<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 1, 1996
------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19269
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SUN TELEVISION AND APPLIANCES, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
OHIO 31-1178151
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6600 PORT ROAD, GROVEPORT, OH 43125
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 492-5600
-----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 1, 1996
--------- ---------------------------
Common shares, $.01 par value 17,419,408 shares
This document contains 11 pages of which this is page 1. The exhibit index is
on page 10.
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SUN TELEVISION AND APPLIANCES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Operations
for the Quarters Ended
June 1, 1996 and May 27, 1995 3
Balance Sheet
June 1, 1996 and March 2, 1996 4
Statement of Cash Flows
for the Quarters Ended
June 1, 1996 and May 27, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operation and Financial Condition 7-9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF OPERATIONS
For the quarters ended June 1, 1996 and May 27, 1995
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 1, May 27,
1996 1995
-------- --------
<S> <C> <C>
Net sales and
service revenues $153,659 $164,480
Cost of sales 116,502 122,841
-------- --------
Gross profit 37,157 41,639
Selling, general and administrative 41,825 40,435
Amortization of intangibles 123 123
Restructuring charge 2,000 --
-------- --------
(Loss) income from operations (6,791) 1,081
Other income (expenses):
Interest income 175 236
Interest expense (1,057) (963)
-------- --------
Other (882) (727)
-------- --------
(Loss)income before income taxes (7,673) 354
Income tax (benefit) expense (3,085) 143
-------- --------
Net (loss) income $ (4,588) $ 211
======== ========
Net (loss)income per share $ (.26) $ .01
======== ========
Weighted average shares outstanding 17,434 17,484
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
SUN TELEVISION AND APPLIANCES, INC.
BALANCE SHEET
June 1, 1996 and March 2, 1996
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 1, March 2,
1996 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,051 $ 13,583
Trade accounts receivable net of allowance
for doubtful accounts of $400 and $400 19,136 18,943
Merchandise inventory 140,347 114,777
Prepaid expenses and other 6,499 5,903
Income taxes refundable 2,318 --
Deferred income taxes 7,946 8,116
-------- --------
Total current assets 179,297 161,322
Property and equipment, net 101,467 100,563
Deferred income taxes 7,927 8,410
Intangible assets 14,924 15,047
-------- --------
Total assets $303,615 $285,342
======== ========
LIABILITIES
Current liabilities:
Short-term borrowings $ 5,000 $ --
Trade accounts payable 42,522 20,100
Accrued liabilities 24,533 23,431
Income taxes payable -- 3,934
Current portion of deferred revenue 17,595 18,089
-------- --------
Total current liabilities 89,650 65,554
Capital lease obligations 14,564 14,651
Deferred revenue, non-current 20,595 21,621
Long-term debt 30,000 30,000
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
500 shares authorized - none issued -- --
Common stock, $.01 par value, 30,000 shares authorized
17,375 and 17,364 shares issued and outstanding 174 174
Additional paid-in capital 88,298 88,268
Retained earnings 60,334 65,074
-------- --------
Total stockholders' equity 148,806 153,516
-------- --------
Total liabilities and stockholders' equity $303,615 $285,342
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SUN TELEVISION AND APPLIANCES, INC.
STATEMENT OF CASH FLOWS
For the quarters ended June 1, 1996 and May 27, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 1, May 27,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (4,588) $ 211
Adjustments to reconcile (loss) income to net cash
used by operating activities:
Depreciation and amortization 2,212 1,800
Deferred revenue (1,519) (1,211)
Deferred income taxes 653 406
Restructuring charge 2,000 --
Changes in items affecting operations:
Trade accounts receivable (193) 2,874
Merchandise inventory (25,570) (29,416)
Prepaid expenses and other (596) 74
Trade accounts payable 22,421 30,853
Accrued liabilities (898) (4,015)
Income taxes payable (6,252) (3,903)
-------- --------
(11,088) (3,533)
-------- --------
Net cash (used) by operating activities (12,330) (2,327)
-------- --------
Cash flows from financing activities:
Short-term borrowings 5,000 --
Reduction of capital lease obligations (87) (73)
Issuance of common stock under stock options 30 --
Dividends on common stock (152) (152)
-------- --------
Net cash provided (used) by financing activities 4,791 (225)
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net of disposals (2,993) (11,226)
-------- --------
Net cash (used) in investing activities (2,993) (11,226)
-------- --------
(Decrease) in cash and cash equivalents (10,532) (13,778)
Cash and cash equivalents, beginning of year 13,583 16,736
-------- --------
Cash and cash equivalents, end of period $ 3,051 $ 2,958
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Income taxes $ 2,734 $ 3,717
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
SUN TELEVISION AND APPLIANCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements as of June 1, 1996, and May 27, 1995, of Sun
Television and Appliances, Inc. (the "Company") are unaudited, and are
presented pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, Notes to the Financial Statements
which are contained in the Company's 1996 Annual Report should be read
in conjunction with these Financial Statements. In the opinion of
management, the accompanying unaudited financial statements reflect
all adjustments (which are of a normal recurring nature) necessary to
present fairly the financial position, results of operations and cash
flows for the interim periods presented, but are not necessarily
indicative of the results of operations for a full fiscal year.
2. CHANGE IN FISCAL YEAR
Effective with the beginning of fiscal 1996, the Company has changed
its fiscal year end to the Saturday closest to February 28 from a
calendar month-end of February. The first quarter of fiscal 1997 had
91 days compared to 88 days in the first quarter of fiscal 1996.
3. SHORT-TERM AND LONG-TERM DEBT
As of June 1, 1996, the Company had outstanding short-term borrowings
of $5,000,000 against its reducing revolving credit commitment. The
interest rate in effect at June 1, 1996, was prime rate, or 8.25%.
The Company and its senior noteholders and banks negotiated an
amendment to its senior note agreement and its reducing revolving
credit agreement. The Company is in compliance with the covenants of
its debt agreement as amended.
4. NEW FINANCIAL ACCOUNTING STANDARDS
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of". SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
full recoverability is questionable. The impact of adopting SFAS No.
121 was immaterial to the results of operations or financial condition
of the Company. SFAS No. 123, "Accounting for Stock-Based
Compensation," has also been adopted for fiscal year 1997. The Company
will make the required disclosure of the impact of SFAS No. 123 in the
annual report for fiscal 1997.
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<PAGE> 7
Item 2.
SUN TELEVISION AND APPLIANCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION
RESULTS OF OPERATION
The Company recorded a net loss of $4,588,000 or $.26 per share for the first
quarter ended June 1, 1996, compared to net income of $211,000, or $.01 per
share for the quarter ended May 27, 1995. Total sales declined $10.8 million to
$153.7 million for the first quarter this year. Comparable store sales declined
17.5% from $166.0 million for the quarter ended May 27, 1995, to $136.8 million
for the quarter ended June 1, 1996. The gross profit percentage rate decreased
from 25.3% last year to 24.2% this year. Selling, general and administrative
expenses have increased, due to the operation of additional stores in this
quarter compared to the first quarter last year and increased advertising
expenses. In addition, during the first quarter of this year the Company had a
one-time restructuring charge of $2.0 million, or $.07 per share, principally
related to severance pay.
NET SALES AND SERVICE REVENUES
Net sales and service revenues for the first quarter of fiscal 1997 were
$153,659,000, a decrease of $10,821,000, or 6.6%, from the $164,480,000 for the
quarter ended May 27, 1995. Sales of televisions declined 13.6% and home office
products, including computers and accessories, declined 12.5% this quarter
versus the comparable quarter last year. The sales declines in these product
categories were partially offset by increases in appliances and personal
convenience product categories for this quarter, versus the prior year's
quarter.
GROSS PROFIT
The gross profit percentage for the first quarter of fiscal 1997 was 24.2%,
compared with 25.3% for the same period in fiscal 1996. This decrease in margin
rate was primarily attributable to the increasingly competitive and highly
promotional environment that exists in almost all our markets due to the
opening of additional competitors' stores, as well as the slow down in consumer
spending on electronics. Although this impacted all major product categories,
the gross margin rates on audio, computers and computer accessories showed the
most significant declines, while margin rates on televisions were down only
slightly.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the first quarter ended June 1, 1996, selling, general and
administrative expenses, as a percentage to net sales, increased 2.6% from
24.6% in the first quarter of last fiscal year to 27.2% in the first quarter of
this year. The increase reflects the operation of five more stores in this
year's first quarter, compared to the first quarter in fiscal 1996. With more
stores to operate and lower sales, the fixed costs assume a larger percentage
of our total selling expenses. Major contributors of these costs associated
with store operations were occupancy, advertising and payroll. Increased
promotional activity has led to higher advertising expenses for the quarter
ended June 1, 1996 compared to the quarter ended May 27, 1995.
-7-
<PAGE> 8
RESTRUCTURING CHARGE
The Company recorded a $2,000,000 charge for the cost of severance pay and
related benefits, and relocating of individuals due to the restructuring of the
organization as well as costs related to the change of executive management. The
Company has restructured the buying, logistics, store and field operations
during the current year's first quarter. The effort to restructure was geared
to clarify accountability, streamline responsibilities, improve operational
controls with the ultimate goal of better satisfying the customers needs and
demands.
OTHER INCOME/EXPENSES
Interest expense for the first three months increased $94,000 compared to the
same period in fiscal 1996, primarily due to an additional capital lease this
year versus last year and the outstanding borrowing of $5,000,000 for a portion
of the fiscal quarter of this year.
INCOME TAXES
The provision for income taxes is based on the current estimate of the annual
effective tax rate for the year (40.2%) which has reduced slightly from last
year, primarily due to a decrease in the effective state tax rate.
-8-
<PAGE> 9
FINANCIAL CONDITION
The Company's financial condition continues to be healthy with the current
ratio of 2.0 as compared to 2.5 as of March 2, 1996. Inventory has increased by
$25,570,000 in preparation for the summer selling season which was largely
financed by increases in short-term borrowings and trade payables.
The Company opened one store in Dayton, Ohio this quarter, another store in
Charleston, West Virginia in early June and will open a new store in Beckley,
West Virginia in the Fall of this year. The Company plans to replace the
existing stores in North Randall, Chillicothe and Newark, Ohio with larger,
better located stores this Fall. The Company expects capital expenditures for
the year to be approximately $15,000,000 and anticipates covering these
requirements using cash flow from operations, a sale/leaseback of two stores
and short-term borrowings.
-9-
<PAGE> 10
PART II. - OTHER INFORMATION
In accordance with the instruction to Part II, the other specified items in
this part have been omitted because they are not applicable or the information
has been previously reported.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
Exhibit 10a. First Amendment to Purchase Agreement
Exhibit 10b. Third Modification of Credit Agreement
Exhibit 11. Computation of Net (Loss) Income Per Common Share
Exhibit 27. Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Form 8-K dated as of June 11, 1996 and filed with the
Securities and Exchange Commission on June 11, 1996. (Items
5 and 7)
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<PAGE> 11
SUN TELEVISION AND APPLIANCES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN TELEVISION AND APPLIANCES, INC.
(Registrant)
By /S/ STEVE A. MARTIN
---------------------------------------------------
Steve A. Martin, Executive Vice President, Treasurer
and Chief Financial Officer *
Date: July 15, 1996
- ---------
* Mr. Martin is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
-11-
<PAGE> 1
EXHIBIT 10a
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT is entered into as of May
31, 1996, between Sun Television and Appliances, Inc., an Ohio corporation (the
"Company"), and Teachers Insurance and Annuity Association of America (the
"Purchaser"). The Company and the Purchaser agree that the Purchase Agreement,
dated as of September 15, 1994, between them shall be, and the same hereby is,
amended, effective as of May 31, 1996, as follows:
1. The definition of "Net Earnings Available for Fixed Charges"
contained in Section 10.2 thereof is amended to read in its entirety as follows:
"Net Earnings Available for Fixed Charges" of any person shall mean,
for any period for which the amount thereof is to be determined, the
Net Earnings of such person for such period but before deduction of
(i) income taxes of such person for such period, (ii) Fixed Charges
of such person for such period, and (iii) any extraordinary,
nonrecurring charge for restructuring or reorganization not in
excess of $2,000,000 for the period ending June 1, 1996.
2. Section 8.9. FIXED CHARGE COVERAGE is hereby amended to read in its
entirety as follows:
Section 8.9. FIXED CHARGE COVERAGE. The Company will not (a) as of
the end of any fiscal quarter from the date hereof to and including
November 30, 1996 permit Consolidated Net Earnings Available for
Fixed Charges of the Company and the Subsidiaries for the period of
the four then most recently completed fiscal quarters of the Company
to be less than 100% of Consolidated Fixed Charges of the Company
and the Subsidiaries for such period; (b) as of the end of any
fiscal quarter from December 1, 1996 to and including March 1, 1997,
permit Consolidated Net Earnings Available for Fixed Charges of the
Company and the Subsidiaries for the period of the four then most
recently completed fiscal quarters of the Company to be less than
125% of Consolidated Fixed Charges of the Company and the
Subsidiaries for such period; and (c) as of the end of any fiscal
quarter from and after March 2, 1997, permit Consolidated Net
Earnings Available for Fixed Charges of the Company and the
Subsidiaries for the period of the four then most recently completed
fiscal quarters of the Company to be less than 150% of Consolidated
Fixed Charges of the Company and the Subsidiaries for such period.
3. Until the later of March 1, 1997 or the Company is in full
compliance with the Purchase Agreement, Section 8.2(k) OTHER LIENS is hereby
amended to read in its entirety as follows:
<PAGE> 2
(k) Other Liens. The Company and the Subsidiaries may create, incur
and suffer to exist any other Lien on any property to secure
Indebtedness of the Company or any Subsidiary, provided that the
Indebtedness secured by such Lien is permitted by clause (d) of
Section 8.1, provided, further, that the Company and the Subsidiary
shall not be permitted to create, incur or suffer to exist any Lien
on any property of the Company or any Subsidiary to secure
Indebtedness of the Company or any Subsidiary under the Credit
Agreement pursuant to this clause (k) unless (i) an equal ratable
Lien is granted to the Noteholders, and (ii) the Company or the
Subsidiary shall have received the express written consent of the
Purchaser, which such consent shall not be unreasonably withheld.
4. This First Amendment shall become effective upon satisfaction of the
following conditions: (i) the due authorization, execution and delivery of this
First Amendment, and (ii) no condition or event shall exist that constitutes a
Default or an Event of Default other than that which is addressed by Section 2
of this First Amendment.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
First Amendment to be executed and delivered by their respective officer or
officers thereunto duly authorized.
SUN TELEVISION AND APPLIANCES, INC.
By: /s/ Steven A. Martin
---------------------------------------
Name: Steven A. Martin
Title: Executive Vice President, Chief
Financial Officer and Treasurer
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Loren S. Archibald
---------------------------------------
Name: Loren S. Archibald
Title: Managing Director - Private Placements
<PAGE> 3
FIRST AMENDMENT TO PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT is entered into as of May
31, 1996, between Sun Television and Appliances, Inc., an Ohio corporation (the
"Company"), and John Hancock Mutual Life Insurance Company (the "Purchaser").
The Company and the Purchaser agree that the Purchase Agreement, dated as of
September 15, 1994, between them shall be, and the same hereby is, amended,
effective as of May 31, 1996, as follows:
1. The definition of "Net Earnings Available for Fixed Charges"
contained in Section 10.2 thereof is amended to read in its entirety as follows:
"Net Earnings Available for Fixed Charges" of any person shall mean,
for any period for which the amount thereof is to be determined, the
Net Earnings of such person for such period but before deduction of
(i) income taxes of such person for such period, (ii) Fixed Charges
of such person for such period, and (iii) any extraordinary,
nonrecurring charge for restructuring or reorganization not in
excess of $2,000,000 for the period ending June 1, 1996.
2. Section 8.9. FIXED CHARGE COVERAGE is hereby amended to read in its
entirety as follows:
Section 8.9. FIXED CHARGE COVERAGE. The Company will not (a) as of
the end of any fiscal quarter from the date hereof to and including
November 30, 1996 permit Consolidated Net Earnings Available for
Fixed Charges of the Company and the Subsidiaries for the period of
the four then most recently completed fiscal quarters of the Company
to be less than 100% of Consolidated Fixed Charges of the Company
and the Subsidiaries for such period; (b) as of the end of any
fiscal quarter from December 1, 1996 to and including March 1, 1997,
permit Consolidated Net Earnings Available for Fixed Charges of the
Company and the Subsidiaries for the period of the four then most
recently completed fiscal quarters of the Company to be less than
125% of Consolidated Fixed Charges of the Company and the
Subsidiaries for such period; and (c) as of the end of any fiscal
quarter from and after March 2, 1997, permit Consolidated Net
Earnings Available for Fixed Charges of the Company and the
Subsidiaries for the period of the four then most recently completed
fiscal quarters of the Company to be less than 150% of Consolidated
Fixed Charges of the Company and the Subsidiaries for such period.
3. Until the later of March 1, 1997 or the Company is in full
compliance with the Purchase Agreement, Section 8.2(k) OTHER LIENS is hereby
amended to read in its entirety as follows:
<PAGE> 4
(k) Other Liens. The Company and the Subsidiaries may create, incur
and suffer to exist any other Lien on any property to secure
Indebtedness of the Company or any Subsidiary, provided that the
Indebtedness secured by such Lien is permitted by clause (d) of
Section 8.1, provided, further, that the Company and the Subsidiary
shall not be permitted to create, incur or suffer to exist any Lien
on any property of the Company or any Subsidiary to secure
Indebtedness of the Company or any Subsidiary under the Credit
Agreement pursuant to this clause (k) unless (i) an equal ratable
Lien is granted to the Noteholders, and (ii) the Company or the
Subsidiary shall have received the express written consent of the
Purchaser, which such consent shall not be unreasonably withheld.
4. This First Amendment shall become effective upon satisfaction of the
following conditions: (i) the due authorization, execution and delivery of this
First Amendment, and (ii) no condition or event shall exist that constitutes a
Default or an Event of Default other than that which is addressed by Section 2
of this First Amendment.
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
First Amendment to be executed and delivered by their respective officer or
officers thereunto duly authorized.
SUN TELEVISION AND APPLIANCES, INC.
By: /s/ Steven A. Martin
--------------------------------------
Name: Steven A. Martin
Title: Executive Vice President, Chief
Financial Officer and Treasurer
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Marlene DeLeon
--------------------------------------
Name: Marlene DeLeon
Title: Investment Officer
<PAGE> 1
EXHIBIT 10b
THIRD MODIFICATION OF CREDIT AGREEMENT
THIS THIRD MODIFICATION OF CREDIT AGREEMENT (the "Agreement") is made
and entered into to be effective as of the 31st day of May, 1996, by and among
SUN TELEVISION AND APPLIANCES, INC. (the "Borrower"), NATIONAL CITY BANK OF
COLUMBUS, FORMERLY KNOWN AS NATIONAL CITY BANK, COLUMBUS, THE HUNTINGTON
NATIONAL BANK (collectively, the "Banks") and NATIONAL CITY BANK OF COLUMBUS,
as agent for the Banks (the "Agent").
BACKGROUND INFORMATION
A. On September 13, 1994, the parties hereto entered into a credit
transaction as evidenced by that certain Credit Agreement dated as of September
13, 1994, and executed by and between the parties hereto (the "Credit
Agreement"), pursuant to which the Banks agreed to advance credit financing
(collectively, the "Revolving Credit Loans") to the Borrower up to the aggregate
principal amount of Twenty-Seven Million, Eight Hundred Thousand Dollars
($27,800,000.00), as evidenced by (a) that certain Revolving Credit Note dated
as of September 13, 1994, and made by the Borrower payable to the order of
National City Bank of Columbus, in the original principal amount of Eighteen
Million, Five Hundred Thirty-Three Thousand, Three Hundred Thirty-Three and
33/100 Dollars ($18,533,333.33), and (b) that certain Revolving Credit Note
dated as of September 13, 1994, made by the Borrower payable to the order of The
Huntington National Bank in the original principal amount of Nine Million, Two
Hundred Sixty-Six Thousand, Six Hundred Sixty- Six and 67/100 Dollars
($9,266,666.67) (collectively, the "Notes").
B. On August 7, 1995, the parties hereto modified and amended certain
of the terms of the Credit Agreement pursuant to the terms of that certain First
Modification of Credit Agreement dated as of August 7, 1995, and executed by and
between the parties hereto (the "First Modification"), pursuant to which the
Banks agreed to increase the amount of aggregate credit financing available to
the Borrower under the Credit Agreement and the Notes from the amount of
Twenty-Seven Million, Eight Hundred Thousand Dollars ($27,800,000.00) to
Forty-Five Million Dollars ($45,000,000.00), as evidenced by (a) that certain
First Replacement Revolving Credit Note dated as of August 7, 1995, and made by
the Borrower payable to the order of National City Bank of Columbus, in the
original principal amount of Twenty-Five Million Dollars ($25,000,000.00), and
(b) that certain First Replacement Revolving Credit Note dated as of August 7,
1995, and made by the Borrower payable to the order of The Huntington National
Bank in the original principal amount of Twenty Million Dollars
($20,000,000.00).
C. On August 9, 1995, the parties hereto modified and amended certain
of the terms of the Credit Agreement pursuant to the terms of that certain
Second Modification of Credit Agreement dated as of August 9, 1995, and executed
by and between the parties hereto (the "Second Modification") (the said First
Modification and Second Modification being collectively referred to herein as
the "Previous Modifications"), pursuant to which the Banks agree to increase the
amount of aggregate credit financing available to the Borrower under the Credit
Agreement and the Notes from the amount of Forty-Five Million Dollars
($45,000,000.00) to Fifty Million Dollars ($50,000,000.00).
<PAGE> 2
D. The Borrower has requested that the Banks, and the Banks have agreed
to, modify the definition of "Net Earnings Available for Fixed Charges" as
contained in Section 1.1 of the Credit Agreement and both the Other Liens and
Fixed Charge Coverage covenants contained in Section 7.2 and Section 7.9,
respectively, of the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing covenants and for
other good and valuable consideration, the receipt, sufficiency and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Modification of Net Earnings Available for Fixed Charges Definition.
The definition of "Net Earnings Available for Fixed Charges" contained in
Section 1.1 of the Credit Agreement appearing on page 11 thereof is hereby
modified to read in its entirety as follows:
"'Net Earnings Available for Fixed Charges' of any Person shall mean,
for any period for which the amount thereof is to be determined, the
Net Earnings of such Person for such period but before deduction of (i)
income taxes of such Person for such period, (ii) Fixed Charges of such
Person for such period, and (iii) any extraordinary, nonrecurring
charge for restructuring or reorganization not in excess of Two Million
Dollars ($2,000,000.00) for the period ending June 1, 1996."
2. Modification of Subsection 7.2(k). Until the later of March 1, 1997,
or the Borrower is in full compliance with the Credit Agreement, Subsection
7.2(k) of the Credit Agreement appearing on page 42 thereof is hereby modified
to read in its entirety as follows:
"(k) Other Liens. The Borrower and the Subsidiaries may create, incur
and suffer to exist any other Lien an any property to secure
Indebtedness of the Borrower or any Subsidiary, provided that the
Indebtedness secured by such Lien is permitted by Subsection 7.1(d),
provided, further, that the Borrower and the Subsidiary shall not be
permitted to create, incur or suffer to exist any Lien on any property
of the Borrower or any Subsidiary to secure Indebtedness of the
Borrower or any Subsidiary under the Credit Agreement pursuant to this
subsection (k) unless (i) an equal ratable Lien is granted to the Banks
and Agent, and (ii) the Borrower or the Subsidiaries shall have
received the express written consent of the Banks and Agent, which such
consent shall not be unreasonably withheld."
3. Modification of Section 7.9. Section 7.9 of the Credit Agreement
appearing on page 46 thereof is hereby modified to read in its entirety as
follows:
"7.9 Fixed Charge Coverage. The Borrower will not (a) as of the end of
any fiscal quarter from the date hereof to and including November 30,
1996, permit Consolidated Net Earnings Available for Fixed Charges of
the Borrower and the Subsidiaries for the period of the four then most
recently completed fiscal quarters of the Borrower to be less than 100%
of Consolidated Fixed Charges of the Borrower and the Subsidiaries for
such period; (b) as of the end of any fiscal quarter from December 1,
1996, to and including March 1, 1997, permit Consolidated Net Earnings
Available for Fixed Charges of the Borrower and the Subsidiaries for
the
-2-
<PAGE> 3
period of the four then most recently completed fiscal quarters of the
Borrower to be less than 125% of Consolidated Fixed Charges of the
Borrower and the Subsidiaries for such period; and (c) as of the end of
any fiscal quarter from and after March 2, 1997, permit Consolidated
Net Earnings Available for Fixed Charges of the Borrower and the
Subsidiaries for the period of the four then most recently completed
fiscal quarters of the Borrower to be less than 150% of Consolidated
Fixed Charges of the Borrower and the Subsidiaries for such period."
4. Costs and Expenses. The Borrower agrees to pay and reimburse each of
the Banks, and to indemnify and hold the Banks harmless from and against any and
all costs, expenses, fees, liabilities, disbursements or other amounts paid or
payable by the Banks in connection with the preparation, negotiation and
execution of this Agreement and any other amendments and modifications to the
Loan Documents.
5. Confirmation of Obligations. The Borrower hereby agrees to pay,
perform and observe all of the indebtedness, covenants and obligations of the
Borrower under the Credit Agreement, as the same has been modified and amended
by the Previous Modifications and further modified and amended hereby. Except as
modified and amended by the Previous Modifications and by this Agreement, the
Credit Agreement remains unchanged and in full force and effect as written. The
Borrower hereby ratifies and confirms in all respects each and every promise,
covenant, agreement, condition, term and provision of the Credit Agreement, and
all of the Borrower's duties and obligations thereunder, as the same is modified
and amended by the Previous Modifications and further modified and amended
hereby.
6. Effectiveness of Agreement. This Agreement shall become effective
upon satisfaction of the following conditions: (I) the due authorization,
execution and delivery of this Agreement, and (ii) no condition or event shall
exist that constitutes a Default or an Event of Default other than that which is
addressed by Section 3 of this Agreement.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SUN TELEVISION AND APPLIANCES, INC.
By: /s/ Steven A. Martin
-----------------------------------
Steven A. Martin
Title: Executive Vice President, Chief
Financial Officer and Treasurer
THE HUNTINGTON NATIONAL BANK,
AS A BANK
By: /s/ Frank G. Bozick
-----------------------------------
Frank G. Bozick
Title: Senior Vice President
NATIONAL CITY BANK OF COLUMBUS,
AS AGENT AND AS A BANK
By: /s/ Ralph A. Kaparos
-----------------------------------
Ralph A. Kaparos
Title: Senior Vice President
-4-
<PAGE> 1
EXHIBIT 11
SUN TELEVISION AND APPLIANCES, INC.
COMPUTATION OF NET (LOSS) INCOME PER COMMON SHARE
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE
QUARTERS ENDED
--------------------
June 1, May 27,
1996 1995
------- -------
<S> <C> <C>
Net (loss) income $(4,588) $ 211
======= =======
Common shares outstanding:
Weighted average 17,364 17,278
Dilutive effect of stock options 70 206
------- -------
Weighted average shares used to calculate
net (loss) income per share 17,434 17,484
Add net additional dilutive effect of stock
options using period-end market price 95 20
------- -------
Weighted average shares used to calculate
fully diluted (loss) earnings per share 17,529 17,549
======= =======
(Loss) earnings per share:
Assuming primary dilution $(.26) $ .01
===== =====
Assuming full dilution $(.26) $ .01
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Sun
Television and Appliances, Inc.'s quarter report on Form 10-Q for the quarter
ended June 1, 1996.
</LEGEND>
<CIK> 0000874690
<NAME> SUN TELEVISION AND APPLIANCES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-START> MAR-03-1996
<PERIOD-END> JUN-01-1996
<CASH> 3,051
<SECURITIES> 0
<RECEIVABLES> 19,136
<ALLOWANCES> 0
<INVENTORY> 140,347
<CURRENT-ASSETS> 179,297
<PP&E> 101,467
<DEPRECIATION> 0
<TOTAL-ASSETS> 303,615
<CURRENT-LIABILITIES> 89,650
<BONDS> 0
0
0
<COMMON> 174
<OTHER-SE> 148,632
<TOTAL-LIABILITY-AND-EQUITY> 303,615
<SALES> 153,659
<TOTAL-REVENUES> 153,659
<CGS> 116,502
<TOTAL-COSTS> 116,502
<OTHER-EXPENSES> 43,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,057)
<INCOME-PRETAX> (7,673)
<INCOME-TAX> (3,085)
<INCOME-CONTINUING> (4,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,588)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
