit card program.
During Fiscal 1998, Levitz incurred unusual operating expenses of $1.3 million
under the provisions of an employment agreement due to the termination of an
officer. Additionally, Levitz recorded a $5.9 million write-off of the future
service revenue receivable under the GECC Agreement when 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. During the fourth quarter of Fiscal 1998, the Company
reviewed certain discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices. Included
in unusual operating expenses is a $6.1 million charge reflecting the Company's
adjustment to record this inventory at its estimated net realizable value. The
Company also wrote off goodwill in the amount of $2.8 million.
Depreciation and amortization expenses decreased to $17.9 million in Fiscal 1999
from $24.1 million in Fiscal 1998. The decrease is primarily attributable to the
suspension of depreciation on assets of the closed stores. At the same time, the
assets were written down to their net realizable value.
Interest expense for Fiscal 1999 decreased to $29.5 million or 4.5% of net sales
from $39.0 million or 4.8% of net sales for Fiscal 1998. Interest on
pre-petition unsecured obligations has not been accrued after the Petition Date
except that interest expense continues to be recorded on capital lease
obligations. Contractual interest expense of $21.9 million and $12.6 million was
not recorded on certain pre-petition debt for Fiscal 1999 and the period from
September 5, 1997 through March 31, 1998.
Reorganization items represent the costs to restructure the Company during the
Chapter 11 proceedings. The following costs are included for Fiscal 1999 and
1998 (dollars in millions):
1999 1998
------ ------
Store closings $42.3 $23.4
Loss on sale of John M. Smyth Company assets -- 22.7
Gain on sale of property held for resale (5.9) --
Deferred finance fees and other -- 2.5
Professional fees 6.6 6.9
----- -----
$43.0 $55.5
===== =====
Store closing charges include the write-down of assets to their net realizable
value, severance pay and continuing expenses.
During Fiscal 1998, Levitz incurred an after-tax extraordinary loss of $5.8
million due to the write-off of deferred financing fees related to the previous
bank credit agreements.
As a result of the aforementioned factors, the net loss was $94.4 million or
14.4% of net sales for Fiscal 1999 as compared to $93.0 million or 11.4% of net
sales for Fiscal 1998.
18
<PAGE>
COMPARISON OF OPERATIONS FOR FISCAL 1998 TO FISCAL 1997
Net sales for Fiscal 1998 decreased to $812.9 million or 13.7% from $941.9
million for Fiscal 1997. Comparable store sales for Fiscal 1998 declined 6.4%
from Fiscal 1997. Levitz has attempted to address the decrease in comparable
store sales declines by (i) changing its merchandise lineup, (ii) making a
concerted effort to liquidate older, discontinued merchandise, (iii) shifting
its focus in advertising expenditures by media outlet to those deemed most
effective, and (iv) closing certain underperforming stores to enable it to focus
efforts and resources on key markets. In addition to the comparable store sales
decline experienced during Fiscal 1998, the Company closed 24 under-performing
stores.
Gross profit for Fiscal 1998 was $345.4 million, or 42.5% of net sales, as
compared to $408.3 million, or 43.4% of net sales, for fiscal 1997. The decrease
in gross profit percentage of net sales is attributable to the increase in items
sold at lower margins that were deleted from the merchandise assortment.
Selling, general and administrative (SG&A) expenses decreased by $19.7 million
or 5.5% to $337.2 million in Fiscal 1998 from $357.0 million in Fiscal 1997. The
dollar decrease in SG&A expenses is primarily attributable to the reduction in
costs attributable to the disposal of 24 stores during 1998.
During Fiscal 1998, Levitz incurred unusual operating expenses of $1.3 million
under the provisions of an employment agreement due to the termination of an
officer. Additionally, Levitz recorded a $5.9 million write-off of the future
service revenue receivable under the GECC Agreement when 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. During the fourth quarter of Fiscal 1998, the Company
reviewed certain discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices. Included
in unusual operating expenses is a $6.1 million charge reflecting the Company's
adjustment to record this inventory at its estimated net realizable value. The
Company also wrote off goodwill in the amount of $2.8 million.
Depreciation and amortization expenses decreased to $24.1 million in Fiscal 1998
from $27.0 million in Fiscal 1997. The decrease is primarily attributable to the
retirement of depreciable assets related to closed stores and the writeoff of
all goodwill.
Interest expense for Fiscal 1998 decreased to $39.0 million or 4.8% of net sales
from $54.1 million or 5.7% of net sales for Fiscal 1997. Interest on prepetition
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 unless the leases are rejected by the Debtors. Contractual
interest expense of $12.6 million was not recorded on certain prepetition debt
for the period from September 5, 1997 through March 31, 1998.
19
<PAGE>
During Fiscal 1998, Levitz recorded reorganization related expenses of $55.5
million which included $33.6 million for 24 store closings, $15.0 million for
the acceleration of goodwill amortization and $6.9 million for professional
services provided to Levitz and the Creditors' Committee. In Fiscal 1997, Levitz
closed five satellite stores which resulted in a pre-tax charge for store
closings of $8.3 million. The charge includes the reduction of the carrying
value of the store assets to their estimated fair value net of selling expenses
as well as reserves for future rental payments under operating lease agreements.
During Fiscal 1998 and 1997, Levitz incurred after-tax extraordinary losses of
$5.8 million and $2.0 million respectively due to the write-off of deferred
financing fees related to the previous bank credit agreements.
As a result of the aforementioned factors, net loss was $93.0 million or 11.4%
of net sales for Fiscal 1998 as compared to $26.5 million or 2.8% of net sales
for Fiscal 1997.
SEASONALITY AND INFLATION
Management does not believe that seasonal variation has a significant impact on
its business. Levitz has generally been able to pass along any price increases
relating to inflation. Accordingly, the effect of inflation, if any, on Levitz's
results of operations has been minor.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Levitz's primary sources of liquidity are cash flows from operations (including
the proceeds from customer credit obligations under the private-label credit
card program by Household), trade credit and borrowings under the DIP Facility.
During Fiscal 1999, cash flow used in operating activities before changes in
operating assets and liabilities was $47.0 million. Cash used in operating
activities for the months of June 1998 and December 1998 was $22.0 million or
47.1% of the total cash used. Both months were affected by the recording of cash
reserves for store closings of $12.6 million. This was favorably offset by
corresponding increase in cash provided by the change in operating assets and
liabilities.
Cash flows provided by changes in operating assets and liabilities was $45.9
million for Fiscal 1999. Changes in operating assets and liabilities were
favorably impacted by the decrease in inventory of $46.1 million and reduction
in receivables of $3.6 million primarily due to the closing of forty-two stores.
The increase of accrued expenses of $10.8 million also favorably impacted
operating assets and liabilities. This was due primarily to the change in
payment terms for promotional discount fees under the Merchant Agreement with
Household as compared to the GECC Agreement. This was offset by reductions in
other accrued expenses and liabilities associated with store closings. Changes
in operating assets and liabilities were unfavorably impacted by reductions of
$14.9 million in trade payables and other current assets, also due primarily to
the store closings.
Net cash used in financing activities amounted to $14.1 million in Fiscal 1999,
and includes net repayments under the DIP Facilities of $4.2 million, principal
payments on long-term debt and capital lease obligations of $2.3 million and a
decrease in the cash overdraft position of $7.6 million which is reflective of
the decrease in inventory levels and the timing of payments. Net cash used in
financing activities amounted to $19.4 million in Fiscal 1998 and included net
repayments under the credit facilities of $1.4 million, principal payments on
long-term debt and capital lease obligations of $11.7 million, a decrease in
cash overdraft position of $3.1 million and payment of deferred financing fees
for the DIP Facility of $3.2 million.
20
<PAGE>
Cash provided by investing activities for Fiscal 1999 includes the proceeds from
the sale of eight previously closed stores. Proceeds in Fiscal 1998 include
asset sales of the JMS stores, the Company's Boca Raton headquarters, and other
closed facilities. All of these proceeds were applied as repayments to the DIP
Facilities as required by the agreement.
Levitz's capital expenditures (other than for capitalized leases) totaled
approximately $7.8 million, $14.1 million and $11.0 million during Fiscal 1999,
1998 and 1997, respectively. Capital expenditures during Fiscal 1999 were for
existing store improvements and equipment and the opening of one new store in
May 1999. Management plans to spend approximately $7.0 million for capital
expenditures in Fiscal 2000 of which approximately $2.9 million is for
maintenance of existing facilities. Levitz expects to relocate one additional
store in Fiscal 2000.
Debt
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 BT Commercial Corporation ("BTCC") as agent. The DIP
Facility was approved by the Court and included an initial commitment of $260.0
million that was comprised of revolving notes of $223.6 million and a term note
of $36.4 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.
In September 1998, the DIP Facility was amended to include, among other things,
a new term loan in the principal amount of $22.0 million under a second term
note. The proceeds from the second term note were used to pay down the revolver
portion of the DIP Facility.
In December 1998, the Company obtained a waiver to the DIP Facility eliminating
the minimum EBITDA requirements through March 31, 1999.
In March 1999, the DIP Facility was amended to include, among other things:
(1) The availability of an additional $10.0 million loan ("Overadvance Term
Loan") from a third party which would be drawn if the borrowing base
availability declined to $12.0 million. If drawn, the proceeds from the
Overadvance Term Loan would be used to reduce borrowings under the
revolver portion of the DIP Facility.
(2) Set minimum EBITDA requirements for April 1999 and restrict capital
expenditures through May 1999.
(3) Extend the DIP Facility expiration date to June 7, 1999.
In May 1999, the DIP Facility was amended to include, among other things:
(1) An extension of the DIP Facility expiration date to December 31, 1999.
(2) A consent to the repayment of the term notes from the net proceeds of
the Sale-Leaseback Transaction.
(3) The establishment of the fixed asset sublimit under the borrowing base
calculation at $36.0 million, which is reduced by scheduled reductions
upon disposition of specific properties and for the total elimination of
the fixed asset sublimit by September 1, 1999.
(4) A reduction in the total commitment under the DIP Facility to $125.0
million.
(5) Minimum EBITDA requirements for June and September 1999.
The May 1999 amendment was subject to the closing of the Sale-Leaseback
Transaction described in Note 18 to the consolidated financial statements. On
June 8, 1999, when the Sale-Leaseback Transaction was closed, the term notes of
$58.4 million that accrued interest at sixteen percent were paid in full.
21
<PAGE>
On July 7, 1999, when the Bulk Sale Transaction was closed, net proceeds of
$18.1 million were used to pay down the revolver portion of the DIP Facility. As
a result of the transaction, the fixed asset sublimit was reduced to
approximately $17.1 million by the amount of the net proceeds. After the closing
of the Bulk Sale Transaction on July 7, 1999, the total outstanding borrowings
under the DIP Facility were approximately $74.6 million and the excess
availability was approximately $18.2 million. See Note 18 to the consolidated
financial statements for a description of the Bulk Sale Transaction.
The Company is in negotiations with its lenders to amend the DIP Facility to
include, among other things, a reduction in the EBITDA requirements for June and
September 1999 and the extension of the fixed asset sublimit expiration date to
September 30, 1999. No assurances can be given that such amendment will be
successfully negotiated.
Levitz is aggressively marketing for sale additional properties. At the current
time there are fourteen properties under agreement of sale, letters of intent or
other types of offers estimated to be $34.3 million of gross proceeds. No
assurances can be given that a sufficient number of these transactions will
close prior to the expiration of the fixed asset sublimit on September 30, 1999.
Based on facts and circumstances at that time, Levitz may have to request an
extension of the fixed asset sublimit expiration date or obtain additional
financing. No assurances can be given that an extension of the expiration date
would be granted or that additional financing could be obtained.
Loans made under the 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 bore 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 were amortized over the original life of the DIP
Facility.
Levitz is exposed to market risk as a result of the terms of the DIP Facility
which requires the Company to pay a variable interest rate based on the
fluctuation of Bankers Trust Company's prime lending rate. The change in annual
cash flow and earnings resulting from a 1% increase or decrease in interest
rates based on outstanding borrowings at July 7, 1999 would be approximately
$0.7 million assuming other variables remained constant.
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 as the proceeds from the sale of fixed assets and leasehold interests
are received. Qualification of accounts receivable and inventory items as
"eligible" is subject to unilateral change at the discretion of the lenders.
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, and a prohibition
on paying dividends. The lenders under the DIP Facility have a super-priority
administrative expense claim against the estate of the Debtors.
22
<PAGE>
In connection with the Plan of Reorganization, Levitz expects to obtain a
post-confirmation financing commitment before December 31, 1999, which would be
an asset based revolving credit facility having substantially the same advance
rate as the DIP Facility. Levitz will seek a commitment in an amount sufficient
to execute the Plan of Reorganization. There can be no assurances given that
such a commitment will be obtained.
All mortgages have been classified as current due to the Sale-Leaseback
Transaction and Bulk Sale Transaction as described in Note 18 to the
consolidated financial statements. All mortgages have been paid from the
proceeds of both transactions.
The Company is currently in default of the senior notes, senior deferred coupon
debentures, and senior subordinated notes, all of which are unsecured and have
been classified as liabilities subject to compromise.
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, totaling $6.1 million at March 31, 1999, 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 the GECC Agreement. At the same time GECC sold the majority of
the portfolio under the GECC Agreement, approximately $561.0 million, to
Household.
The Company determined that the transfer of the GECC portfolio to Household
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". Accordingly,
the Receivable under Account Purchase Agreement and the offsetting Obligation
Under Account Purchase Agreement were removed from the consolidated condensed
balance sheets.
At March 31, 1999, Household's portfolio balance was $549.8 million. The
portfolio balance includes Levitz customer purchases through Household as well
as customer accounts transferred to Household from GECC. Levitz recorded income
from both the Merchant Agreement and the GECC Agreement of $13.2 million, $7.9
million and $12.8 million, respectively for the years ended March 31, 1999, 1998
and 1997. The decrease in recorded income for the period ended March 31, 1998
was due to the write-off of $5.9 million in future revenue service fees under
the GECC Agreement as explained in Note 7 to the consolidated financial
statements.
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 obligated for
all credit losses under the portfolio, including the GECC portfolio transferred
to Household, up to a maximum of 15% of average outstanding receivables and for
50% of all credit losses above 15%. Levitz is also required under the Merchant
Agreement to fund a merchant risk reserve of 2.5% for the first year and 3.5%
thereafter of all amounts financed up to a stipulated dollar amount. A one
percent increase or decrease in the finance charge to customers or the cost of
capital or the credit loss rate would increase or decrease the annual income
from the portfolio by $3.5 million to $5.5 million.
23
<PAGE>
GOING CONCERN
The Company believes that cash on hand, amounts available under the DIP
Facility, as amended, and funds from operations will enable the Company to meet
its current liquidity and capital expenditures requirements.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint Plan of
Reorganization" ("Plan of Reorganization" or "Plan"), pursuant to Section 1125
of the Bankruptcy Code with the Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Debtors' Chapter 11 cases and the anticipated organization,
operation and financings of "Reorganized Levitz". The Disclosure Statement
describes the Plan of Reorganization, certain effects of Plan confirmation,
certain risk factors associated with securities to be issued under the Plan, and
the manner in which distribution will be made under the Plan. In addition, the
Disclosure Statement discusses the confirmation process and the voting
procedures that holders of claims in impaired classes must follow for their
votes to be counted. The Plan of Reorganization sets forth certain information,
among other things, the classification and treatment of claims and interests,
means for implementation of the Plan, acceptance or rejection of the Plan and
effect of rejection by one or more classes of claims or interests, provisions
for governing distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of the
effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the Plan
effective date:
(1) All holders of an allowed administrative and priority tax claim are
unimpaired and unclassified, are not entitled to vote on the Plan and will
receive cash or such other treatment as to which Levitz and such creditor
shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff claim
(Class 2) and miscellaneous secured claim (Class 3) are unimpaired, are
deemed to have accepted the Plan and, therefore not entitled to vote on
the Plan and will receive cash or setoff or reinstatement or such other
treatment as to which Levitz and such creditor shall have agreed in
writing.
(3) All holders of a small unsecured claim (less than $1,000, Class 4) are
impaired and are entitled to vote on the Plan and shall receive in cash
25% of the allowed amount of the claim.
(4) All holders of an allowed general unsecured claim (Class 5) are impaired,
are entitled to vote on the Plan and shall receive their pro rata share of
the new common stock distribution of "Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are impaired, are
deemed to have rejected the Plan and, therefore, not entitled to vote on
the Plan, and shall not receive or retain any property or interest in
property on account of their subordinated claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their holders
shall not receive or retain any property or interest in property on
account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former holder or
owner of "old equity securities" authorized and issued prior to the Plan
confirmation date, Class 8) are impaired, are deemed to have rejected the
Plan and, therefore, are not entitled to vote on the Plan. All Interests
shall be cancelled and the Interest holders shall not receive or retain
any property or interest in property on account of their Interests.
In connection with the Plan of Reorganization, Levitz expects to obtain a
post-confirmation financing commitment before December 31, 1999, which would be
an asset based revolving credit facility having substantially the same advance
rate as the DIP Facility. Levitz will seek a commitment in an amount sufficient
to execute the Plan of Reorganization. There can be no assurances given that
such a commitment will be obtained.
24
<PAGE>
Although the Plan of Reorganization provides for the Debtors' emergence from
bankruptcy, there can be no assurances given that the Plan will be confirmed by
the Court, or that such Plan will be consummated.
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 and stockholders.
YEAR 2000
Levitz recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 technology failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk.
During Fiscal 1998, management established a team to oversee the Company's Year
2000 date conversion project. The project is composed of the following stages:
1) assessment of the problem; 2) prioritization of systems; 3) remediation
activities; and 4) compliance testing. A plan of corrective action using both
internal and external resources to enhance or replace the system for Year 2000
compliance has been implemented. Internal resources consist of permanent
employees of the Company's Information Systems department, whereas external
resources are composed of contract programming personnel that are directed by
the Company's management.
The majority of the financial and operating systems have been completed through
remediation and are in the compliance testing stage.
Since the project's beginning in Fiscal 1998, the Company has incurred
approximately $1.4 million in expenses, excluding in-house salaries, wages and
benefits, for hardware and software and $0.2 million for maintenance and
development of operational systems to alleviate potential Year 2000 problems.
The remaining expenditures are expected to be approximately $0.6 million.
Purchased hardware, software and the costs of implementation are capitalized and
amortized over their useful lives while other costs of remediation associated
with the Year 2000 project are being expensed as incurred.
The remaining cost of the Company's Year 2000 project and the dates on which the
Company plans to complete the Year 2000 compliance program are based on
management's current estimates, which are derived utilizing numerous
assumptions. Such assumptions include, but are not limited to, the continued
availability of certain resources and the readiness of third-parties through
their own remediation plans. These assumptions are inherently uncertain and
actual events could differ significantly from those anticipated.
25
<PAGE>
The Company is also communicating with vendors, financial institutions and
others with which it does business to coordinate Year 2000 conversion. There can
be no assurance, however, that the systems of these other companies will be
converted in a timely manner, or that any such failure to convert by another
company would not have an adverse effect on the Company's systems and
operations. Management believes the Year 2000 compliance issue is being
addressed properly by the Company to prevent any material adverse operational or
financial impacts. However, if such enhancements are not completed in a timely
manner, the Year 2000 issue may have a material adverse impact on the operations
of the Company. The Company is currently assessing the consequences of its Year
2000 project not being completed on schedule or its remediation efforts not
being successful. Management is developing contingency plans to mitigate the
effects of problems experienced by the Company, key vendors or service providers
related to the Year 2000. Contingency plans may include the purchase of
additional levels of inventory as a precaution based on the Company's expected
needs. Management expects to complete its Year 2000 contingency planning during
the second quarter of Fiscal 2000.
INCOME TAXES
Levitz has a Federal cumulative net operating loss ("NOL") carry-forward of
$163.4 million as of March 31, 1999. Levitz has recorded a full valuation
allowance against the NOL for the fiscal year ended March 31, 1999. In prior
years, Levitz had recorded a deferred tax asset (benefit) for its cumulative NOL
as of the fiscal year ended March 31, 1998. Levitz has always provided a full
valuation allowance against state net operating losses. The cumulative NOL net
benefit at March 31, 1999 was $24.7 million. The Sale-Leaseback Transaction and
Bulk Sale Transaction as described in Note 18 to the consolidated financial
statements are estimated to utilize approximately $15.9 million of the
cumulative NOL net benefit. The remaining cumulative NOL net benefit of $8.8
million is supported by deferred tax credits that are projected to turn during
the carry-forward periods. Levitz will continue its current practice of
providing a valuation allowance against future net operating losses pending a
change in financial condition. Limitations may be placed on the realization of
these NOL's when Levitz emerges from bankruptcy.
1999 1998 1997
---- ----- -----
Effective Tax Rate -- 31.1% 35.5%
The effective tax benefit decreased from 35.5% in Fiscal 1997 to 31.1% in Fiscal
1998 due to permanent differences arising from the write-off of goodwill and for
non-deductible expenses.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants................................. 28
Consolidated Balance Sheets.............................................. 29
Consolidated Statements of Operations.................................... 30
Consolidated Statements of Stockholder's Deficit......................... 31
Consolidated Statements of Cash Flows.................................... 32
Notes to Consolidated Financial Statements............................... 33
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levitz Furniture Corporation:
We have audited the accompanying consolidated balance sheets of Levitz Furniture
Corporation (a Florida corporation) and subsidiaries, debtor-in-possession (the
"Company") as of March 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Levitz Furniture Corporation
and subsidiaries as of March 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1, on September 5, 1997 the Company filed a voluntary
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be allowed
and priority thereof; (c) as to stockholder accounts, the effect of any changes
that may be made in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in the business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Chapter 11 filing was the result
of violation of certain debt covenants, recurring losses, deterioration of
vendor support, and cash flow deficiencies. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Although the
Company is currently operating as a debtor-in-possession under the jurisdiction
of the bankruptcy court, the continuation of the business as a going concern is
contingent upon, among other things, the ability to formulate a plan of
reorganization which will gain approval of the creditors and confirmation by the
bankruptcy court, success of future operations, the ability to obtain financing
and the ability to recover the carrying amount of assets and/or the amount and
classification of liabilities. Management's plans in regard to these matters are
described in Note 1. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 8, 1999
28
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except share data)
MARCH 31,
--------------------------
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,046 $ 5,339
Receivables 21,861 24,118
Inventories 84,232 142,618
Deposits and prepaid expenses 4,432 3,442
Deferred income taxes 3,418
Property under agreement of sale 95,571 --
----------- -----------
Total current assets 209,142 178,935
----------- -----------
PROPERTY AND EQUIPMENT:
Land 3,890 25,501
Buildings and building improvements 5,860 91,736
Leasehold improvements 31,616 71,936
Store, warehouse and transportation
equipment 43,243 78,805
----------- -----------
84,609 267,978
Less-Accumulated depreciation and
amortization 45,742 124,729
----------- -----------
38,867 143,249
Property under capital leases, net of
accumulated amortization of $27,610
in 1999 and $85,623 in 1998 33,303 92,721
----------- -----------
72,170 235,970
----------- -----------
OTHER ASSETS:
Receivable under account purchase agreement (See Note 11) -- 554,322
Intangible leasehold interests 5,637 14,151
Deferred financing fees -- 2,061
Property held for disposal 32,469 17,766
Deferred income taxes 5,385 --
Other 9,764 3,496
----------- -----------
53,255 591,796
----------- -----------
$ 334,567 $ 1,006,701
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Cash overdrafts $ 8,823 $ 16,395
Current portion of long-term debt 6,962 1,333
Current portion of obligations under capital leases 9,846 --
Accounts payable, trade 23,060 30,511
Accrued expenses and other liabilities 73,979 55,847
Payable to parent 13,635 13,633
Deferred income taxes 11,696 --
DIP Facility 144,618 148,381
----------- -----------
Total current liabilities 292,619 266,100
----------- -----------
LONG-TERM DEBT, net of current portion -- 5,702
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 29,368 --
----------- -----------
OBLIGATION UNDER ACCOUNT PURCHASE AGREEMENT (See Note 11) -- 554,322
----------- -----------
OTHER NONCURRENT LIABILITIES 4,290 683
----------- -----------
DEFERRED INCOME TAXES -- 8,825
----------- -----------
LIABILITIES SUBJECT TO COMPROMISE 292,609 360,976
----------- -----------
COMMITMENTS AND CONTINGENCIES (See Note 15)
STOCKHOLDER'S DEFICIT:
Common stock 1 1
Capital in excess of par 58,453 58,453
Retained earnings (deficit) (342,773) (248,361)
----------- -----------
Total stockholder's deficit (284,319) (189,907)
----------- -----------
$ 334,567 $ 1,006,701
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
YEARS ENDED MARCH 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
NET SALES $ 653,100 $ 812,948 $ 941,878
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales 376,327 467,591 533,555
Selling, general and administrative expenses 280,778 337,231 356,887
Unusual operating expenses -- 16,151 --
Charge for store closings -- -- 8,295
Depreciation and amortization 17,948 24,093 26,993
Interest expense, net 29,477 38,974 54,053
--------- --------- ---------
704,530 884,040 979,783
--------- --------- ---------
LOSS BEFORE REORGANIZATION ITEMS AND
INCOME TAXES (51,430) (71,092) (37,905)
REORGANIZATION ITEMS:
Loss on store closings and other 36,359 33,649 --
Acceleration of goodwill amortization -- 14,975 --
Professional fees 6,623 6,888 --
--------- --------- ---------
Total 42,982 55,512 --
--------- --------- ---------
LOSS BEFORE INCOME TAXES (94,412) (126,604) (37,905)
INCOME TAX (BENEFIT) -- (39,437) (13,454)
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS (94,412) (87,167) (24,451)
EXTRAORDINARY ITEMS, NET OF TAX
BENEFIT OF $2,630 IN 1998 AND $1,090 IN 1997 -- (5,805) (2,002)
--------- --------- ---------
NET LOSS $ (94,412) $ (92,972) $ (26,453)
========= ========= =========
LOSS PER COMMON SHARE:
Loss before extraordinary items $ (94,412) $ (87,167) $ (24,451)
Extraordinary items -- (5,805) (2,002)
--------- --------- ---------
NET LOSS $ (94,412) $ (92,972) $ (26,453)
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,000 1,000 1,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(Dollars in thousands, except share data)
COMMON STOCK CAPITAL RETAINED ACCUMULATED OTHER
----------------------- IN EXCESS EARNINGS COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT OF PAR (DEFICIT) INCOME (LOSS) LOSS
--------- --------- --------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 1,000 $ 1 $ 57,853 $(128,936) $ (654)
Net loss -- -- -- (26,453) -- $ (26,453)
Capital contribution -- -- 600 -- -- --
Minimum pension liability -- -- -- -- 17 17
--------- --------- --------- --------- --------- ---------
BALANCE, MARCH 31, 1997 1,000 1 58,453 (155,389) (637) $ (26,436)
=========
Net loss -- -- -- (92,972) -- (92,972)
Minimum pension liability -- -- -- -- 637 637
--------- --------- --------- --------- --------- ---------
BALANCE, MARCH 31, 1998 1,000 1 58,453 (248,361) -- $ (92,335)
=========
Net loss -- -- -- (94,412) -- (94,412)
--------- --------- --------- --------- --------- ---------
BALANCE, MARCH 31, 1999 1,000 $ 1 $ 58,453 $(342,773) $ -- $ (94,412)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEARS ENDED MARCH 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (94,412) $ (92,972) $ (26,453)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 10,750 14,421 15,703
Amortization 7,198 9,672 11,290
Amortization of deferred financing fees 2,061 2,318 2,620
Pension expense (income) 310 901 1,874
Loss (gain) on disposal of property and equipment 58 (39) (637)
Other 390 6,146 384
Deferred tax benefit (53) (42,174) (11,526)
Extraordinary loss related to early redemption
of debt, before tax benefit -- 8,435 3,092
Inventory write-down 4,836 6,124 --
Goodwill write-off -- 2,810 --
Reorganization items 21,853 45,532 --
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables 3,553 6,265 (3,327)
Inventories 46,065 19,376 (28,570)
Deposits and prepaid expenses (1,380) (49) 306
Other, net (4,372) 229 49
Increase (decrease) in:
Accounts payable, trade (9,144) (2,320) 17,111
Accrued expenses and other liabilities 10,828 (4,871) 13,646
Payable to parent 268 3,348 4,400
Other noncurrent liabilities 119 (305) 1,203
----------- ----------- -----------
Total adjustments 93,340 75,819 27,618
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,072) (17,153) 1,165
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,768) (14,130) (11,008)
Proceeds from sale of property and equipment
and other assets 20,685 46,775 3,959
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,917 32,645 (7,049)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 840,799 990,740 1,068,493
Repayments under credit facilities (844,951) (992,189) (1,045,789)
Principal payments on long-term debt (145) (8,503) (3,831)
Principal payments under capital lease obligations (2,269) (3,174) (7,222)
(Decrease) increase in cash overdrafts (7,572) (3,129) 1,612
Payment of deferred financing fees -- (3,165) (10,867)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (14,138) (19,420) 2,396
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,293) (3,928) (3,488)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,339 9,267 12,755
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,046 $ 5,339 $ 9,267
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION:
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 (the "Court") for the District of
Delaware, Wilmington, Delaware 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. Because
Levitz is operating as debtor-in-possession under Chapter 11 of the
Bankruptcy Code, the existing directors and officers of Levitz continue
to manage the operations of Levitz subject to the supervision and
orders of the Court.
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.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint
Plan of Reorganization" ("Plan of Reorganization" or "Plan"), pursuant
to Section 1125 of the Bankruptcy Code with the Court. The Disclosure
Statement sets forth certain information regarding, among other things,
significant events that have occurred during the Debtors' Chapter 11
cases and the anticipated organization, operation and financings of
"Reorganized Levitz". The Disclosure Statement describes the Plan of
Reorganization, certain effects of Plan confirmation, certain risk
factors associated with securities to be issued under the Plan, and the
manner in which distribution will be made under the Plan. In addition,
the Disclosure Statement discusses the confirmation process and the
voting procedures that holders of claims in impaired classes must
follow for their votes to be counted. The Plan of Reorganization sets
forth certain information, among other things, the classification and
treatment of claims and interests, means for implementation of the
Plan, acceptance or rejection of the Plan and effect of rejection by
one or more classes of claims or interests, provisions for governing
distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of
the effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the
Plan effective date:
(1) All holders of an allowed administrative and priority tax claim
are unimpaired and unclassified, are not entitled to vote on the
Plan and will receive cash or such other treatment as to which
Levitz and such creditor shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff
claim (Class 2) and miscellaneous secured claim (Class 3) are
unimpaired, are deemed to have accepted the Plan and, therefore
not entitled to vote on the Plan and will receive cash or setoff
or reinstatement or such other treatment as to which Levitz and
such creditor shall have agreed in writing.
33
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
(3) All holders of a small unsecured claim (less than $1,000,
Class 4) are impaired and are entitled to vote on the Plan
and shall receive in cash 25% of the allowed amount of the
claim.
(4) All holders of an allowed general unsecured claim (Class 5) are
impaired, are entitled to vote on the Plan and shall receive
their pro rata share of the new common stock distribution of
"Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are
impaired, are deemed to have rejected the Plan and, therefore,
not entitled to vote on the Plan, and shall not receive or retain
any property or interest in property on account of their
subordinated claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their
holders shall not receive or retain any property or interest in
property on account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former
holder or owner of "old equity securities" authorized and issued
prior to the Plan confirmation date, Class 8) are impaired, are
deemed to have rejected the Plan and, therefore, are not entitled
to vote on the Plan. All Interests shall be cancelled and the
Interest holders shall not receive or retain any property or
interest in property on account of their Interests.
Although the Plan of Reorganization provides for the Debtors' emergence
from bankruptcy, there can be no assurances given that the Plan will be
confirmed by the Court, or that such Plan will be consummated.
The exclusivity period to prepare a plan of reorganization will expire
on September 30, 1999. After the expiration of the exclusivity period,
creditors will have the right to propose alternative plans of
reorganization.
The consolidated 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. While under the protection of Chapter 11, the
Company may sell or otherwise dispose of assets, and liquidate or
settle liabilities, for amounts other than those reflected in the
financial statements. Additionally, the amounts reported on the
consolidated balance sheet could materially change because of changes
in business strategies and the effects of any proposed plan of
reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the terms of the DIP
Facility and the ability to generate sufficient cash from operations
and financing arrangements to meet obligations.
34
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
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 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 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. A bar date is the date by which claims against
Levitz must be filed if the claimants wish to receive any distribution
in the Chapter 11 cases. Differences between amounts shown by the
Debtors and claims filed by creditors are being investigated and will
be either amicably resolved or adjudicated before the 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
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 March 31, 1999, the Debtors had rejected
leases for 17 store locations, reached agreement with the landlord on
one store location to terminate without liability and assumed and
assigned leases on three store locations without liability. The Court
has extended the time for which the Debtors may assume or reject
unexpired leases of nonresidential real property to August 24, 1999.
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 March 31, 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.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Levitz Furniture Corporation (Levitz), a Florida Corporation, was
acquired by Levitz Furniture Incorporated (LFI) in 1985. Levitz is a
specialty retailer of furniture with a chain of 64 stores and 21 sales
support centers located in major metropolitan areas in 13 states.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Levitz
and its wholly-owned subsidiaries. All material inter-company accounts
and transactions are eliminated in consolidation.
35
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
REVENUE RECOGNITION POLICY
Levitz recognizes revenue at the time a sales order is written and the
following conditions are met: the merchandise is in stock and is
available for sale; for a credit sale, the credit is unconditionally
approved; and for items requested to be delivered by a customer, a firm
delivery date is set, and a minimum down payment is received.
CASH, CASH EQUIVALENTS AND CASH OVERDRAFTS
All highly liquid debt instruments purchased with original maturities
of three months or less are considered to be cash equivalents. Cash
overdrafts include checks outstanding which do not have the right of
offset with cash and cash equivalents. The carrying value approximates
fair value because of the short maturity of those instruments.
INVENTORIES
Inventories of furniture and accessories are stated at the lower of
cost or market. In December 1998, the Company reviewed certain
discontinued and/or slower moving inventory as well as damaged
inventory items. Included in cost of sales is a $4.8 million charge
reflecting the Company's adjustment to record this inventory at its
estimated net realizable value. Cost is determined using the last-in,
first-out (LIFO) method. Inventories valued on the LIFO cost method
were approximately $8.8 million and $11.9 million lower than first-in,
first-out (FIFO) costs at March 31, 1999 and 1998, respectively. See
additional discussion in Note 7 to the consolidated financial
statements.
During the year ended March 31, 1999, there was a significant reduction
in inventories as a result of the sale of inventory to third-party
liquidators upon the closing of forty-two facilities. The reduction in
inventory caused the liquidation of prior year LIFO layers. The
liquidation of prior year layers at prior year prices reduced the LIFO
reserve and cost of sales by $3.9 million more than would have resulted
if the liquidation of the layers were measured at current year prices.
PROPERTY AND EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment purchased by Levitz are stated at cost. Capital
leases are recorded at the lower of the present value of the future
minimum lease obligations or fair market value of the property.
Depreciation is provided substantially by the straight-line method over
the estimated useful lives of the related assets. The estimated useful
lives range from 10 to 40 years for buildings, building improvements
and leasehold improvements, and 2 to 20 years for store, warehouse and
transportation equipment. Fully depreciated assets are written off
against accumulated depreciation. Capital leases are depreciated over
their initial terms which generally range from 15 to 40 years.
PROPERTY HELD FOR DISPOSAL
Property held for disposal represents the net book value or net
realizable value of land, buildings, leasehold improvements and
leasehold interests associated with closed facilities. Property held
for disposal was $32.5 million and $17.8 million at March 31, 1999 and
1998, respectively and is classified in other assets.
36
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
INTANGIBLE LEASEHOLD INTERESTS
Intangible leasehold interests represent the value associated with
renewal terms of capital leases and original and renewal terms of
operating leases acquired by Levitz at rents below market value.
Intangible leasehold interests are amortized by the straight-line
method over the original and renewal terms of the related leases.
Accumulated amortization related to intangible leasehold interests was
$9.1 million and $12.3 million as of March 31, 1999 and 1998,
respectively.
LONG-LIVED ASSETS
In Fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). This
statement requires recognition of impairment losses for long-lived
assets whenever events or changes in circumstances result in the
carrying amount of the assets exceeding the sum of the expected future
undiscounted cash flows associated with such assets. The measurement of
the impairment losses to be recognized is based on the difference
between the fair values and the carrying amounts of the assets. SFAS
No. 121 also requires any long-lived assets held for sale be reported
at the lower of carrying amount or the fair value less selling cost.
The adoption of this statement resulted in a $2.4 million charge during
Fiscal 1997.
GOODWILL
Goodwill was written-off during the fiscal year ended March 31, 1998
due to the sale of substantially all the assets of John M. Smyth
Company (JMS) on January 9, 1998 and the impaired financial condition
of LFI. JMS was a wholly-owned subsidiary of Levitz. Prior to the
write-off, goodwill was being amortized on a straight-line basis over
forty years.
INCOME TAXES
Levitz accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
recognized in Levitz's financial statements or tax returns. In
estimating future tax consequences, Levitz generally considers all
expected future events other than enactment of changes in the tax laws
or rates. The income tax benefit generated as a result of the net loss
during the year ended March 31, 1999 was fully offset by a valuation
allowance.
DEFERRED FINANCING FEES
Deferred financing fees represent costs associated with obtaining
financing arrangements. These fees were amortized over the original
terms of the related debt. Accumulated amortization of the DIP
financing fees was $1.1 million at March 31, 1998. Net deferred
financing costs as of the Petition Date of $8.4 million and $2.5
million for the senior secured facilities and for the various
unsecured-debt obligations were written off during the fiscal year
ended March 31, 1998 as an extraordinary item and as reorganization
items, respectively.
37
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
ADVERTISING EXPENSES
Levitz expenses all advertising costs the first time the advertising
takes place including direct-response advertising. Advertising expense
for fiscal years ended March 31, 1999, 1998 and 1997 was $93.4 million,
$108.1 million and $102.1 million, respectively. Advertising
expenditures include promotional financing fees of $28.4 million, $27.2
million and $28.3 million for fiscal years ended March 31, 1999, 1998
and 1997, respectively.
USE OF ESTIMATES
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 disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. See Note 1 regarding proceedings under Chapter
11.
SELF INSURANCE
Levitz is generally self-insured up to a maximum of $0.2 million to
$0.3 million for losses and liabilities related to worker's
compensation, health and welfare claims and comprehensive general,
product and vehicle liability. Losses are accrued based upon Levitz's
estimates of the aggregate liability for claims incurred using certain
actuarial assumptions followed in the insurance industry and based on
Levitz's experience.
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
provides for a fair value based method of accounting for grants of
equity instruments to employees or suppliers in return for goods or
services. As permitted under SFAS No. 123, the Company has elected to
continue to account for compensation costs under the provisions
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Levitz has not made any grants of
equity instruments to employees or suppliers.
EARNINGS PER SHARE
Loss per common share is based on the weighted average number of common
shares outstanding during each year of 1,000 shares.
38
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
RECLASSIFICATIONS
Effective March 31, 1999, Levitz elected to reclassify certain revenues
in its consolidated statements of operations. As a result, net sales,
and selling, general and administrative ("SG&A") expenses have been
restated for the fiscal years ended March 31, 1999, 1998 and 1997.
Levitz now reflects delivery income and miscellaneous revenue in SG&A
expenses. Previously, these revenues were included in net sales. The
effect of this reclassification was to reduce net sales and SG&A
expenses by $19.8 million, $23.9 million and $25.0 million for the
fiscal years ended March 31, 1999, 1998 and 1997, respectively.
Certain other amounts in prior years' consolidated financial statements
have been reclassified to conform to the current year's presentation.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
1999 1998 1997
-------- -------- --------
Cash paid/(received) during
the year for:
Interest $ 26,152 $ 37,853 $ 49,678
Income tax (refunds), net 36 (2,417) (6,985)
Non-cash activities:
Capital contributions -- -- 600
4. DEBT:
Outstanding balances under debt arrangements are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
MARCH 31, MATURITY
----------------------------- YEAR ENDING
RATE 1999 1998 MARCH 31
-------------- ------------- ------------
<S> <C> <C> <C> <C>
DIP Facilities Variable $144,618 $148,381 2000
Senior notes 13.375% 91,267 91,267 1999
Senior subordinated notes 9.625% 100,000 100,000 2004
Subordinated notes 12.375% -- -- 1998
Mortgages 8.375%-13% 6,962 7,035 2003 to 2006
Lease financing Variable - 4,000 1999
-------- --------
342,847 350,683
Less -
Current portion of long-
term debt 6,962 1,333
Credit facilities classified
as current 144,618 148,381
Unsecured debt reclassified
as subject to compromise 191,267 195,267
-------- --------
$ -- $ 5,702
======== ========
</TABLE>
39
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
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 BT Commercial
Corporation ("BTCC") as agent. The DIP Facility was approved by the
Court and included an initial commitment of $260.0 million that was
comprised of revolving notes of $223.6 million and a term note of $36.4
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.
In September 1998, the DIP Facility was amended to include, among other
things, a new term loan in the principal amount of $22.0 million under
a second term note. The proceeds from the second term note were used to
pay down the revolver portion of the DIP Facility.
In December 1998, the Company obtained a waiver to the DIP Facility
eliminating the minimum EBITDA requirements through March 31, 1999.
In March 1999, the DIP Facility was amended to include, among other
things:
(1) The availability of an additional $10.0 million loan
("Overadvance Term Loan") from a third party which would
be drawn if the borrowing base availability declined to
$12.0 million. If drawn, the proceeds from the Overadvance
Term Loan would be used to reduce borrowings under the
revolver portion of the DIP Facility.
(2) Set minimum EBITDA requirements for April 1999 and restrict
capital expenditures through May 1999.
(3) Extend the DIP Facility expiration date to June 7, 1999.
In May 1999, the DIP Facility was amended to include, among other
things:
(1) An extension of the DIP Facility expiration date to
December 31, 1999.
(2) A consent to the repayment of the term notes from the net
proceeds of the Sale-Leaseback Transaction.
(3) The establishment of the fixed asset sublimit under the
borrowing base calculation at $36.0 million, which is
reduced by scheduled reductions upon disposition of
specific properties and for the total elimination of the
fixed asset sublimit by September 1, 1999.
(4) A reduction in the total commitment under the DIP Facility
to $125.0 million.
(5) Minimum EBITDA requirements for June and September 1999.
The May 1999 amendment was subject to the closing of the Sale-Leaseback
Transaction described in Note 18 to the consolidated financial
statements. On June 8, 1999, when the Sale-Leaseback Transaction was
closed, the term notes of $58.4 million that accrued interest at
sixteen percent were paid in full.
On July 7, 1999, when the Bulk Sale Transaction was closed, net
proceeds of $18.1 million were used to pay down the revolver portion of
the DIP Facility. As a result of the transaction, the fixed asset
sublimit was reduced to approximately $17.1 million by the amount of
the net
40
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
proceeds. After the closing of the Bulk Sale Transaction on July 7,
1999, the total outstanding borrowings under the DIP Facility were
approximately $74.6 million and the excess availability was
approximately $18.2 million. See Note 18 to the consolidated financial
statements for a description of the Bulk Sale Transaction.
The Company is in negotiations with its lenders to amend the DIP
Facility to include, among other things, a reduction in the EBITDA
requirements for June and September 1999 and the extension of the fixed
asset sublimit expiration date to September 30, 1999. No assurances can
be given that such amendment will be successfully negotiated.
Levitz is aggressively marketing for sale additional properties. At the
current time there are fourteen properties under agreement of sale,
letters of intent or other types of offers estimated to be $34.3
million of gross proceeds. No assurances can be given that a sufficient
number of these transactions will close prior to the expiration of the
fixed asset sublimit on September 30, 1999. Based on facts and
circumstances at that time, Levitz may have to request an extension of
the fixed asset sublimit expiration date or obtain additional
financing. No assurances can be given that an extension of the
expiration date would be granted or that additional financing could be
obtained.
Loans made under the 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 bore 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 were amortized over the original life of the DIP Facility.
Levitz is exposed to market risk as a result of the terms of the DIP
Facility which requires the Company to pay a variable interest rate
based on the fluctuation of Bankers Trust Company's prime lending rate.
The change in annual cash flow and earnings resulting from a 1%
increase or decrease in interest rates based on outstanding borrowing
at July 7, 1999 would be approximately $0.7 million assuming other
variables remained constant.
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 as the proceeds from the sale of
fixed assets and leasehold interests are received. Qualification of
accounts receivable and inventory items as "eligible" is subject to
unilateral change at the discretion of the lenders.
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, and a prohibition on
paying dividends. The lenders under the DIP Facility have a
super-priority administrative expense claim against the estate of the
Debtors.
In connection with the Plan of Reorganization, Levitz expects to obtain
a post-confirmation financing commitment before December 31, 1999,
which
41
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
would be an asset based revolving credit facility having substantially
the same advance rate as the DIP Facility. Levitz will seek a
commitment in an amount sufficient to execute the Plan of
Reorganization. There can be no assurances given that such a commitment
will be obtained.
All mortgages have been classified as current due to the Sale-Leaseback
Transaction and Bulk Sale Transaction as described in Note 18 to the
consolidated financial statements. All mortgages have been paid from
the proceeds of both transactions.
The Company is currently in default of the senior notes, senior
deferred coupon debentures, and senior subordinated notes, all of which
are unsecured and have been classified as liabilities subject to
compromise.
5. 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 by the bar date set by the
Court of August 10, 1998. The difference between claim amounts
scheduled by the Debtors and the claim amounts filed by creditors are
being investigated and will be either amicably resolved or adjudicated
before the Court. The amounts in total will be subject to future
adjustment depending on 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.
MARCH 31,
1999
(DOLLARS IN
LIABILITIES SUBJECT TO COMPROMISE THOUSANDS)
----------
Accounts payable, trade $ 38,520
Accrued expenses 15,204
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
Executive retirement and employment agreements 16,144
General liability claims 736
Reserve for previous store closings 1,353
Common area maintenance 262
Real estate taxes 2,414
Personal property taxes 554
--------
$292,609
========
(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
42
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
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 unless the leases are rejected by
the Debtors. If a capital lease is rejected the obligation will be
limited to the lease rejection claim. Contractual interest expense of
$21.9 million and $12.6 million was not recorded on certain
pre-petition debt for the fiscal year ended March 31, 1999 and for the
period from September 5, 1997 through March 31, 1998.
6. REORGANIZATION ITEMS:
During Fiscal 1999 and 1998 the Company initiated a series of actions
under its reorganization proceedings to improve its performance, which
included store closures and dispositions, and incurred professional
fees in connection with the Bankruptcy proceedings. These
reorganization items aggregated, after-tax, $43.0 million or $42,982
per share and $38.2 million or $38,248 per share, for the fiscal years
ended March 31, 1999 and 1998, respectively.
In Fiscal 1999, Levitz closed forty-two stores in under-performing or
non-strategic markets. Fifteen stores were closed in June 1998 and
twenty-seven stores were closed in January 1999. In addition to the
store closings, certain support functions were or are being eliminated
over a period of time and fifteen warehouses, as part of the "Warehouse
Rationalization Program", were closed where another warehouse in the
same or adjacent market could service the store. The pre-tax charge for
store and warehouse closings and the elimination of certain support
functions was $42.3 million which included non-cash charges of $17.8
million for the write-down of assets to their net realizable values net
of capital lease obligations of $14.7 million, $7.6 million loss on the
sale of inventory to liquidators and anticipated lease rejection claims
of $4.3 million. Cash charges include severance pay of $3.3 million and
continuing expenses of $9.3 million. At March 31, 1999 approximately
$5.3 million of these reserves remained which provides for the
estimated continuing expenses of the facilities until they are sold.
During Fiscal 1999, Levitz recognized $5.9 million in gains on the sale
of eight previously closed stores. The gains were recorded as
reorganizational items.
During October, 1997, the Court approved a motion for Levitz to close
eighteen stores in under-performing markets. The Company recorded a
pre-tax charge of $23.8 million associated with the closing of these
stores. The charge included non-cash items for the write-down of
property, capital lease assets, furniture and fixtures to their net
realizable values of $18.9 million, the loss on sale of inventory
through liquidation in the amount $1.5 million and the write-down of
other assets in the amount of $0.8 million. Cash items include
severance pay of $1.6 million and continuing expenses of $1.0 million.
Additional non-cash reorganization items written off at the same time
included acceleration of goodwill amortization of $4.7 million and
deferred financing fees of $2.5 million. As of March 31, 1999
approximately $0.2 million of this closing reserve remained.
43
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
On January 9, 1998, Levitz sold substantially all of the assets of the
John M. Smyth Company ("JMS"), a wholly-owned subsidiary of Levitz,
which then 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 incurred
a charge of $18.0 million on the sale and closing of the JMS
facilities. The charge included non-cash items for loss on sale of
property and equipment of $5.0 million, acceleration of goodwill
amortization of $10.3 million, lease rejection claims of $1.6 million
and write-off of other assets of $0.2 million. The charge included cash
items of $0.3 million for severance pay and $0.6 million for continuing
expenses. At March 31, 1999 approximately $0.1 million of this closing
reserve remained.
Net sales and operating income (loss) (exclusive of certain central
office expense allocations and prior to interest expense, income taxes
and reorganization items) from the forty-two stores closed in Fiscal
1999, the twenty-four stores closed or disposed of during Fiscal 1998
and the five stores closed during Fiscal 1997 (see Note 8) were (in
000's):
1999 1998 1997
--------- --------- ---------
Net sales $ 138,257 $ 299,073 $ 389,232
Operating income (loss) (2,879) (24,044) 10,239
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.
Fees accrued for these services totaled $6.6 million and $6.9 million
in Fiscal 1999 and 1998, respectively.
7. UNUSUAL OPERATING EXPENSES:
During Fiscal 1998, upon the resignation of an officer, Levitz accrued
severance costs (i.e., future payroll and employee benefit) of $1.3
million under the provisions of an employment agreement. Additionally,
Levitz recorded a $5.9 million write-off of the future service revenue
receivable under the GECC Agreement when 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. The charges increased net loss by $5.0
million or $4,973 per share.
During the fourth quarter of Fiscal 1998, the Company reviewed certain
discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate
the liquidation of these items, the Company reduced their selling
prices. Included in unusual operating expenses is a $6.1 million charge
reflecting the Company's adjustment to record this inventory at its
estimated net realizable value. The Company also wrote off goodwill in
the amount of $2.8 million. The charges increased net loss by $6.1
million or $6,156 per share.
44
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
8. STORE CLOSING AND RESTRUCTURING EXPENSE:
In the fiscal year ended March 31, 1997, management developed a plan to
close five stores. The stores were closed on October 31, 1996. The plan
resulted in a pre-tax charge for store closings of $8.3 million. The
charge includes the reduction of the carrying value of the store assets
to their estimated realizable value net of selling expenses as well as
reserves for future rental payments under operating lease agreements.
Included in the store closing charge is a $2.4 million charge from the
adoption of SFAS No. 121 effective April 1, 1996 for one of the closed
stores. The charge increased net loss by $5.4 million or $5,352 per
share.
9. EXTRAORDINARY ITEMS:
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 previous credit facilities. The after-tax loss
was $5.8 million or $5,805 per share. In the period ended December 31,
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.
10. LEASING ARRANGEMENTS:
Levitz leases its facilities generally under non-cancelable leases for
original terms ranging from 10 to 40 years. Most leases contain renewal
options and some include options to purchase the properties.
The following is an analysis of property under capital leases by major
classes (dollars in thousands):
1999 1998
-------- --------
Land, buildings and improvements $ 60,913 $177,192
Equipment -- 1,152
-------- --------
60,913 178,344
Less- Accumulated amortization 27,610 85,623
-------- --------
$ 33,303 $ 92,721
======== ========
Amortization expense relating to property under capital leases for the
years ended March 31, 1999, 1998 and 1997 was $6.0 million, $8.3
million and $9.5 million, respectively.
Minimum annual rentals on continuing stores at March 31, 1999 (net of
sublease income to be received) for the five years subsequent to March
31, 1999 and in the aggregate are as follows (dollars in thousands):
45
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
CAPITAL OPERATING
YEAR LEASES (1) LEASES (2)
- ---- --------- ----------
2000 $ 4,212 $ 24,430
2001 4,095 25,156
2002 4,007 24,240
2003 4,007 23,435
2004 4,007 21,307
Thereafter 72,075 248,720
------- --------
Total minimum lease payments 92,403 $367,288
========
Less - Amount representing interest 62,417
-------
Present value of net minimum
payments under capital leases 29,986
Less - Current portion of
continuing leases 618
-------
$29,368
=======
(1) Minimum annual rentals for capital leases have been reduced
for those leases included in the Sale-Leaseback Transaction
described in Note 18 to the consolidated financial statements.
Capital leases included in the Sale-Leaseback Transactions
were determined to be treated as operating leases in
accordance with SFAS No. 13, "Accounting for Leases".
Consequently, the total capital lease obligations of $9.1
million for those leases has been classified as current
liabilities at March 31, 1999 as this obligation will be
retired upon closing of the Sale-Leaseback Transaction and the
future minimum annual rentals for those leases are included
with operating leases.
(2) Minimum annual rentals of operating leases include rentals for
those capital leases included in the Sale-Leaseback
Transaction and the Unitary Lease Agreement as described in
Note 18 to the consolidated financial statements. The minimum
annual rentals for the Unitary Lease Agreement are as follows
(dollars in thousands):
OPERATING
YEAR LEASES
---------- --------
2000 $ 5,889
2001 7,235
2002 7,235
2003 7,235
2004 7,235
Thereafter 118,386
--------
$153,215
========
46
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
Rent expense includes minimum rentals on operating leases, contingent
payments based on either the Consumer Price Index or a percentage of
sales for both capital and operating leases and amortization of
intangible leasehold interests.
Rent expense consists of the following (dollars in thousands):
1999 1998 1997
-------- -------- --------
Rent expense $ 18,630 $ 23,835 $ 24,567
Sublease income (810) (519) (888)
-------- -------- --------
Rent expense, net $ 17,820 $ 23,316 $ 23,679
======== ======== ========
Some rental agreements contain escalation provisions that may require
higher future rent payments. Rent expense incurred under rental
agreements that contain fixed escalation clauses is recognized on a
straight-line basis over the life of the lease.
11. 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, totaling $6.1 million at
March 31, 1999, 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 the GECC Agreement.
At the same time GECC sold the majority of the portfolio under the GECC
Agreement, approximately $561.0 million, to Household.
The Company determined that the transfer of the GECC portfolio to
Household 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". Accordingly, the Receivable under Account Purchase
Agreement and the offsetting Obligation under Account Purchase
Agreement were removed from the consolidated balance sheets.
At March 31, 1999, Household's portfolio balance was $549.8 million.
The portfolio balance includes Levitz customer purchases through
Household as well as customer accounts sold to Household by GECC.
Levitz recorded income from both the Merchant Agreement and the GECC
Agreement of $13.2 million, $7.9 million and $12.8 million,
respectively for the years ended March 31, 1999, 1998 and 1997.
47
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
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 obligated for all credit losses under the
portfolio, including the GECC portfolio transferred to Household, up to
a maximum of 15% of average outstanding receivables and for 50% of all
credit losses above 15%. Levitz is also required under the Merchant
Agreement to fund a merchant risk reserve of 2.5% for the first year
and 3.5% thereafter of all amounts financed up to a stipulated dollar
amount. A one percent increase or decrease in the finance charge to
customers or the cost of capital or the credit loss rate would increase
or decrease the annual income from the portfolio by $3.5 million to
$5.5 million.
Included in the consolidated balance sheets for the years ended March
31, are (dollars in thousands):
1999 1998
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
Net receivable/
payable (1) $2,964 $ -- $ -- $ 859
Merchant risk
reserve (2) 6,117 -- --
Credit loss reserve -- 2,328 --
Promotional discount
accrual (3) -- 21,460 -- 3,127
------ ------- ----- ------
Total $9,081 $23,788 $ -- $3,986
====== ======= ===== ======
(1) The net receivable/payable represents amounts due from or owed
to Household on the settlement of portfolio earnings from the
previous month and customer accounts that were submitted to
Household for purchase. In Fiscal 1998, the amount was due to
GECC.
(2) The merchant risk reserve is the amounts paid to Household in
case the Merchant Agreement is terminated or Levitz would
discontinue operations. The cash can be returned to Levitz if a
letter of credit is posted or Levitz emerges from bankruptcy
and meets certain financial covenants. The amount is included
in other long-term assets on the consolidated balance sheets.
(3) The promotional discount accrual represents the estimated interest
that will be charged back to Levitz for those customers that are
likely to take advantage of a "no-interest" finance promotion at
their time of purchase. Levitz is required to make payments of the
estimated amount on a monthly basis. Under the GECC Agreement
these amounts were paid in advance. This accrual is included in
accrued liabilities and other expenses on the consolidated balance
sheets.
In addition to the above, Levitz has funded a credit loss reserve of
$33.9 million through the monthly settlement of portfolio earnings as
of March 31, 1999 which is not on the consolidated balance sheets.
48
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
12. INCOME TAXES:
Levitz has a Federal cumulative net operating loss ("NOL")
carry-forward of $163.4 as of the fiscal year ended March 31, 1999.
Levitz has recorded a full valuation allowance against the NOL for the
fiscal year ended March 31, 1999. In prior years, Levitz had recorded a
deferred tax asset (benefit) for its cumulative NOL as of the fiscal
year ended March 31, 1998. Levitz has always provided a full valuation
allowance against state net operating losses. The cumulative NOL net
benefit at March 31, 1999 was $24.7 million. The Sale-Leaseback
Transaction and Bulk Sale Transaction as described in Note 18 to the
consolidated financial statements are estimated to utilize
approximately $15.9 million of the cumulative NOL net benefit. The
remaining cumulative NOL net benefit of $8.8 million is supported by
deferred tax credits that are projected to turn during the
carry-forward periods. Levitz will continue its current practice of
providing a valuation allowance against future net operating losses
pending a change in financial condition. Limitations may be placed on
the realization of these NOL's when Levitz emerges from bankruptcy.
Federal NOL carry-forwards are available through Fiscal 2019.
The benefit for income taxes was allocated as follows (dollars in
thousands):
1999 1998 1997
------ -------- --------
Loss before extraordinary items $ -- $(39,437) $(13,454)
Extraordinary items -- (2,630) (1,090)
------ -------- --------
$ -- $(42,067) $(14,544)
====== ======== ========
The components of the benefit for income taxes applicable to loss
before extraordinary items is (dollars in thousands):
1999 1998 1997
-------- -------- --------
Current:
Federal $ -- $ -- $ (1,245)
State 52 57 13
-------- -------- --------
52 57 (1,232)
-------- -------- --------
Deferred:
Federal -- (35,209) (10,565)
State (52) (4,285) (1,657)
-------- -------- --------
(52) (39,494) (12,222)
-------- -------- --------
$ -- $(39,437) $(13,454)
======== ======== ========
49
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
A reconciliation of the statutory benefit for income taxes on loss
before extraordinary items to the actual tax benefit is as follows
(dollars in thousands):
1999 1998 1997
-------- -------- --------
Computed income tax benefit
at Federal statutory rate $(33,045) $(43,045) $(12,849)
State and local income tax benefit,
net of federal income tax (5,714) (5,541) (3,764)
Permanent differences 2,924 6,797 182
Federal valuation allowance 31,388 1,072 --
State valuation allowance 6,296 2,793 2,679
Other (1,849) (1,513) 298
-------- -------- --------
$ -- $(39,437) $(13,454)
======== ======== ========
Components of the deferred income tax assets and liabilities are
(dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------
1999 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Expense deducted for book and
not for tax $ 7,820 $ 8,660
Obligations under capital lease 18,559 20,797
Other liabilities 22,677 29,043
Federal NOL benefit $ 57,194 $ 21,837
Less: valuation allowance (32,460) 24,734 (1,072) 20,765
--------- ---------
State NOL benefit 19,811 13,515
Less: valuation allowance (19,811) -- (13,515) --
--------- ---------
AMT credit carryover 2,039 2,039
Other 26 -
-------- --------
75,855 81,304
-------- --------
Deferred tax liabilities:
Inventory 15,757 11,419
Property and equipment 34,593 11,356
Property under capital lease 16,076 47,687
Stepped-up values on plant
and equipment due to
purchase accounting 15,740 15,282
Other - 967
-------- --------
82,166 86,711
-------- --------
Net deferred tax liability $ 6,311 $ 5,407
======== ========
</TABLE>
50
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
Levitz files a consolidated Federal income tax return and certain state
returns with LFI. Levitz records its share of the consolidated Federal
and state income tax provision or benefit by multiplying its separate
taxable income or loss for the year by the corporate income tax rates
applicable to such year. A tax benefit is recorded only if realized on
a consolidated basis. Substantially all income taxes payable are
payable to LFI under the tax-sharing arrangement and are included in
payable to parent in the consolidated balance sheets.
13. EMPLOYEE BENEFIT PLANS:
Levitz has a non-contributory, defined benefit plan (the Pension Plan).
In March 1996, Levitz amended the Pension Plan to exclude future
benefit accruals for credited service and annual earnings after March
31, 1996 and also excluded any associate from becoming a participant in
the plan after January 1, 1996 (Pension Curtailment). Pension benefits
are based on length of service and final average compensation as of the
Pension Curtailment date and are integrated with Social Security. The
maximum pension benefit per individual is limited to $130,000 per year.
Plan assets consist primarily of marketable equity and debt securities
and cash equivalents. Levitz's funding policy is to make the minimum
annual contributions required by applicable regulations.
Certain officers of Levitz are participants in an unfunded
non-contributory supplemental executive retirement plan (SERP) and a
life insurance plan. The SERP provides supplemental retirement,
disability and/or death benefits. Retirement and disability benefits
are equal to 4.0% of the highest consecutive five-year average of
salary plus bonus paid for each year of service, limited to a maximum
of 60% of compensation or $0.3 million on an indexed basis. Death
benefits are equal to 3% per year of service to a maximum of 45% of
such compensation. Benefits are subject to a dollar-for-dollar
reduction for benefits paid under the Pension Plan, Social Security and
certain other specified pension plan payments. The liability for the
SERP and insurance plan is included in liabilities subject to
compromise.
51
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The table below reconciles the funded status of the plans with the
amounts recognized in the consolidated balance sheets (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
PENSION PENSION
PLAN SERP PLAN SERP
------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at
beginning of year $ 61,171 $ 15,080 $ 55,879 $ 14,770
Service cost -- 319 -- 272
Interest cost 4,074 105 4,258 559
Actuarial (gain) loss 347 (760) 6,444 42
Settlements (1) -- (13,980) -- --
Special termination benefits -- 14 -- 55
Gross benefits paid (6,685) (6) (5,410) (618)
-------- -------- -------- --------
Net obligation at end of year 58,907 772 61,171 15,080
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at
beginning of year 68,383 -- 55,912 --
Actual return on plan assets (882) -- 18,063 --
Benefits paid and expenses (6,809) -- (5,593) --
-------- -------- -------- --------
Fair value of plan assets at
end of year 60,692 -- 68,382 --
-------- -------- -------- --------
Funded status
Funded status at end of year 1,785 (772) 7,211 (15,080)
Unrecognized net actuarial
(gain) loss 1,113 -- (4,406) 1,752
Unrecognized prior service cost -- -- -- 268
Unrecognized net transition
obligation -- -- -- 370
Other -- (2) -- (23)
-------- -------- -------- --------
Net amount recognized at end
of year $ 2,898 $ (774) $ 2,805 $(12,713)
======== ======== ======== ========
Amounts recognized in the consolidated
balance sheets
Prepaid benefit costs $ 2,898 $ -- $ 2,805 $ --
Accrued benefit costs -- (774) -- (12,713)
-------- -------- -------- --------
Net asset (liability) recognized
at end of year $ 2,898 $ (774) $ 2,805 $(12,713)
======== ======== ======== ========
</TABLE>
(1) Included in settlements above for Fiscal 1999 are obligations related
to inactive employees which are included in liabilities subject to
compromise.
52
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The tables below list the weighted average assumptions and the
components of periodic (benefit) costs (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- ---------------------
PENSION PENSION PENSION
PLAN SERP PLAN SERP PLAN SERP
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions
Discount rate 7.00% 7.00% 7.00% 7.00% 8.00% 8.00%
Expected return on plan assets 9.00% -- 9.00% -- 9.00% --
Rate of compensation increase -- 3.00% -- 3.80% -- 2.00%/5.50%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- ---------------------
PENSION PENSION PENSION
PLAN SERP PLAN SERP PLAN SERP
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of periodic
benefit cost
Service cost $ -- $319 $ -- $ 273 $ -- $ 83
Interest cost 4,074 105 4,258 559 4,296 1,108
Expected return on assets (4,576) -- (4,440) -- (4,439) --
Amortization of:
Transition obligation -- 6 -- 36 -- 82
Prior service cost -- 6 -- 45 -- 281
Actuarial loss -- -- -- 31 -- 32
Special termination charge 409 14 114 55 329 45
------- ---- ------- ------- ------- -------
Net periodic (benefit) cost $ (93) $450 $ (68) $ 999 $ 186 $ 1,631
======= ==== ======= ======= ======= =======
</TABLE>
ASSOCIATES SAVINGS PLAN
Levitz has savings plans which were adopted under Section 401(k) of the
Internal Revenue Code. Under the provisions of the Associates Savings
Plans, substantially all employees who meet the age and service
requirements of the plan are entitled to defer a certain percentage of
their compensation. Levitz contributed to the fund 30% of the first 6%
beginning January 1, 1999 and 20% of the first 6% beginning January 1,
1998 and 1997 subject to certain limitations. Such matching
contributions of $0.6 million, $0.8 million and $0.9 million were made
by Levitz for the years ended March 31, 1999, 1998 and 1997,
respectively.
14. ACCRUED EXPENSES AND OTHER LIABILITIES (DOLLARS IN THOUSANDS):
1999 1998
------- -------
Payroll $ 9,394 $12,510
Payroll and sales taxes 4,843 4,547
Real estate taxes 3,238 2,809
Interest 2,615 1,687
Promotional discount accrual 21,460 3,127
Workers Compensation 6,708 7,663
Other 25,721 23,504
------- -------
$73,979 $55,847
======= =======
53
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
15. COMMITMENTS AND CONTINGENCIES:
As a result of the bankruptcy filing, the initiation of litigation
against the Debtors involving matters arising prior to the filing for
bankruptcy is stayed. Such stay may be lifted by the Bankruptcy Court
in appropriate circumstances.
Levitz has employment agreements with seven officers. Each of these
agreements is for an initial term of eighteen months and will be
automatically renewed for an additional twelve months unless either
party gives prior written notice of intent to terminate the agreement.
The agreements provide that if the officer is terminated by Levitz
other than for Cause (as defined in the agreements) or disability or by
the officer for Good Reason (as defined in the agreements), Levitz must
continue to pay such officer's base salary for eighteen months and, for
certain of the officers, would be required to credit such officer with
three years of additional service and age for purposes of Levitz's
SERP. In the event of such termination following a Change in Control
(as defined in the agreements), Levitz must pay such officer a lump sum
amount equal to one and one-half times his or her annual base salary.
Each agreement also contains certain non-competition provisions.
Levitz is subject to a number of lawsuits, investigations and claims
arising out of the normal conduct of its business, including those
relating to government regulations, general and product liability and
employee relations. Although there are a number of actions pending
against Levitz as of March 31, 1999, in the opinion of Management such
actions as currently known would not have a material effect on the
financial position of Levitz.
54
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of Levitz's unaudited quarterly results of
operations for the years ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1999
--------- ------------ ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 171,276 $ 169,285 $ 182,174 $ 130,365
Gross profit 74,094 73,303 74,098 55,278
Net loss (37,967)(1) (14,037) (35,443)(1) (6,965)
========= ========= ========= =========
Net loss per common share $ (37,967) $ (14,037) $ (35,443) $ (6,965)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997(2) 1997 1998
--------- ------------- ------------ ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 205,646 $ 201,148 $ 225,950 $ 180,204
Gross profit 89,879 84,376 96,359 74,743
Net loss before extraordinary items (10,044) (36,277)(2) (26,398)(2) (14,448)
Net loss (10,044) (41,739)(3) (26,741) (14,448)
========= ========= ========= =========
Loss per common share:
Loss before extraordinary items $ (10,044) $ (36,277) $ (26,398) $ (14,448)
Extraordinary items -- (5,462)(3) (343) --
--------- --------- --------- ---------
Net loss per common share $ (10,044) $ (41,739) $ (26,741) $ (14,448)
========= ========= ========= =========
</TABLE>
(1) See Note 1 to consolidated financial statements.
(2) See Note 5, 6 and 7 to consolidated financial statements.
(3) See Note 9 to consolidated financial statements.
(4) See Note 7 to consolidated financial statements.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of Levitz's financial instruments
at March 31, 1999 and 1998, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,046 $ 3,046 $ 5,339 $ 5,339
Receivable under account
purchase agreement -- -- 554,322 554,322
Long-term debt obligations
including current maturities 151,580 151,580 155,416 155,416
Obligation under account
purchase agreement -- -- 554,322 554,322
Letters of credit -- 16,936 -- 17,778
</TABLE>
55
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of these instruments. The fair value of
Levitz's long-term debt, including current maturities, is estimated
based on the quoted market prices for the same or similar issues. The
contract amount of the letter of credit approximates its fair value. The
fair value of the Company's liabilities subject to compromise are not
presently determinable as a result of the Chapter 11 proceedings.
18. SUBSEQUENT EVENTS:
On June 8, 1999, Levitz sold 11 owned properties and leasehold interests
and/or rights on 11 leased properties for gross proceeds of $67.3
million ("Contract of Sale"). Net proceeds, which excludes closing
costs, of $67.1 million were used to pay-off existing mortgages and
related accrued interest, default interest and other fees of $7.6
million; the term notes under the DIP Facility including accrued
interest, extension fees and other fees of $59.2 million and cure costs
relating to pre-petition liabilities of $0.3 million. The aggregate
carrying value of these properties of $72.2 million was classified as
property under agreement of sale at March 31, 1999. Capital lease
obligations relating to these properties were $9.1 million as of March
31, 1999 which were classified as current.
The gain on the sale of owned property and leasehold interests of
approximately $2.2 million, subject to further adjustment, will be
amortized over the initial term of the "Unitary Lease Agreement" as
described below. As part of the Contract of Sale, the purchaser escrowed
an additional $1.0 million to be paid to Levitz on January 1, 2000
subject to Levitz's emergence from bankruptcy by December 31, 1999. In
addition, the Contract of Sale places certain limitations on Levitz
incurring new unsecured debt following the approval of a plan of
reorganization.
At the same time, Levitz entered into a Unitary Lease Agreement to lease
back all of the owned property as well as the property where the
leasehold interest was sold ("Sale-Leaseback Transaction"). The Unitary
Lease Agreement is for an initial term of twenty years with three
additional option periods of five years each. Rent is payable monthly,
in advance, calculated at 10.75% of the gross proceeds for the first
five years of the initial term with incremental increases of 5% after
each five year period of the initial terms and all option periods.
The Unitary Lease requires Levitz to assume all obligations for payments
and lease terms under the original leases ("the Overleases"). The
Unitary Lease allows Levitz to exercise a right to vacate or surrender
all or a portion of the lease space of the properties by giving notice
on or before the two year anniversary of the Unitary Lease Agreement and
vacating within three years. In some instances, there is also a
requirement that Levitz must vacate the warehouse portion and/or the
showroom portion of some of the properties by specified dates. Levitz
would receive a pro rata reduction in the Unitary Lease rent at the time
it vacates the entire property and would be released of all payment
obligations for the Overlease in the instances described above.
56
<PAGE>
LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The cash effect for the first twelve month period as the result of the
Sale-Leaseback Transaction is approximately (dollars in thousands):
Decrease in interest on term notes $ 9,337
Decrease in mortgage payments 1,196
Increase in rent payments (7,235)
-------
Total cash effect $ 3,298
=======
On July 7, 1999, Levitz sold five owned properties and leasehold
interests/rights in six properties, all of which locations had
previously been closed. The gross proceeds from the transaction were
$19.8 million (the "Bulk Sale Transaction"). Net proceeds of
approximately $19.4 million, excluding closing costs, were used to
pay-off existing mortgages and accrued interest of $0.6 million, cure
costs relating to pre-petition liabilities of $0.3 million, proration of
real estate taxes and other costs of $0.4 million and to pay down the
revolver portion of the DIP Facility of approximately $18.1 million. The
Bulk Sale Transaction relieved Levitz of all lease obligations for the
leased properties. The aggregate carrying value of these properties of
$20.3 million was classified as property under agreement of sale at
March 31, 1999.
57
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the Index to
Consolidated Financial Statements on page 27.
FINANCIAL STATEMENT SCHEDULES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
SCHEDULES
All schedules have been omitted because the required information is shown in the
Consolidated Financial Statements or Notes thereto or they are not applicable.
(b) REPORTS ON FORM 8-K
On February 17, 1999 the registrant filed a Report on Form 8-K reporting
under Item 5. Other Events disclosing a letter to its vendors concerning
the status of the registrant's Chapter 11 Bankruptcy Proceeding.
On July 2, 1999 the registrant filed a Report on Form 8-K reporting under
Item 5. Other Events disclosing the sale of eleven owned parcels of real
property and leasehold interests on twelve leased properties and the
execution of a Unitary Lease to lease the properties back
("Sale-Leaseback Transaction"). The Sale-Leaseback Transaction was
consummated on June 8, 1999.
(c) EXHIBITS
See Page 60 for Index to Exhibits.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LEVITZ FURNITURE CORPORATION
Date: July 12, 1999 By: /s/ EDWARD L. GRUND
--------------------------------------
Edward L. Grund
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD L. GRUND Chairman of the Board July 12, 1999
- ------------------------------------------- and Chief Executive
Edward L. Grund Officer
/s/ MICHAEL MCCREERY Senior Vice President July 12, 1999
- ------------------------------------------- and Chief Financial
Michael McCreery Officer
/s/ EDWARD P. ZIMMER Vice President, July 12, 1999
- ------------------------------------------- General Counsel and
Edward P. Zimmer Director
/s/ SHEILA C. REINKEN Vice President, July 12, 1999
- ------------------------------------------- Treasurer and Director
Sheila C. Reinken
</TABLE>
59
<PAGE>
INDEX TO EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
3.01 Form of Restated Certificate of Incorporation of the Company. (1)
3.02 Form of By-Laws of the Company. (1)
3.03 Certificate of Incorporation of Levitz. (2)
3.04 By-Laws of Levitz. (2)
4.01 Form of Stockholder Rights Plan, including exhibits. (1)
10.02 Form of Indemnification Agreement. (1)
10.04 Amendment to Shareholders Agreement dated as of May 14, 1993. (1)
10.05 Senior Deferred Coupon Debenture Indenture dated as of December 1, 1992 between the Company and First
Bank National Association, as Trustee. (1)
10.06 Form of Senior Deferred Coupon Debenture (included as Exhibit A to 10.05 above). (1)
10.07 First Supplemental Indenture dated as of April 21, 1993, relating to the Debenture Indenture. (1)
10.08 Second Supplemental Indenture, dated as of June 16, 1993, relating to the Debenture Indenture. (1)
10.10 Shareholders Agreement, dated as of December 23, 1986 between the Company and the Investors. (3)
10.11 Form of Agreement of Indemnification dated March 5, 1985 between Levitz and certain directors of
Levitz Furniture Corporation. (3)
10.14 Supplemental Executive Retirement Plan of Levitz dated April, 1995. (4)
10.15 Levitz Bonus Plan. (4)
10.16 13-3/8% Senior Note Indenture, dated as of March 1, 1996, between Levitz Furniture Corporation and American Bank
National Association, as Trustee. (4)
10.17 Form of 13-3/8% Senior Note (included as Exhibit A to 10.16 above). (4)
10.18 First Supplemental Indenture, dated as of May 29, 1996, to the 13-3/8% Senior Note Indenture, dated as of
March 1, 1996 between Levitz Furniture Corporation and American Bank National Association, as Trustee. (4)
10.19 Warrant Agreement, dated as of March 25, 1996, by and between the Company and American Stock Transfer & Trust
Company, as Agent.(7)
10.20 Form of Warrant, dated March 25, 1996 (included as Exhibit A to Exhibit 10.19 above). (4)
10.22 Warrant Certificate, dated as of July 1, 1996, by and between the Company and Apollo Investment
Fund III, L.P. (4)
10.23 Warrant Certificate, dated as of July 1, 1996, by and between the Company and Apollo Overseas
Partners III, L.P. (4)
10.24 Warrant Certificate, dated as of July 1, 1996, by and between the Company and Apollo (U.K.)
Partners III, L.P. (4)
10.25 Registration Rights Agreement, dated as of July 1, 1996, by and among the Company, Apollo Investment Fund III,
L.P., Apollo Overseas Partners III, L.P., Apollo (U.K.) Partners II, L.P. and Court Square Capital Limited. (4)
10.26 $150,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz Furniture Corporation, Levitz Furniture
Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company of
Washington, Inc., John M. Smyth Company, each of the lenders from time to time parties thereto, Apollo Investment
Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo U.K. Partners III, L.P. and BT Commercial Corporation,
as agent. (4)
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
10.27 $40,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz Furniture Corporation, Levitz Furniture
Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company of
Washington, Inc., John M. Smyth Company, each of the lenders from time to time parties thereto, Apollo Investment
Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo U.K. Partners III, L.P. and BT Commercial Corporation,
as agent. (4)
10.28 Intercreditor and Collateral Agency Agreement, dated as of July 1, 1996, among Levitz Furniture Corporation,
Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., John M. Smyth Company, BT Commercial Corporation and the lenders named therein. (4)
10.29 Intercreditor Agreement, dated as of July 1, 1996, among Levitz Furniture Corporation, General Electric Capital
Corporation, BT Commercial Corporation and the lenders named therein. (4)
10.30 Revolving Note, dated July 1, 1996, by and among BT Commercial Corporation, Levitz Furniture Corporation, Levitz
Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company
of Washington, Inc., and John M. Smyth Company. (4)
10.31 Term Note, dated July 1, 1996, by and among Apollo (UK) Partners III, L.P. and Levitz Furniture Corporation,
Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., and John M. Smyth Company. (4)
10.32 Term Note, dated July 1, 1996, by and among Apollo Overseas Partners III, L.P. and Levitz Furniture Corporation,
Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., and John M. Smyth Company. (4)
10.33 Term Note, dated July 1, 1996, by and among Apollo Investment Fund III, L.P. and Levitz Furniture Corporation,
Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., and John M. Smyth Company. (4)
10.34 Note, dated July 1, 1996, by and among BT Commercial Corporation and Levitz Furniture Corporation, Levitz
Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company
of Washington, Inc., and John M. Smyth Company. (4)
10.35 Security Agreement, dated as of July 1, 1996, by Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company of Washington, Inc., and
John M. Smyth Company in favor of BT Commercial Corporation. (4)
10.36 Pledge Agreement, dated as of July 1, 1996, by and between Levitz Furniture Corporation and BT Commercial
Corporation. (4)
10.37 Amendment No. 1 dated as of December 6, 1996 to the Credit Agreements dated as of July 1, 1996 among Levitz
Furniture Corporation, et al. and BT Commercial Corporation, as Agent. (5)
10.39 Amendment No. 2 dated as of December 16, 1996 to the Credit Agreements dated as of July 1, 1996 among Levitz
Furniture Corporation, et al. and BT Commercial Corporation, as Agent. (12)
10.40 Amendment No. 3 dated as of June 13, 1997 to the Credit Agreements dated as of July 1, 1996 among Levitz
Furniture Corporation, et al. and BT Commercial Corporation, as Agent. (7)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
10.41 Amendment No. 4 dated as of June 30, 1997 to the Credit Agreements dated as of July 1, 1996 among Levitz
Furniture Corporation et al. and BT Commercial Corporation, as Agent. (7)
10.44 Amendment No. 5 dated as of July 25, 1997 to the Credit Agreements among Levitz Furniture Corporation, et al. and
BT Commercial Corporation, as agent. (8)
10.45 $260,000,000 Postpetition Credit Agreement among Levitz Furniture Incorporated, Levitz Furniture Corporation and
certain other subsidiaries and certain financial institutions, with Levitz Furniture Corporation, as LFC Funds
Administrator and, BT Commercial Corporation, as Agent, dated as of September 5, 1997. (9)
10.46 Second Amended and Restated Account Purchase and Credit Card Program Agreement by and among Levitz Furniture
Corporation, certain other subsidiaries and General Electric Capital Corporation, dated September 5, 1997. (9)
10.47 Amendment No. 1 dated as of October 7, 1997 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent. (10)
10.48 Amendment No. 1 dated as of October 7, 1997 to the Second Amended and Restated Account Purchase and Credit Card
Agreement among Levitz Furniture Corporation, et al. and General Electric Capital Corporation. (10)
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. (11)
10.50 Amendment No. 3 dated as of February 23, 1998 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
10.51 Amendment No. 4 dated as of February 20, 1998 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
10.52 Amendment No. 5 dated as of May 14, 1998 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
10.53 Amendment No. 6 dated as of June 23, 1998 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
10.54 Form of Employment Agreement by and among Levitz Furniture Corporation and Edward L. Grund dated as of June 1,
1998.
10.55 Form of Employment Agreement between Levitz and certain officers.
10.56 Merchant Agreement among Levitz Furniture Corporation and certain other subsidiaries and Household Bank (SB)
N.A., dated September 4, 1998. (13)
10.57 Amendment No. 7 dated as of September 4, 1998 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent. (13)
10.58 Amendment No. 8 dated as of September 18, 1998 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent. (13)
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. (14)
10.60 Amendment No. 9 dated as of March 5, 1999 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
10.61 Amendment No. 10 dated as of May 14, 1999 to the Postpetition Credit Agreement among Levitz Furniture
Incorporated, et al. and BT Commercial Corporation, as agent.
</TABLE>
62
<PAGE>
<TABLE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
10.62 Contract of Sale by and among Levitz Furniture Corporation and certain other subsidiaries and Klaff Realty, LP,
Lubert-Adler Capital Real Estate Fund II, L.P., Lubert-Adler Real Estate Fund II, L.P. and Lubert-Adler Parallel
Fund II, L.P., dated as of April 20, 1999. (15)
10.63 First Amendment to Contract of Sale by and among Levitz Furniture Corporation and certain subsidiaries and the
various purchasers set forth therein, dated as of June 8, 1999. (15)
10.64 Unitary Lease by and among Levitz Furniture Corporation and certain other subsidiaries and the various purchasers
set forth therein, dated as of June 8, 1999. (15)
21.01 Wholly Owned Subsidiaries of Levitz Furniture Corporation.
27 Financial Data Schedule.
</TABLE>
- ------------------
(1) Incorporated by reference from the Company's and Levitz's
Registration Statement Nos. 33-61534 and 33-61534-01 on
Form S-1 filed April 23, 1993.
(2) Incorporated by reference from Levitz's Registration
Statement No. 33-1325 on Form S-1 declared effective on
August 13, 1986.
(3) Incorporated by reference from Levitz's Registration
Statement No. 33-12639 on Form S-1 declared effective on May
12, 1987.
(4) Incorporated by reference from Levitz Furniture Corporation's
Form 10-K for the fiscal year ended March 31, 1996.
(5) Incorporated by reference to Form 8-K filed December 6, 1996.
(6) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended
December 31, 1996.
(7) Incorporated by reference from Levitz Furniture Corporation's
Annual Report on Form 10-K for the year ended March 31, 1997.
(8) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended June 30,
1997.
(9) Incorporated by reference to Form 8-K filed September 12,
1997.
(10) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended
September 30, 1997.
(11) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended December
31, 1997.
(12) Incorporated by reference from Levitz Furniture Corporation's
Annual Report on Form 10-K for the year ended March 31, 1998.
(13) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended September
30, 1998.
(14) Incorporated by reference from Levitz Furniture Corporation's
quarterly report on Form 10-Q for the quarter ended
December 31, 1998.
(15) Incorporated by reference to Form 8-K filed July 2, 1999.
63
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.60 Amendment No. 9 dated as of March 5, 1999 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al.
and BT Commercial Corporation, as agent.
10.61 Amendment No. 10 dated as of May 14, 1999 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al.
and BT Commercial Corporation, as agent.
21.01 Wholly Owned Subsidiaries of Levitz Furniture Corporation.
27 Financial Data Schedule.
EXHIBIT NO. 10.60
NINTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS NINTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT, dated as
of March 5, 1999 (this "AMENDMENT"), is among LEVITZ FURNITURE INCORPORATED, a
Delaware corporation and a debtor and debtor in possession, LEVITZ FURNITURE
CORPORATION, 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, LEVITZ SHOPPING SERVICE, INC., a Florida corporation
and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE
COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and
debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE
COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a
debtor in possession, LEVITZ REINSURANCE CORPORATION, JOHN M. SMYTH COMPANY, an
Illinois corporation and a debtor and debtor in possession, and JOHN M. SMYTH
REALTY COMPANY, an Illinois corporation and a debtor and debtor in possession
(collectively, the "BORROWERS"), each Revolving Lender, Term Lender and
Overadvance Term Lender (defined herein) signatories hereto (collectively the
"LENDERS"), and BT COMMERCIAL CORPORATION, a Delaware corporation, acting in its
capacity as collateral agent and agent for the Lenders (in such capacity,
together with its successors in such capacity, the "AGENT"). Capitalized terms
used in this Amendment and not otherwise defined have the meanings assigned to
such terms in the Postpetition Credit Agreement dated as of September 5, 1997
(as amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among the Borrowers, the Lenders and the Agent.
PRELIMINARY STATEMENTS:
A. The Borrowers, the Lenders and the Agent are parties to the
Credit Agreement.
B. The Borrowers have requested that M.D. SASS CORPORATE RESURGENCE
PARTNERS, L.P. (together with any successors and permitted assigns, the
"OVERADVANCE TERM LENDER") extend credit by extending a term loan (the
"OVERADVANCE TERM LOAN") to the Borrowers in the original principal amount of
$10,000,000 to be evidenced by a promissory note (the "OVERADVANCE TERM NOTE"),
made by the Borrowers in favor of the Overadvance Term Lender.
C. The Borrowers, the Lenders and the Agent have agreed to amend the
Credit Agreement to, among other things, extend the Overadvance Term Loan on the
terms and subject to the conditions of this Amendment.
1
<PAGE>
AGREEMENT:
In consideration of the premises and the mutual agreements contained in
this Amendment, the Borrowers, the Lenders and the Agent agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
On the date each of the conditions set forth in SECTION 3 is satisfied by
the Borrowers (the "CLOSING Date"), the Credit Agreement is amended as follows:
1.1 The Credit Agreement is amended by adding Article 2C to the Credit
Agreement as follows:
ARTICLE 2C. OVERADVANCE TERM LOAN
Subject to the terms and conditions set forth in this Credit
Agreement, and in reliance on the representations and warranties of the
Borrowers set forth herein, at any time prior to the Overadvance Maturity
Date and upon receipt of notice from the Agent that Excess Availability
is less than $12,000,000 (which amount shall include the amount set forth
in subsection (d) in the definition of Borrowing Base), the Overadvance
Term Lender will make a term loan (the "OVERADVANCE TERM LOAN") to the
Borrowers, as soon as reasonably practicable and in no event more than 10
Business Days after receiving notice from the Agent, in the original
principal amount of $10,000,000. The proceeds of the Overadvance Term
Loan will be immediately deposited with the Agent and, notwithstanding
the provisions of SECTION 4.11, will be applied by the Agent to pay down
the outstanding principal of the Revolving Loans on such date. The
Overadvance Term Loan shall be evidenced by an Overadvance Term Note and
shall be governed in all respects by the terms of this Credit Agreement
and the other Credit Documents.
1.2 SECTION 1.1 of the Credit Agreement is amended by deleting the
definition of "BORROWING BASE" in its entirety and replacing it as follows:
BORROWING BASE means, at any time, the sum at such time of:
(a) the Fixed Asset Sublimit (which may be a negative number), PLUS
(b) eighty-five percent (85%) of Eligible Accounts Receivable, PLUS
(c) seventy-five percent (75%) of Eligible Inventory; provided that
the foregoing percentage may be adjusted by the Agent in the
exercise of its Permitted Discretion based upon appraisals of the
Borrowers' inventory prepared from time to time at the Agent's or
the Majority Lenders' direction, PLUS
2
<PAGE>
(d) solely for the purposes of accepting the borrowing of the
Overadvance Term Loan, $10,000,000 (the "OVERADVANCE TERM LOAN
AMOUNT"); provided, that, effective as of the earlier to occur of
(I) ten (10) Business Days after the date on which the
Overadvance Term Lender receives notice from the Agent that
Excess Availability is less than $12,000,000 or (II) the date on
which the proceeds of the Overadvance Term Loan are received by
the Agent for the account of the Debtors, the Overadvance Term
Loan Amount will be automatically and permanently reduced to zero
(-0-); and, provided, further, that, notwithstanding anything to
the contrary contained in this Agreement or any of the other
Credit Documents, (X) only the Overadvance Term Lender shall have
any obligation to fund the Overadvance Term Loan and (Y) prior to
the date on which the Overadvance Term Loan Amount is reduced to
zero pursuant to the foregoing proviso to this PARAGRAPH (D), the
Revolving Lenders shall have no obligation whatsoever to make any
Revolving Loan or other extension of credit under this Agreement
to the extent that, immediately before or after giving effect to
such Revolving Loan or extension of credit, Excess Availability
is less than $10,000,000, LESS
(e) the aggregate amount of the Borrowers' allowed professional fees
and disbursements to which the Postpetition Obligations and the
Prepetition Obligations may be subordinated pursuant to the
Interim Financing Order and the Permanent Financing Order
following a Default or an Event of Default;
PROVIDED, THAT so long as the LFC Funds Administrator has delivered a current
Borrowing Base Certificate to the Agent in accordance with the requirements of
SECTION 7.2, the Agent may rely on such Borrowing Base Certificate for
purposes of computing the amounts referred to in CLAUSES (B) and (C) above.
In addition, the Agent, in the exercise of its Permitted
Discretion, may (I) establish and increase or decrease reserves against
Eligible Accounts Receivable and Eligible Inventory, (II) reduce the advance
rates provided for in this definition, or restore such advance rates to any
level equal to or below the advance rates in effect as of the date of this
Credit Agreement, and (III) impose additional restrictions (or eliminate the
same) to the standards of eligibility set forth in the definitions of
"ELIGIBLE ACCOUNTS RECEIVABLE" and "ELIGIBLE INVENTORY." Notwithstanding
anything herein to the contrary, on and subsequent to the close of the
Sale/Leaseback Transaction, the Agent will not increase the advance rates
without receiving prior consent of the Majority Term Lenders and the
Overadvance Term Lender.
1.3 SECTION 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
"EXCESS AVAILABILITY" means an amount equal to (i) the lesser of
(a) the Revolving Line of Credit and (b) the Borrowing Base minus, in
3
<PAGE>
each case, the aggregate outstanding Letter of Credit Obligations minus
(ii) the aggregate outstanding principal amount of Revolving Loans (which may
be a negative amount to account for credit balances of cash).
1.4 SECTION 1.1 of the Credit Agreement is further amended by deleting
the definition of "EXPIRATION DATE" in its entirety and replacing it as follows:
EXPIRATION DATE means the earlier of (i) June 7, 1999 and (ii) the
date on which this Credit Agreement is terminated pursuant to SECTION 9.2(B).
1.5 SECTION 1.1 of the Credit Agreement is further amended by deleting
the definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as
follows:
FIXED ASSET SUBLIMIT means an amount equal to $43,606,713; provided,
that such amount shall be automatically and permanently reduced (and may
thereby become a negative number or a greater negative number) on each date
on which an Asset Disposition (other than the Sale/Leaseback Transaction)
occurs with respect to any real property, other fixed assets or any leasehold
interest in real property of any Borrower, in an amount equal to (i) in the
case of any Asset Disposition of or with respect to any real property or any
leasehold interest in real property, the greater of (a) the Appraised Value
and (b) the Net Cash Disposition Proceeds thereof; (other than any Asset
Disposition with respect to the Borrowers' properties located in Colorado
Springs, Colorado; Springdale, Ohio; Denver, Colorado; or San Diego,
California; in which case, the amount of such reduction to the Fixed Asset
Sublimit shall be to equal the average of the Appraised Value and the Net
Cash Disposition Proceeds with respect to each such property) and (ii) in the
case of any Asset Disposition of or with respect to any other fixed assets
(including without limitation fixtures, furniture and equipment), twenty-five
percent (25%) of the Appraised Value thereof, provided that, no reduction of
the Fixed Asset Sublimit pursuant to this clause (ii) shall occur as a result
of the Borrowers' selling, transferring or otherwise disposing of obsolete or
worn out fixed assets with an aggregate Appraised Value of up to $1,800,000;
provided, further, that upon payment of all Net Cash Disposition Proceeds
from the Sale/Leaseback Transaction to the Agent the Fixed Asset Sublimit
shall be a negative number such that Excess Availability as of the date of
such payment shall be $10,000,000 plus the amount set forth in subsection (d)
of the definition of Borrowing Base and shall thereafter continue to be
reduced in the manner described in the first proviso of this definition in
respect of all future asset dispositions.
1.6 SECTION 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
OVERADVANCE TERM LENDER means the person identified on ANNEX II as the
"Overadvance Term Lender."
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1.7 SECTION 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
OVERADVANCE TERM LOAN has the meaning set forth in ARTICLE 2C.
1.8 SECTION 1.1 of the Credit Agreement is further amended by deleting
the definition of "REVOLVING LINE OF CREDIT" in its entirety and replacing it as
follows:
REVOLVING LINE OF CREDIT means the aggregate revolving line of credit
extended pursuant to this Credit Agreement by the Revolving Lenders to the
Borrowers for Revolving Loans and Letters of Credit, in an aggregate
principal amount at any time of up to (i) on the Closing Date and through and
including the day prior to the Sale/Leaseback Transaction closing date,
$192,356,250 less the aggregate outstanding principal amount of the Original
Term Loan and the Second Term Loan, as such amount may be reduced from time
to time pursuant to the terms and provisions hereof and (ii) on and
subsequent to the Sale/Leaseback Transaction closing date, $148,356,250 less
the aggregate outstanding principal amount of the Original Term Loan and the
Second Term Loan, as such amount may be reduced from time to time pursuant to
the terms and provisions hereof.
1.9 SECTION 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
SALE/LEASEBACK TRANSACTION means that certain transaction described in
the Side Letter dated as of March 2, 1999 from the Borrowers to the Agent.
1.10 SECTION 1.1 of the Credit Agreement is further amended by adding the
following definition to such section as follows:
OVERADVANCE TERM NOTE means the promissory note evidencing the
Overadvance Term Loan, substantially in the form of EXHIBIT C-3 as amended,
restated, supplemented or otherwise modified from time to time, and including
all notes issued in replacement or in substitution of the foregoing.
1.11 SECTION 1.1 of the Credit Agreement is amended by deleting the
definition of "LENDERS" in its entirety and replacing it as follows:
"LENDERS" means the Revolving Lenders and the Term Lenders (except, for
purposes of Section 9.3, Article 10 and Sections 11.2, 11.4, 11.5, 11.6, 11.7,
11.8, 11.9, 11.10, 11.14, 11.15 and 11.16, the term "Lenders" means the
Revolving Lenders, the Term Lenders and the Overadvance Term Lender).
1.12 SECTION 1.1 of the Credit Agreement is amended by adding the term
"Overadvance Term Note," immediately after the term "Notes" in the definition of
"CREDIT DOCUMENTS".
1.13 SECTION 1.1 of the Credit Agreement is amended by adding (i) the
term "Overadvance Term Loan" immediately after the term "Term Loan
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and (ii) the words "or the Overadvance Term Lender" immediately after the term
"Lenders", in each case appearing in the definition of "POSTPETITION
OBLIGATIONS".
1.14 SECTION 1.1 of the Credit Agreement is amended by adding the
following definition to such section as follows:
"OVERADVANCE MATURITY DATE" means the earlier of (i) September 30, 1999
or (ii) the Expiration Date.
1.15 SECTION 4.7(d) of the Credit Agreement is hereby amended by adding
the following sentence to such section as follows:
All cash not permitted under the Credit Agreement to be held by the
Borrowers shall be held by the Agent on behalf of the Borrowers and
distributed pursuant to the terms hereof. The Borrowers shall only be
permitted to use excess cash to the extent of any Excess Availability.
1.16 SECTION 4.7A of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
4.7A NO PERMITTED PREPAYMENT OF TERM LOANS.
Until payment in full of all Postpetition Obligations in respect of
Revolving Loans and Letter of Credit Obligations and termination of the
Revolving Commitments pursuant to the terms and provisions hereof, the
Borrowers may not prepay the Term Loans at any time in whole or in part.
After payment in full of all Postpetition Obligations in respect of Revolving
Loans and Letter of Credit Obligations and termination of the Revolving
Commitments pursuant to the terms and provisions hereof, the Borrowers may
prepay the Term Loans at any time in whole or in part; PROVIDED, that any
such prepayment shall be applied on a pro rata basis against the then
outstanding balances of both the Original Term Loan and the Second Term Loan
and must include all of the interest (including default rate interest, to the
extent applicable) accrued on the principal amount of the Term Loans so
repaid through and including the relevant date of repayment.
1.17 The following Section 4.7B is hereby added to the Credit Agreement
as follows:
4.7B NO PERMITTED PREPAYMENT OF OVERADVANCE TERM LOAN.
Until payment in full of all Postpetition Obligations in respect of
Revolving Loans, Term Loans and Letter of Credit Obligations and termination
of the Revolving Commitments pursuant to the provisions hereof, the Borrowers
may not prepay or make any other payment or distribution of any kind (in
cash, securities or otherwise but excluding payments of accrued and unpaid
interest, fees and expenses) in respect of or in connection with the
Overadvance Term Loan at any time in whole or in part and all such principal
amounts otherwise distributable in respect of or in connection with the
Overadvance Term Loan shall be paid to the Agent for allocation to the
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Postpetition Obligations in respect of Revolving Loans, Letters of Credit
Obligations and Term Loans as provided herein until all such obligations are
indefeasibly paid in full in cash and the Revolving Commitments are fully
terminated.
1.18 SECTION 4.11 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
4.11 DISTRIBUTION AND APPLICATION OF COLLECTIONS AND OTHER AMOUNTS.
(a) So long as no Actionable Default has occurred and is continuing,
all amounts distributed to the Agent pursuant to SECTION 4 of the
Postpetition Collateral Agency Agreement for application to the
Postpetition Obligations shall be applied by the Agent in the
following order: FIRST, to the payment of any Fees, Expenses or
other Postpetition Obligations due and payable to the Agent under
any of the Credit Documents, including Agent Revolving Advances
and any other amounts advanced by the Agent on behalf of the
Revolving Lenders; SECOND, to the payment of any Fees, Expenses or
other Postpetition Obligations due and payable to the Issuing Bank
under any of the Credit Documents; THIRD, to the ratable payment
of any Fees, Expenses or other Postpetition Obligations due and
payable to the Revolving Lenders under any of the Credit Documents
other than those Postpetition Obligations specifically referred to
in this Section 4.11(A); FOURTH, to the ratable payment of any
Fees, Expenses or other Postpetition Obligations due and payable
to the Original Term Lenders and the Second Term Lenders under any
of the Credit Documents other than those Postpetition Obligations
specifically referred to in this Section 4.11(A); FIFTH, to the
ratable payment of interest due and payable on the Revolving Loans
to the Revolving Lenders; SIXTH, to the ratable payment of
principal due on the Revolving Loans to the Revolving Lenders;
SEVENTH, to the payment of interest due and payable on the
Original Term Loan and the Second Term Loan to the Original Term
Lenders and the Second Term Lenders; EIGHTH, to the payment of
principal due on the Original Term Loan and the Second Term Loan
to the Original Term Lenders and the Second Term Lenders; NINTH,
to the payment of any Fees, Expense or other Postpetition
Obligations due and payable to the Overadvance Term Lender under
any of the Credit Documents other than those Postpetition
Obligations specifically referred to in this SECTION 4.11(A);
TENTH, to the payment of interest due and payable on the
Overadvance Term Loan to the Overadvance Term Lender; and
ELEVENTH, to the payment of principal due on the Overadvance Term
Loan to the Overadvance Term Lender, it being understood and
agreed that, notwithstanding any acceleration of the maturity of
the Postpetition Obligations in respect of (i) the Original Term
Loan and the Second Term Loan pursuant to SECTION 9.2A or any
other provision of this Credit Agreement or any
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other Credit Document, no amounts shall be distributed to the Term
Lenders pursuant to the foregoing clause eighth if no Actionable
Default has occurred and is continuing until all Postpetition
Obligations owing to the Revolving Lenders have been indefeasibly
paid in full and the Revolving Commitments have been terminated
and (ii) the Overadvance Term Loan pursuant to SECTION 9.213 or
any other provision of this Credit Agreement or any other Credit
Document, no amounts shall be distributed to the Overadvance Term
Lender pursuant to the foregoing clause eleventh until all
Postpetition Obligations owing to the Revolving Lenders and the
Term Lenders have been indefeasibly paid in full and the Revolving
Commitments have been terminated.
(b) After an Actionable Default has occurred and is continuing, all
amounts distributed to the Agent pursuant to SECTION 4 of the
Postpetition Collateral Agency Agreement for application to the
Postpetition Obligations and the Prepetition Obligations shall be
applied by the Agent to the payment of the Postpetition
Obligations in the order prescribed in SECTION 4.11(A), except
that in such circumstance no payments shall be made pursuant to
(i) clauses fourth, seventh or eighth of SECTION 4.11(A) until all
Postpetition Obligations owing to the Revolving Lenders have been
indefeasibly paid in full and the Revolving Commitments have been
terminated and (ii) clauses ninth, tenth or eleventh of SECTION
4.11(A) until all Postpetition Obligations owing to the Revolving
Lenders and the Term Lenders have been indefeasibly paid in full
and the Revolving Commitments have been terminated.
1.19 SECTION 5.2 of the Credit Agreement is amended by adding a new
subsection (d) as follows:
(d) The Borrowers will have Excess Availability of at least
$10,000,000 after giving effect to such Revolving Loan or Letter
of Credit; provided, that if the Overadvance Term Loan is funded
on such date by the Overadvance Term Lender as set forth in
ARTICLE 2C, then the representation and warranty set forth in this
subsection (d) will not be applicable.
1.20 SECTION 8.1 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
8.1 MINIMUM EBITDA
At the end of the period beginning on April 1, 1999 and ending on
the last day of April 1999, MINIMUM for such period shall be an amount
not less than negative (-)$500,000. For purposes herein, such MINIMUM
covenant shall be tested on May 18, 1999.
1.21 SECTION 8.2 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
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8.2 CAPITAL EXPENDITURES.
The Borrowers shall not make payments for Capital Expenditures in
the aggregate for all Borrowers in excess of $2,500,000 during the period
from March 5, 1999 to and including May 31, 1999.
1.22 SECTION 8.2A of the Credit Agreement is amended by deleting such
section in its entirety.
1.23 SECTION 8.18(a) of the Credit Agreement is amended by deleting the
terms "or the Bankruptcy Court order approving the amendment to this Credit
Agreement incorporating the Second Term Loan" after the terms "Permanent
Financing Order" and replacing such terms with the following: "or the Bankruptcy
Court orders approving any amendments to this Credit Agreement."
1.24 SECTION 9.1(1) of the Credit Agreement is amended by adding the
following terms "or the Bankruptcy Court orders approving any amendments to this
Credit Agreement" after the terms "Permanent Financing Order" wherever appearing
in such section.
1.25 SECTION 9.2A is hereby amended by deleting the terms "and by
delivery of written notice" appearing on the seventh and eighth lines thereof
and by deleting the term "from" and replacing such term with the term "and"
appearing on the eighth line thereof.
1.26 The following SECTION 9.2B is hereby added to the Credit Agreement
as follows:
9.2B ACCELERATION OF POSTPETITION OBLIGATIONS IN RESPECT OF OVERADVANCE
TERM LOAN
Upon the earlier of (i) the Overadvance Maturity Date or (ii) the
occurrence and during the continuance of any Event of Default under
SECTION 9.1(a), by reason of the Borrowers' failure to make any payment
of interest on the Overadvance Term Loan when the same shall become
payable, then, without prejudice to the rights of the Agent or
Overadvance Term Lender to enforce its claims against the Borrowers, upon
notice from the Overadvance Term Lender to the LFC Funds Administrator
and the Agent, all Postpetition Obligations in respect of the Overadvance
Term Loan shall be immediately due and payable without presentment,
demand, protest or any other action or obligation of the Agent or
Overadvance Term Lender; PROVIDED, THAT, notwithstanding the foregoing,
the Overadvance Term Lender may not accelerate the maturity of the
Overadvance Term Loan pursuant to this SECTION 9.2B nor exercise any
rights or remedies with respect hereto nor cause the Agent to exercise
any rights or remedies on behalf of the Overadvance Term Lender with
respect hereto (other than to enforce its rights under Section 4.11(a) in
accordance with the terms thereof) until all Postpetition Obligations
owing to the Revolving Lenders and the Term Lenders have been
indefeasibly paid in full and the Revolving Commitments and Term
Commitments have been terminated. In addition, the Overadvance Term
Lender, acting in its capacity as Overadvance Term Lender agrees that it
shall be bound by all, and shall not object to any, modifications,
extensions of maturity and
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amendments to the Credit Agreement executed by the Agent, Lenders,
Majority Lenders and/or Majority Term Lenders (as applicable) and that
none of the same shall require advance notice to, or the consent of, any
Overadvance Term Lender; provided, however, that no such modification,
extension, waiver or amendment shall (a) extend the maturity date of any
portion of the principal amount of or interest or fees payable to the
Overadvance Term Lender, provided that the principal maturity date may
be so extended to the earlier of (i) September 30, 1999 and (ii) the
date on which the Revolving Loans and the Terms Loans become due in
full, (b) reduce the principal amount of or the rate of interest or fees
payable on the Overadvance Term Loan, (c) release all or substantially
all of the Collateral, (d) alter, amend or otherwise impair the lien
granted hereunder to the Overadvance Term Lender or the priority thereof
or any priority granted to the Overadvance Term Lender under section 364
of the Bankruptcy Code or the Amendment Approval Order, (e) alter, amend
or otherwise impair the Overadvance Term Lender's rights under the
Amendment Approval Order, (f) increase the principal amount of the Term
Loans to an amount greater than $58,356,250 or (g) amend Article 2C or
this Section 9.2(B).
1.27 SECTION 10.6 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
10.6 INDEMNIFICATION OF AGENT.
To the extent the Agent is not reimbursed and indemnified by
the Borrowers, each Revolving Lender and Term Lender will reimburse and
indemnify the Agent, in proportion to its voting percentage from time to
time as a Revolving Lender and Term Lender hereunder, for and against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties
hereunder, in any way relating to or arising out of this Credit
Agreement. In addition, to the extent the Agent is not reimbursed and
indemnified by the Borrowers, the Overadvance Term Lender will reimburse
and indemnify the Agent, in an amount equal to a percentage of the total
amount sought by the Agent, the numerator of which, is the amount of the
Overadvance Term Loan at such time and the denominator of which, is the
amount of the Overadvance Term Loan at such time plus the amount of the
Revolving Commitments and the Term Loans at such time, for and against
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder, in any way relating to or arising out of
this Credit Agreement; PROVIDED, THAT no Revolving Lender, Term Lender
shall be liable for any portion of such liabilities' obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or willful
misconduct.
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1.28 SECTION 11.11(B) of the Credit Agreement is amended by adding the
following term to clause (iii) "8.2" immediately after "7.14".
1.29 ANNEX I of the Credit Agreement is amended by replacing such annex
with the ANNEX I attached to this Amendment as EXHIBIT A.
1.30 ANNEX II of the Credit Agreement is amended by replacing such annex
with the ANNEX II attached to this Amendment as EXHIBIT B.
1A. AMENDMENT TO SECOND TERM NOTE.
The Second Term Note is hereby amended by deleting the terms
"and all Make-Whole Premiums payable to the Second Term Lenders,"
appearing in the second paragraph thereof.
2. CONSENT.
2.1 OVERADVANCE TERM LOAN. On the Closing Date, the Agent and each Lender
consents to the extension of the Overadvance Term Loan by the Overadvance Term
Lender in accordance with the terms of the Credit Agreement, as amended by this
Amendment. The Agent and each Lender acknowledge that the Overadvance Term Loan
and all interest, fees, costs and expenses in respect thereof shall be secured
by an interest in the Collateral PARI passu and pro rata with the Term Loans and
the term "Secured Obligations" as used in the Postpetition Collateral Agency
Agreement and the Postpetition Security Agreement shall include the obligations
of the Borrowers under the Credit Agreement with respect to the Overadvance Term
Loan and all interest, fees, costs and expenses in respect thereof PROVIDED,
however, that, notwithstanding anything to the contrary contained herein or in
the Credit Agreement, no principal payment or other distribution of any kind (in
cash, securities or otherwise but excluding payments of accrued and unpaid
interest, fees and expenses) shall be made in respect of or in connection with
the Overadvance Term Loan at any time in whole or in part, and all such
principal amounts otherwise distributable in respect of or in connection with
the Overadvance Term Loan shall be paid to the Agent for allocation to the
Postpetition Obligations in respect of Revolving Loans, Letters of Credit
Obligations and Term Loans as provided herein, until all such Postpetition
Obligations owing are indefeasibly paid in full in cash and the Revolving
Commitments are fully terminated. The obligations of the Borrowers under the
Credit Agreement with respect to the Overadvance Term Loan and all interest,
fees, costs and expenses in respect thereof will be secured by the Collateral
without having to amend the Collateral Documents. The Agent and each Lender
agree that at any time and from time to time, at the cost and expense of the
Borrowers, they will execute and deliver all further instruments and documents,
and take such further actions, that may be reasonably necessary in the opinion
of the Overadvance Term Lender to so secure the Overadvance Term Loan and all
interest, fees, costs and expenses in respect thereof.
0 2.2 UNEXPIRED LEASES. On the Closing Date, the Agent and each Lender
consents to extending the Borrowers' time to assume or reject unexpired leases,
pursuant to section 365(d)(4) of the Bankruptcy Code, through July 7, 1999.
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2.3 SALE/LEASEBACK TRANSACTION. On or prior to the date of the hearing at
which the Borrowers will seek approval of the Bankruptcy Court to enter into the
Sale/Leaseback Transaction the Borrowers shall request the Agent and the
Majority Term Lenders to consent to the Borrowers entering into such
transaction, such consent shall not be unreasonably withheld. At such time that
the Agent and the Majority Term Lenders provide the Borrowers with consent to
enter into the Sale/Leaseback Transaction, no further action will be required
under the Credit Agreement.
2.4 OTHER. Nothing in this Amendment should in any way be deemed (i) a
waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any
such Event of Default.
3. CONDITIONS PRECEDENT.
This Amendment becomes effective upon satisfaction of the
following conditions:
3.1 AMENDMENT APPROVAL ORDER. This Amendment has been approved by the
Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER"), which
order is in full force and effect and has not been reversed, modified, amended,
appealed or stayed. The Agent, the Majority Term Lenders and the Overadvance
Term Lender shall have been satisfied with the form and substance (and the
timing of the notice) of the motion for the entry of the Amendment Approval
Order. In addition, the Agent, the Majority Term Lenders and the Overadvance
Term Lender shall have been satisfied with the form and substance of the
Amendment Approval Order.
3.2 365(d)(4) APPROVAL ORDER. The Borrowers have obtained an order of the
Bankruptcy Court (the "365(d)(4) APPROVAL ORDER") extending the Borrowers' time
to assume or reject unexpired leases, pursuant to section 365(d)(4) of the
Bankruptcy Code, through July 7, 1999, which order is in full force and effect
and has not been reversed, modified, amended, appealed or stayed provided,
however that such order need to apply to (I) any unexpired lease that has an
Appraised Value equal to or less than zero; (II) any unexpired lease that has
been assumed pursuant to an order of the Bankruptcy Court, acceptable to the
Agent and the Majority Term Lenders in their reasonable discretion, that
specifically reserves for a Debtor the right to subsequently assign such
unexpired lease under section 365(f) of the Bankruptcy Code without, among other
things, the consent of the relevant counterparties to such unexpired lease; or
(III) leases with respect to the following locations of the respective Debtors:
South San Francisco, California, San Leandro, California, Garden City (Roosevelt
Field), New York (Ground Lease), Springdale, Ohio, Langhorne, Pennsylvania,
Falls Church (Fairfax), Virginia and Manchester (South St. Louis), Missouri,
provided, that the Debtors shall have moved to assume such leases no later than
March 2, 1999, the motion seeks an order of the Bankruptcy Court (in a form
similar to comparable orders previously entered) which specifically reserves for
the Debtors the right to subsequently assign such unexpired leases under SECTION
365(F) of the Bankruptcy Code, without, among other things, the consent of the
relevant counterparties to such unexpired leases. The Agent and the Majority
Term Lenders shall have been satisfied with the form and substance (and the
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timing of the notice) of the motion for the entry of the 365(d)(4) Approval
Order. Furthermore, the Agent and the Majority Term Lenders shall have been
satisfied with the form and substance of the 365(d)(4) Order. Unless the Agent
and the Majority Term Lenders agree otherwise, the 365(d)(4) Approval Order
shall have become final and non-appealable.
3.3 FEES AND EXPENSES. The Agent and the Lenders shall have been paid a
closing fee in the amount of $150,000. The Majority Term Lenders shall have been
paid such fees in such amounts and on such terms as provided for in a side
letter from the Borrowers to the Majority Term Lenders. For all purposes under
the Credit Agreement, as amended by this Amendment, any deferred portion of such
fees shall constitute Postpetition Obligations owed to the Term Lenders pursuant
to the Credit Agreement, as amended by this Amendment. Furthermore, the Agent,
the Revolving Lenders, the Term Lenders and the Overadvance Term Lender shall
have been reimbursed for all fees and expenses (including reasonable attorneys'
fees and expenses) incurred in connection with the preparation of this
Amendment. On and after the Closing Date of this Amendment, the Borrowers will
reimburse only the expenses of the Overadvance Term Lender that relate to the
negotiation, documentation, administration and enforcement of this Amendment.
3.4 DOCUMENTS. The Agent has received all of the following, each duly
executed and dated as of the Closing Date (or such other date as is satisfactory
to the Agent) in form and substance satisfactory to the Agent:
(a) NINTH AMENDMENT. Ten copies of this Amendment executed by
the LFC Funds Administrator, the Borrowers, the Agent and
all Lenders;
(b) OVERADVANCE TERM NOTE. The Overadvance Term Note,
substantially in the form of Exhibit C-2 to the Credit
Agreement (to be dated the date of funding of the
Overadvance Term Loan), made by the Borrowers in favor of
the Overadvance Term Lender;
(c) AMENDMENT APPROVAL ORDER AND 365(D)(4) APPROVAL ORDER. A
copy of the Amendment Approval Order and the 365(d)(4)
Approval Order;
(d) REVOLVING ASSIGNMENT AND ASSUMPTION AGREEMENTS. The
Revolving Assignments and Assumption Agreements,
substantially in the form of Exhibit G-I to the Credit
Agreement (dated as of the Closing Date), made by such
applicable Revolving Lenders; and
(e) OTHER. Such other documents as the Agent may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Agent and each
Lender that, after giving effect to this Amendment or any part of this
Amendment:
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4.1 REPRESENTATIONS AND WARRANTIES. 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).
4.2 EVENTS OF DEFAULT. No Default or Event of Default has occurred which
has not been waived (or, in the case of an Event of Default, cured) under the
terms of the Credit Agreement.
4.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by SECTIONS 3.1 AND 3.2), this Amendment and the Credit Agreement,
as amended by this Amendment, will constitute legal, valid and binding
obligations of the LFC Funds Administrator and each of the Borrowers and will be
enforceable against such Persons in accordance with their respective terms.
4.4 CONSENTS. 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 (as contemplated by
SECTIONS 3.1 AND 3.2), except such consents and approvals as have been obtained.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
5.1 REFERENCES. Upon the effectiveness of this Amendment, or any part 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 by this Amendment or any part of
this Amendment.
5.2 RATIFICATION. Except as expressly set forth in this Amendment, all of
the terms and conditions of the Credit Agreement and the other Credit Documents
remain in full force and effect and are ratified and confirmed in all respects.
The execution and delivery of this Amendment by the Agent and each of the
Lenders in no way obligates 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.
6. GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK.
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7. HEADINGS; COUNTERPARTS.
Section headings in this Amendment are included for convenience of
reference only and do not constitute a part of this Amendment for any other
purpose. 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]
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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
-----------------------------------
16
<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 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
-----------------------------------
17
<PAGE>
LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------
Name: Sheila C. Reinken
------------------------------------
Title: Vice President
-----------------------------------
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: Principal
-----------------------------------
18
<PAGE>
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: Principal
-----------------------------------
FINOVA CAPITAL CORPORATION, in its
capacity as Revolving Lender
By: /s/ BRIAN RUJAWITZ
--------------------------------------
Name: Brian Rujawitz
------------------------------------
Title: AVP
-----------------------------------
HELLER FINANCIAL, INC., in its capacity
as Revolving Lender
By: /s/ JOHN BUFF
--------------------------------------
Name: John Buff
------------------------------------
Title: SVP
-----------------------------------
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
-----------------------------------
19
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION,
in its capacity as Revolving Lender
By: /s/ R. L. HEINZ
--------------------------------------
Name: R. L. Heinz
------------------------------------
Title: SVP
-----------------------------------
TERM LENDERS:
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
------------------------------------
M.D. SASS CORPORATE RESURGENCE PARTNERS,
L.P., as Overadvance Term Lender
By: /s/ ROBERT T. SIMINGTON
--------------------------------------
Name: Robert T. Simington
------------------------------------
Title: Senior Vice President
-----------------------------------
20
<PAGE>
EXHIBIT A
ANNEX I
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF REVOLVING LENDERS/REVOLVING COMMITMENT
AMOUNTS; AND APPLICABLE LENDING OFFICES
1. BT COMMERCIAL CORPORATION
233 South Wacker Drive
Chicago, Illinois 60606
REVOLVING COMMITMENT AMOUNT: $23,517,311
DOMESTIC LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
2. LA SALLE NATIONAL BANK
135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
REVOLVING COMMITMENT AMOUNT: $23,489,818
DOMESTIC LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
LIBOR LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
3. CONGRESS FINANCIAL CORPORATION
150 South Wacker Drive
Suite 2200
Chicago, Illinois 60606
REVOLVING COMMITMENT AMOUNT: $20,318,469
DOMESTIC LENDING OFFICE: 150 South Wacker Drive
Suite 2200
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 150 South Wacker Drive
Suite 2200
Chicago, Illinois 60606
21
<PAGE>
4. HELLER FINANCIAL, INC.
500 West Monroe Street
18th Floor
Chicago, Illinois 60661
REVOLVING COMMITMENT AMOUNT: $22,300,000
DOMESTIC LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
LIBOR LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
5. TRANSAMERICA BUSINESS CREDIT CORPORATION
8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
REVOLVING COMMITMENT AMOUNT: $16,374,402
DOMESTIC LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
LIBOR LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
6. FINOVA CAPITAL CORPORATION
355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
REVOLVING COMMITMENT AMOUNT: $23,000,000
DOMESTIC LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
LIBOR LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
22
<PAGE>
7. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, NY 10167
REVOLVING COMMITMENT AMOUNT: $5,000,000
DOMESTIC LENDING OFFICE: c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
LIBOR LENDING OFFICE: c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
23
<PAGE>
ANNEX II
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF TERM LENDERS AND TERM COMMITMENTS COMMITMENT
AMOUNTS
ORIGINAL TERM LENDERS:
1. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $36,356,250
SECOND TERM LENDERS:
1. AG CAPITAL FUNDING PARTNERS, L.P.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $22,000,000
OVERADVANCE TERM LENDER:
1. M.D. SASS CORPORATE RESURGENCE
PARTNERS, L.P.
10 New King Street
First Floor
White Plains, New York 10604
Term Commitment Amount: $10,000,000
24
EXHIBIT NO. 10.61
TENTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS TENTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT, dated
as of May 14, 1999 (this "AMENDMENT"), is among LEVITZ FURNITURE INCORPORATED, a
Delaware corporation and a debtor and debtor in possession, LEVITZ FURNITURE
CORPORATION, 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, LEVITZ SHOPPING SERVICE, INC., a Florida corporation
and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE
COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and
debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE
COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a
debtor in possession, LEVITZ REINSURANCE CORPORATION, JOHN M. SMYTH COMPANY, an
Illinois corporation and a debtor and debtor in possession, and JOHN M. SMYTH
REALTY COMPANY, an Illinois corporation and a debtor and debtor in possession
(collectively, the "BORROWERS"), each Revolving Lender and Overadvance Term
Lender signatories hereto (collectively, the "LENDERS"), and BT COMMERCIAL
CORPORATION, a Delaware corporation, acting in its capacity as collateral agent
and agent for the Lenders (in such capacity, together with its successors in
such capacity, the "AGENT"). Capitalized terms used in this Amendment and not
otherwise defined have the meanings assigned to such terms in the Postpetition
Credit Agreement dated as of September 5, 1997 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the Borrowers, the Lenders and the Agent.
PRELIMINARY STATEMENTS:
A. The Borrowers, the Lenders and the Agent are parties to the
Credit Agreement.
B. The Borrowers have requested that the Lenders and the Agent amend
the Credit Agreement in certain respects.
C. The Borrowers, the Lenders and the Agent have agreed to amend the
Credit Agreement on the terms and subject to the conditions of this Amendment.
1
<PAGE>
AGREEMENT:
In consideration of the premises and the mutual agreements contained in
this Amendment, the Borrowers, the Lenders and the Agent agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
On the date each of the conditions set forth in SECTION 3 is satisfied by
the Borrowers (the "CLOSING Date"), the Credit Agreement is amended as follows:
1.1 Section 1.1 of the Credit Agreement is amended by adding the
following definition to such Section in proper alphabetical order:
BULK SALE TRANSACTION means the transactions contemplated in that
certain Agreement of Sale dated as of _________, 1999 among certain of
the Borrowers, Klaff Realty, LP, Lubert-Adler Capital Real Estate Fund
II, L.P., Lubert-Adler Real Estate Fund II, L.P. and Lubert-Adler
Parallel Fund II, L.P.
1.2 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "EXPIRATION DATE" in its entirety and replacing it as follows:
EXPIRATION DATE means the earlier of (i) December 31, 1999 and
(ii) the date on which this Credit Agreement is terminated pursuant to
SECTION 9.2(B).
1.3 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as
follows:
FIXED ASSET SUBLIMIT means an amount equal to $36,000,000.00;
PROVIDED, that such amount shall be automatically and permanently reduced
on each date on which an Asset Disposition occurs with respect to any
real property, other fixed assets or any leasehold interest in real
property of any Borrower, in an amount equal to (i) in the case of Asset
Dispositions occurring in connection with the Bulk Sale Transaction, in
an amount equal to one hundred percent (100%) of the Net Cash Disposition
Proceeds thereof, (ii) in the case of any Asset Disposition of any real
property identified on SCHEDULE 1.1 hereof, the amount set forth opposite
such property on such Schedule, (iii) in the case of any Asset
Disposition of a fee interest in real property other than as provided in
clauses (i) and (ii), above, one hundred percent (100%) of the Net Cash
Disposition Proceeds thereof, and (iv) in the case of any Asset
Disposition of any other fixed assets (including without limitation
fixtures, furniture and equipment), twenty-five percent (25%) of the
Appraised Value thereof, provided that, no reduction of the Fixed Asset
Sublimit pursuant to this clause (iv) shall occur as a result of the
Borrowers' selling, transferring or otherwise disposing of obsolete or
worn out fixed assets with an aggregate Appraised Value of up to
$1,800,000; PROVIDED, FURTHER, that on and after September 1, 1999, the
Fixed Asset Sublimit shall be zero ($0). Additionally, the Fixed
2
<PAGE>
Asset Sublimit shall automatically become zero ($0) if at any time the
Borrowers' cease to be entitled to assume or reject executory contracts
and unexpired leases pursuant to section 365(d)(4) of the Bankruptcy
Code.
1.4 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "OVERADVANCE MATURITY DATE" in its entirety and replacing it
as follows:
OVERADVANCE MATURITY DATE means the earlier of (i) December 31,
1999 or (ii) the Expiration Date.
1.5 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "REVOLVING LINE OF CREDIT" in its entirety and replacing it as
follows:
REVOLVING LINE OF CREDIT means the aggregate revolving line of
credit extended pursuant to this Credit Agreement by the Revolving
Lenders to the Borrowers for Revolving Loans and Letters of Credit, in an
aggregate principal amount at any time of up to $125,000,000 less, on and
after the Bulk Sale Transaction closing date, the Net Cash Disposition
Proceeds received from the Bulk Sale Transaction, as such amount may be
reduced from time to time pursuant to the terms and provisions hereof.
1.6 Section 8.1 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
8.1 MINIMUM EBITDA
At the end of the period beginning on April 1, 1999 and
ending on each of the days set forth below, EBITDA for such period shall
not be an amount not less than the following:
PERIOD END AMOUNT
---------- ------
June 30, 1999 $2,500,000
September 30, 1999 $7,000,000
1.7 The Credit Agreement is further amended by adding a new Schedule 1.1
thereto in the form set forth as EXHIBIT A hereto.
1.8 Annex I of the Credit Agreement is amended by replacing such annex
with the Annex I attached to this Amendment as EXHIBIT B.
1.9 Annex II of the Credit Agreement is amended by replacing such annex
with the Annex II attached to this Amendment as EXHIBIT C.
2. CONSENT.
2.1 REPAYMENT OF ORIGINAL TERM LOAN AND SECOND TERM LOAN; PURCHASE OF A
PORTION OF THE REVOLVING LOANS.
3
<PAGE>
(a) Upon the effectiveness of this Amendment and subject to the
terms and conditions hereof, the Agent and each Lender consents to the
payment by the Borrowers to Agent for distribution to the Original Term
Lenders and the Second Term Lenders on the Sale/Leaseback Transaction
closing date of the entire outstanding principal amount of the Original
Term Loan and the Second Term Loan, respectively, and all interest
accrued thereon through such date with the Net Cash Disposition Proceeds
received by the Borrowers from the Sale/Leaseback Transaction.
(b) On the Sale/Leaseback Transaction closing date, each Revolving
Lender also agrees that it will purchase by way of assignment from Silver
Oak Capital, L.L.C., in its capacity as a Revolving Lender ("Silver
Oak"), its Proportionate Share (calculated after giving effect to the
transactions described in this Section 2.1) of the aggregate unpaid
Revolving Lender Advances made by Silver Oak outstanding on the
Sale/Leaseback Transaction closing date, and all unpaid interest accrued
thereon, after giving effect to any payments made to Silver Oak with
respect to the Revolving Loans made from any Net Cash Disposition
Proceeds from the Sale/Leaseback Transaction remaining after the payments
referred to in subsection (a) above. Any such assignment shall be
consummated on the terms set forth in the form of Revolving Assignment
and Assumption Agreement attached as Exhibit G-1 of the Credit Agreement,
without the necessity of the execution of separate Revolving Assignment
and Assumption Agreements.
2.2 BULK SALE TRANSACTION. On or prior to the date of the hearing at
which the Borrowers will seek approval of the Bankruptcy Court to enter into the
Bulk Sale Transaction the Borrowers shall request the Agent to consent to the
Borrowers entering into such transaction, such consent shall not be unreasonably
withheld. At such time that the Agent provides the Borrowers with consent to
enter into the Bulk Sale Transaction, no further action will be required under
the Credit Agreement.
2.3 HOUSEHOLD AMENDMENT. The Agent and the Lenders hereby consent to the
amendment to the Household Merchant Agreement attached as EXHIBIT D hereto.
2.4 OTHER. Nothing in this Amendment should in any way be deemed (i) a
waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any
such Event of Default.
3. CONDITIONS PRECEDENT.
This Amendment becomes effective upon satisfaction of the following
conditions:
3.1 AMENDMENT APPROVAL ORDER. This Amendment has been approved by the
Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER"), which
order is in full force and effect and has not been reversed, modified, amended,
appealed or stayed. The Agent shall have been satisfied with the form and
substance (and the timing of the notice)
4
<PAGE>
of the motion for the entry of the Amendment Approval Order. In addition, the
Agent shall have been satisfied with the form and substance of the Amendment
Approval Order.
3.2 FEES AND EXPENSES. The Agent and the Lenders shall have been paid a
closing fee in the amount of $200,000.
3.3 DOCUMENTS. The Agent has received all of the following, each duly
executed and dated as of the Closing Date (or such other date as is satisfactory
to the Agent) in form and substance satisfactory to the Agent:
(a) TENTH AMENDMENT. Ten copies of this Amendment executed by the LFC
Funds Administrator, the Borrowers, the Agent and all Lenders; and
(b) OTHER. Such other documents as the Agent may reasonably request.
3.4 SALE/LEASEBACK TRANSACTION. The Agent shall have received evidence
satisfactory to it that (i) the Sale/Leaseback Transaction shall have closed on
the terms approved by the Agent and the Lenders, (ii) the Borrowers shall have
received Net Cash Disposition Proceeds of at least $59,000,000 from the
Sale/Leaseback Transaction and (iii) the Net Cash Disposition Proceeds from the
Sale/Leaseback Transaction shall have been paid to the Agent for distribution to
the Persons contemplated in SECTION 2.1 of this Amendment.
3.3 PAYMENT AND RELEASE LETTER. The Agent shall have received a payment
and release letter in form and substance satisfactory to the Agent and its
counsel executed by each Term Lender and by Silver Oak relating to the repayment
of the Loans contemplated under SECTION 2.1 of this Amendment.
4. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Agent and each
Lender that, after giving effect to this Amendment or any part of this
Amendment:
4.1 REPRESENTATIONS AND WARRANTIES. 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).
4.2 EVENTS OF DEFAULT. No Default or Event of Default has occurred which
has not been waived (or, in the case of an Event of Default, cured) under the
terms of the Credit Agreement.
4.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by SECTIONS 3.1 AND 3.2), this Amendment and the Credit Agreement,
as amended by this Amendment, will constitute legal, valid and
5
<PAGE>
binding obligations of the LFC Funds Administrator and each of the Borrowers and
will be enforceable against such Persons in accordance with their respective
terms.
4.4 CONSENTS. 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 (as contemplated by
SECTIONS 3.1 AND 3.2), except such consents and approvals as have been obtained.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
5.1 REFERENCES. Upon the effectiveness of this Amendment, or any part 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 by this Amendment or any part of
this Amendment.
5.2 RATIFICATION. Except as expressly set forth in this Amendment, all of
the terms and conditions of the Credit Agreement and the other Credit Documents
remain in full force and effect and are ratified and confirmed in all respects.
The execution and delivery of this Amendment by the Agent and each of the
Lenders in no way obligates 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.
6. GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
6
<PAGE>
7. HEADINGS; COUNTERPARTS.
Section headings in this Amendment are included for convenience of
reference only and do not constitute a part of this Amendment for any other
purpose. 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.
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
------------------------------------
7
<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 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
------------------------------------
8
<PAGE>
LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------
Name: Sheila C. Reinken
------------------------------------
Title: Vice President
------------------------------------
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
------------------------------------
9
<PAGE>
AGENT:
BT COMMERCIAL CORPORATION, in its
capacity as Agent
By: /s/ WAYNE D. HILLOCK
--------------------------------------
Name: Wayne D. Hillock
-------------------------------------
Title: Principal
------------------------------------
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: Principal
-----------------------------------
FINOVA CAPITAL CORPORATION, in its
capacity as Revolving Lender
By: /s/ BRIAN RUJAWITZ
--------------------------------------
Name: Brian Rujawitz
------------------------------------
Title: AVP
------------------------------------
HELLER FINANCIAL, INC., in its capacity
as Revolving Lender
By: /s/ JOHN BUFF
---------------------------------------
Name: John Buff
------------------------------------
Title: SVP
-----------------------------------
LASALLE NATIONAL BANK, in its capacity as
Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
--------------------------------------
Name: Christopher G. Clifford
------------------------------------
Title: Sr. VP
-----------------------------------
10
<PAGE>
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/ R. L. HEINZ
--------------------------------------
Name: R. L. Heinz
------------------------------------
Title: SVP
-----------------------------------
M.D. SASS CORPORATE RESURGENCE PARTNERS,
L.P., as Overadvance Term Lender
By: /s/ Robert T. Simington
--------------------------------------
Name: Robert T. Simington
------------------------------------
Title: Senior Vice President
-----------------------------------
11
<PAGE>
EXHIBIT A TO TENTH AMENDMENT
SCHEDULE I
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
FIXED ASSET SUBLIMIT REDUCTIONS FOR SELECTED PROPERTIES
12
<PAGE>
EXHIBIT B TO TENTH AMENDMENT
ANNEX I
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF REVOLVING LENDERS/REVOLVING COMMITMENT
AMOUNTS; AND APPLICABLE LENDING OFFICES
1. BT COMMERCIAL CORPORATION
233 South Wacker Drive
Chicago, Illinois 60606
REVOLVING COMMITMENT AMOUNT: $41,000,000
DOMESTIC LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
2. LA SALLE NATIONAL BANK
135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
REVOLVING COMMITMENT AMOUNT: $23,000,000
DOMESTIC LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
LIBOR LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
3. HELLER FINANCIAL, INC.
500 West Monroe Street
18th Floor
Chicago, Illinois 60661
REVOLVING COMMITMENT AMOUNT: $22,000,000
DOMESTIC LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
LIBOR LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
13
<PAGE>
4. TRANSAMERICA BUSINESS CREDIT CORPORATION
8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
REVOLVING COMMITMENT AMOUNT: $16,000,000
DOMESTIC LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
LIBOR LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
5. FINOVA CAPITAL CORPORATION
355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
REVOLVING COMMITMENT AMOUNT: $23,000,000
DOMESTIC LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
LIBOR LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
14
<PAGE>
EXHIBIT C TO TENTH AMENDMENT
ANNEX II
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF TERM LENDERS AND TERM COMMITMENTS COMMITMENT
AMOUNTS
ORIGINAL TERM LENDERS:
1. NONE (PAID IN FULL)
SECOND TERM LENDERS:
1. NONE (PAID IN FULL)
OVERADVANCE TERM LENDER:
1. M.D. SASS CORPORATE RESURGENCE
PARTNERS, L.P.
10 New King Street
First Floor
White Plains, New York 10604
Term Commitment Amount: $10,000,000
15
EXHIBIT 21.01
Subsidiaries of Levitz Furniture Corporation:
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
Levitz Furniture Company
of the Midwest, Inc. Colorado
Levitz Furniture Company
of the Pacific, Inc. California
Levitz Furniture Company
of Washington, Inc. Washington
John M. Smyth Company Illinois
Levitz Furniture Realty Corporation Florida
Levitz Furniture Reinsurance Ltd. Turks and Caicos Islands
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,046
<SECURITIES> 0
<RECEIVABLES> 21,861
<ALLOWANCES> 0
<INVENTORY> 84,232
<CURRENT-ASSETS> 209,142
<PP&E> 84,609
<DEPRECIATION> 45,742
<TOTAL-ASSETS> 334,567
<CURRENT-LIABILITIES> 292,619
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> (284,320)
<TOTAL-LIABILITY-AND-EQUITY> 334,567
<SALES> 653,100
<TOTAL-REVENUES> 653,100
<CGS> 376,327
<TOTAL-COSTS> 376,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,477
<INCOME-PRETAX> (94,912)
<INCOME-TAX> 0
<INCOME-CONTINUING> (94,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,412)
<EPS-BASIC> (94,412)
<EPS-DILUTED> 0
</TABLE>
