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 SEPTEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-12046
LEVITZ FURNITURE INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2351830
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6111 BROKEN SOUND PARKWAY, N.W., BOCA RATON, FL 33487-2799
- ----------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On October 31, 1997, there were 30,206,171 shares of the registrant's Common
Stock outstanding of which 26,632,509 shares were Voting Common Stock and
3,573,662 shares were Non-Voting Common Stock, with 114,457 shares held by the
registrant in its treasury.
<PAGE>
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF
SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THE
COMPANY'S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC CONDITIONS ARE
LESS FAVORABLE THAN EXPECTED; (3) CHANGES IN THE FINANCIAL MARKETS AFFECTING THE
COMPANY'S FINANCIAL STRUCTURE AND THE COMPANY'S COST OF CAPITAL AND BORROWED
MONEY; AND (4) THE UNCERTAINTIES INHERENT IN THE COMPANY'S OPERATIONS. THE
COMPANY HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q
AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES.
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1997
TABLE OF CONTENTS PAGE
- ----------------- ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets......................... 3
Consolidated Condensed Statements of Operations............... 4
Consolidated Condensed Statements of Cash Flows............... 5
Notes to Consolidated Condensed Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of Operations...................................... 12
Liquidity and Capital Resources............................... 15
PART II - OTHER INFORMATION................................................. 17
Signatures ........................................................ 18
Exhibit Index........................................................ 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
1997 1997
(UNAUDITED)
------------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 4,987 $ 9,267
RECEIVABLES 25,030 37,358
INVENTORIES 120,389 169,488
DEPOSITS AND PREPAID EXPENSES 7,738 3,514
INCOME TAXES RECEIVABLE -- 2,299
DEFERRED INCOME TAXES -- 933
----------- -----------
TOTAL CURRENT ASSETS 158,144 222,859
----------- -----------
PROPERTY AND EQUIPMENT, NET 205,524 214,626
----------- -----------
PROPERTY UNDER CAPITAL LEASES, NET 102,295 119,077
----------- -----------
OTHER ASSETS:
RECEIVABLE UNDER ACCOUNT PURCHASE AGREEMENT 531,454 327,000
INTANGIBLE LEASEHOLD INTERESTS 14,998 15,613
DEFERRED FINANCIAL FEES 3,161 12,069
GOODWILL 17,919 18,177
OTHER 4,589 4,947
----------- -----------
572,121 377,806
----------- -----------
$ 1,038,084 $ 934,368
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
OUTSTANDING CHECKS AND CASH OVERDRAFTS $ 8,351 $ 19,524
CURRENT PORTION OF LONG-TERM DEBT 1,402 11,193
CURRENT PORTION OF OBLIGATIONS UNDER CAPITAL LEASES -- 3,398
ACCOUNTS PAYABLE, TRADE 39,502 73,044
ACCRUED EXPENSES AND OTHER LIABILITIES 73,444 88,897
INCOME TAXES PAYABLE 133 --
DEFERRED INCOME TAXES 982 --
SENIOR SECURED FACILITIES -- 75,220
DIP FACILITY 130,112 --
----------- -----------
TOTAL CURRENT LIABILITIES 253,926 271,276
----------- -----------
LONG-TERM LIABILITIES:
LONG-TERM DEBT, NET OF CURRENT PORTION 7,782 282,084
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION -- 74,466
OBLIGATIONS UNDER ACCOUNT PURCHASE AGREEMENT 531,454 327,000
OTHER 758 24,424
DEFERRED INCOME TAXES 18,885 49,190
----------- -----------
TOTAL LONG-TERM LIABILITIES 558,879 757,164
----------- -----------
LIABILITIES SUBJECT TO COMPROMISE 370,941 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
COMMON STOCK, AT PAR VALUE 303 303
CAPITAL IN EXCESS OF PAR 213,560 213,560
RETAINED EARNINGS (DEFICIT) (358,157) (305,951)
DEFERRED COMPENSATION (553) (1,169)
MINIMUM PENSION LIABILITY (637) (637)
TREASURY STOCK, AT COST (178) (178)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (145,662) (94,072)
----------- -----------
$ 1,038,084 $ 934,368
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 207,258 $ 237,146 $ 418,625 $ 465,274
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
COST OF SALES 116,772 130,327 232,539 256,840
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 97,756 96,960 184,748 187,292
UNUSUAL OPERATING EXPENSES (NOTE 5) 3,400 -- 7,217 --
STORE CLOSING CHARGE (NOTE 5) -- -- -- 8,295
DEPRECIATION AND AMORTIZATION 6,444 6,789 12,957 13,688
INTEREST EXPENSE, NET 12,532 14,209 26,716 27,339
------------ ------------ ------------ ------------
236,904 248,285 464,177 493,454
------------ ------------ ------------ ------------
LOSS BEFORE REORGANIZATION ITEMS AND
INCOME TAXES (29,646) (11,139) (45,552) (28,180)
REORGANIZATION ITEMS: (NOTE 4)
LOSS ON STORE CLOSINGS 25,914 -- 25,914 --
PROFESSIONAL FEES 714 -- 714 --
------------ ------------ ------------ ------------
TOTAL 26,628 -- 26,628 --
LOSS BEFORE INCOME TAXES (56,274) (11,139) (72,180) (28,180)
INCOME TAX BENEFIT 19,831 3,925 25,436 9,930
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS (36,443) (7,214) (46,744) (18,250)
EXTRAORDINARY ITEM, NET OF TAX BENEFIT
OF $2,973 IN 1997 AND $1,090 IN
1996 (NOTE 7) (5,462) -- (5,462) (2,002)
------------ ------------ ------------ ------------
NET LOSS $ (41,905) $ (7,214) $ (52,206) $ (20,252)
============ ============ ============ ============
LOSS PER COMMON SHARE (NOTE 7 AND 8):
LOSS BEFORE EXTRAORDINARY ITEM $ (1.22) $ (0.24) $ (1.56) $ (0.61)
EXTRAORDINARY ITEM (0.18) -- (0.18) (0.07)
------------ ------------ ------------ ------------
NET LOSS PER COMMON SHARE $ (1.40) $ (0.24) $ (1.74) $ (0.68)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 29,905,168 29,888,087 29,890,555 29,864,098
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED FINANCIAL STATEMENTS.
4
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (52,206) $ (20,252)
--------- ---------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION 7,707 7,911
AMORTIZATION 5,250 5,777
PROVISION FOR DEFERRED TAXES (28,409) (9,536)
GAIN ON DISPOSAL OF PROPERTY AND EQUIPMENT 136 (150)
AMORTIZATION OF ORIGINAL ISSUE DISCOUNT ON DEFERRED
DEBENTURES 331 689
AMORTIZATION OF DEFERRED FINANCING FEES 3,738 1,135
AMORTIZATION OF DEFERRED COMPENSATION 616 363
PENSION EXPENSE 772 782
OTHER 177 177
EXTRAORDINARY LOSS RELATED TO EARLY REDEMPTION OF
DEBT, BEFORE TAX BENEFIT 8,435 3,092
CHANGES IN OPERATING ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN:
RECEIVABLES 11,052 (3,668)
INVENTORIES 49,099 (30,499)
DEPOSITS AND PREPAID EXPENSES (4,328) (2,859)
INCOME TAXES RECEIVABLE 2,299 5,496
OTHER, NET 392 56
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE, TRADE 22,594 22,979
ACCRUED EXPENSES AND OTHER LIABILITIES 14,977 4,870
OTHER NONCURRENT LIABILITIES (250) 4,552
--------- ---------
TOTAL ADJUSTMENTS 94,588 11,167
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 42,382 (9,085)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (6,874) (3,349)
PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT AND
OTHER ASSETS 2,343 174
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (4,531) (3,175)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER CREDIT FACILITIES 454,273 518,178
REPAYMENTS UNDER CREDIT FACILITIES (473,921) (495,679)
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (6,355) (2,725)
PRINCIPAL PAYMENTS UNDER CAPITAL LEASE OBLIGATIONS (1,794) (2,412)
INCREASE (DECREASE) IN CASH OVERDRAFTS (11,173) 2,000
PAYMENT OF DEFERRED FINANCING FEES (3,161) (10,272)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (42,131) 9,090
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,280) (3,170)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,267 12,755
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,987 $ 9,585
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION:
Levitz Furniture Incorporated (LFI), a Delaware corporation, was
incorporated in December 1984 for the purpose of acquiring Levitz
Furniture Corporation (Levitz).
On September 5, 1997 (the Petition Date), Levitz Furniture Incorporated
and 11 of its subsidiaries (the Debtors) filed petitions for relief
under Chapter 11 of the United States Bankruptcy Code (Chapter 11) in
the United States Bankruptcy Court in Wilmington, Delaware. The Debtors
are presently operating their respective businesses as
debtors-in-possession. A statutory Creditor's Committee has been
appointed in the Chapter 11 cases. The Chapter 11 cases of the Debtors
are being jointly administered for procedural purposes only.
Certain subsidiaries were not included in the Chapter 11 filings. These
subsidiaries are inactive and the results of their operations and
financial position are not material to the consolidated financial
statements.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles applicable to
a going concern, which principles, except as otherwise disclosed,
assume that assets will be realized and liabilities will be discharged
in the normal course of business. As a result of the Chapter 11 cases
and circumstances relating to this event, including the company's debt
structure, its recurring losses, and current economic conditions, such
realization of assets and liquidation of liabilities are subject to
significant uncertainty. Additionally, the amounts reported on the
consolidated condensed balance sheet could materially change because of
a plan of reorganization, since such reported amounts do not give
effect to adjustments to the carrying value of the underlying assets or
amounts of liabilities that may ultimately result.
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments consisting of
normal recurring accruals necessary to present fairly the financial
position as of September 30, 1997, the results of operations and cash
flows for the periods then ended. The results of operations for the
period ended September 30, 1997, are not necessarily indicative of the
results to be expected for the full year.
Certain reclassifications to the prior periods' financial statements
have been made to conform with classifications used in the current
periods.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and revenues and expenses during the reporting period.
Actual amounts could differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
consolidated condensed financial statements be read in conjunction with
the financial statements and notes thereto included in LFI's audited
financial statements for the year ended March 31, 1997, which is
included in its Form 10K filed in July 1997.
6
<PAGE>
2. LIABILITIES UNDER CHAPTER 11:
In the Chapter 11 cases, substantially all unsecured liabilities as of
the Petition Date are subject to compromise or other treatment under a
plan of reorganization to be confirmed by the Bankruptcy Court after
submission to any required vote by affected parties. For financial
reporting purposes, those liabilities and obligations whose treatment
and satisfaction is dependent on the outcome of the Chapter 11 cases
have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the consolidated
condensed balance sheet. Generally, all actions to enforce or
otherwise effect repayment of pre-Chapter 11 liabilities as well as all
pending litigation against the Debtors are stayed while the Debtors
continue their business operations as debtors-in-possession. Schedules
have been filed by the Debtors with the Bankruptcy Court setting forth
the assets and liabilities of the Debtors as of the Petition Date as
reflected in the Debtor's accounting records. The company will notify
all known claimants subject to the bar date of their need to file a
proof of claim with the Bankruptcy Court. A bar date is the date by
which claims against the company must be filed if the claimants wish to
receive any distribution in the Chapter 11 cases. Differences between
amounts shown by the Debtors and eventual claims filed by creditors
will be investigated and will be either amicably resolved or
adjudicated before the Bankruptcy Court. The ultimate amount of and
settlement terms for such liabilities are subject to an approved plan
of reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other prepetition executory contracts, subject to
Bankruptcy Court approval. Claims for damages resulting from the
rejection of real estate leases and other executory contracts will be
subject to separate bar dates. The Debtors have not reviewed all real
estate leases for assumption or rejection. The Bankruptcy Court has
approved an order on October 21, 1997 extending the time for which the
Debtors may assume or reject unexpired leases of nonresidential real
property to March 4, 1998. The liabilities subject to compromise
include a reserve for an estimated amount that may be claimed by
lessors for the stores that have been closed through October 31, 1997.
The Debtors will continue to analyze their real estate leases and
executory contracts and may assume or reject additional leases and
contracts.
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total may vary significantly from the
stated amount of proofs of claim that will be filed with the Bankruptcy
Court and may be subject to future adjustment depending on Bankruptcy
Court action, further developments with respect to potential disputed
claims, determination as to the value of any collateral securing
claims, or other events. Additional claims may arise from the rejection
of additional real estate leases and executory contracts by the
Debtors.
7
<PAGE>
SEPTEMBER 30,
1997
(DOLLARS IN
LIABILITIES SUBJECT TO COMPROMISE THOUSANDS)
--------------------------------- -------------
Accounts payable, trade $ 41,506
Accrued expenses 15,146
13-3/8% Senior Notes due 10/15/98 96,031 (1)
9-5/8% Senior Subordinated Notes due 7/15/03 101,337 (1)
Senior Deferred Coupon Debentures due 6/15/02 8,716 (1)
Financing on store building 4,000
Obligations under capital leases 66,608
Reserve for lease rejection claims 9,461
Deferred rent on operating leases 6,883
Supplemental executive retirement programs 14,745
Employment agreement severance costs 2,912
General liability claims 736
Reserve for previous store closings 2,860
--------
$ 370,941
=========
(1) Includes accrued interest at September 4, 1997.
As a result of the Chapter 11 filing, no principal or interest payments
will be made on most prepetition debt without Bankruptcy Court approval
or until a plan of reorganization providing for the repayment terms has
been confirmed by the court and becomes effective. Interest on
prepetition obligations has not been accrued after the Petition Date
except that interest expense and principal payments will continue to be
recorded on capital lease obligations unless the leases are rejected by
the Debtors. Contractual interest expense not recorded on certain
prepetition debt totaled $2.0 million for the three month and six month
periods ended September 30, 1997.
As of the Petition Date, Levitz's debt consisted of the following
(dollars in thousands):
MATURITY
DESCRIPTION DATE AMOUNT
----------- ---------------- --------
Senior Secured Facilities July 1, 2001 $152,299
9-5/8% Senior Subordinated Notes July 15, 2003 100,000
13-3/8% Senior Notes October 15, 1998 91,267
Mortgages various 13,180
Senior Deferred Coupon Debentures June 15, 2002 8,439
--------
Total 365,185
--------
Obligations under capital leases various 76,678
--------
Total debt $441,863
========
Levitz had a senior secured facilities agreement with BT Commercial
Corporation ("BTCC") for up to $190.0 million of availability
(collectively, the "Senior Secured Facilities"). The Senior Secured
Facilities were comprised of $115.0 million of revolving notes, $35.0
million of term notes and $40.0 million of other notes. The Senior
Secured Facilities were due July 1, 2001.
The Senior Secured Facilities were secured by substantially all of the
assets of Levitz and its subsidiaries and a perfected pledge of stock
of all Levitz's subsidiaries. LFI and Levitz were subject to certain
covenants and restrictions and cross-default provisions as described in
the Senior Secured Facilities or debt indentures of Levitz, including
among other restrictions the following: provisions which require
certain financial tests be met, restrictions with respect to the sale
of assets, annual capital expenditures, ability to enter into
sale-leaseback transactions or mortgage loans, ability to redeem
certain indebtedness, and limitations on the ability to incur
additional indebtedness, requirements to repurchase certain
indebtedness if a change in control occurs and limitations on the
ability to pay dividends or make certain other restricted payments.
LFI and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a Postpetition Credit Agreement
dated as of September 5, 1997 (the "DIP Facility") with BTCC as agent.
The DIP Facility has been approved by the Bankruptcy Court and provides
for up to $260.0 million of availability. The DIP Facility contains
revolving notes of $223.6 million and a term note of $36.4 million.
Letter of Credit obligations under the DIP Facility are limited to
$25.0 million. The DIP Facility is intended to provide LFI with the
cash and liquidity to conduct its operations and pay for merchandise
shipments at normal levels during the course of the Chapter 11
proceedings.
Loans made under the DIP Facility revolving notes bear interest, at
Levitz's option, at a rate equal to either Bankers Trust Company's
prime lending rate plus 1.50% or BTCC's LIBOR rate plus 3.75%. The term
note bears interest at 16%. Levitz is required to pay an unused line
fee of 0.50%, and a letter of credit fee of 2.0%. Levitz paid financing
fees of $3.2 million on the closing date. These financing fees have
been deferred and are being amortized over the life of the DIP
Facility.
The maximum borrowings, excluding the term commitments, under the DIP
Facility are limited to 85% of eligible accounts receivable, 75% of
eligible inventory (as defined in the DIP Facility) and a fixed asset
sublimit which may be permanently reduced by the sale of fixed assets
and leasehold interests. The maximum borrowings at October 31, 1997
were $223.6 million. Availability under the DIP Facility at October 31,
1997 reduced by $13.8 million of stand-by letters of credit was $87.6
million.
8
<PAGE>
The DIP Facility is secured by substantially all of the assets of
Levitz and its subsidiaries and a perfected pledge of stock of all
Levitz's subsidiaries. The DIP Facility contains restrictive covenants
including, among other things, the maintenance of minimum earnings
before interest, taxes, depreciation and amortization as defined
(EBITDA), limitations on the incurrence of additional indebtedness,
liens, contingent obligations, sale of assets, capital expenditures and
a prohibition on paying dividends. On October 9, 1997, the DIP Facility
was amended to include, among other things, a decrease in the minimum
EBITDA requirements through March 1998. LFI and Levitz are currently in
compliance with the DIP Facility covenants as amended.
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estate of the Debtors. The DIP Facility
expires on March 5, 1999.
In order to comply with the Emerging Issues Task Force EITF 95-22
regarding classification of certain debt instruments, borrowings
outstanding under the DIP Facility are classified as current
liabilities.
3. TRANSFER AND SERVICING OF FINANCIAL ASSETS:
On September 5, 1997 Levitz and General Electric Capital Corporation
(GECC) entered into a Second Amended and Restated Account Purchase and
Credit Card Program Agreement (the "GECC Agreement"), whereby GECC is
required to purchase Levitz's customer credit obligations, subject to
certain restrictions, without recourse up to a maximum investment of
$900.0 million. The GECC Agreement expires October 31, 1999 and
requires a termination fee of $3.5 million. The Bankruptcy Court
approved the GECC Agreement and granted a perfected security interest
and lien to GECC for any purchased customer credit obligation and gave
administrative expense status to any obligation of Levitz arising from
the GECC Agreement.
Effective January 1, 1997, Levitz was required to account for the
transactions under the previous GECC Agreement in accordance with the
Financial Accounting Standards Board, "Statement of Financial
Accounting Standards (SFAS) No. 125". Prior to January 1, 1997 Levitz
accounted for these transactions under SFAS No. 77. The GECC Agreement
requires Levitz to repurchase the outstanding customer credit
obligations at the expiration date of the agreement. The maturity date
(on a contractual basis) of substantially all of the customer credit
obligations is now beyond the GECC Agreement expiration date of October
31, 1999. Consequently, Levitz is required to account for these
transactions as a secured borrowing with a pledge of collateral rather
than as a sale for financial reporting purposes. Levitz has recorded
$531.5 million as a Receivable under Account Purchase Agreement and an
offsetting obligation under Account Purchase Agreement in its current
financial statements. See Note 5.
Levitz is exposed to market risks under the terms of the GECC
Agreement. Levitz may pay a fee or may receive income, based on the
relationship among the interest earned on the portfolio, the amount of
the promotional discount fees, the amount of the servicing fee, the
prime rate, and to a limited extent, credit losses. For the six month
periods ended September 30, 1997 and 1996, Levitz recorded income under
the GECC Agreement of $7.8 million and $7.0 million, respectively.
These amounts are included in selling, general and administrative
expenses.
4. REORGANIZATION ITEMS:
Reorganization items for the period ended September 30, 1997 were as
follows (dollars in thousands):
SEPTEMBER 30,
REORGANIZATION ITEMS 1997
-------------------- -------------
Estimated loss on store closings $25,914
Professional fees 714
-------
$26,628
=======
9
<PAGE>
On September 5, 1997, Levitz announced the closing of eighteen stores
in under-performing markets during the six month period ending March
31, 1998. The estimated reserve includes the writedown of property,
capital lease assets, furniture and fixtures to their net realizable
values and includes provisions for continuing expenses and severance
pay.
Professional fees include accounting, legal and consulting services
provided to LFI and the Creditors' Committee which, subject to court
approval, are required to be paid by LFI while it is in Chapter 11.
5. UNUSUAL OPERATING EXPENSES AND STORE CLOSING CHARGE:
During the six month period ended September 30, 1997, LFI accrued a
charge for future payroll and employee benefit costs of $1.3 million in
connection with an employment agreement upon the resignation of an
officer. Additionally, LFI recorded a $5.9 million write-off of the
future service revenue receivable under the GECC Agreement since Levitz
is required to account for the transfer of assets under the GECC
Agreement as a secured borrowing with a pledge of collateral rather
than as a sale for financial reporting purposes.
During the quarter ended June 30, 1996, Management developed a plan to
close five satellite stores effective 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 fair 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.
6. INCOME TAXES:
LFI has recorded a deferred tax asset (benefit) for its cumulative net
operating loss (NOL) for the six month period ended September 30, 1997.
The cumulative NOL benefit at September 30, 1997, which is exclusively
provided for Federal tax purposes, is supported by deferred tax credits
which are projected to turn during the Federal carryforward period. LFI
is limited to the amount of future NOL's it can benefit and may have to
start providing offsetting allowances. Additionally, if LFI has any NOL
carryforwards when it emerges from bankruptcy, there could be
limitations placed on the realization of these NOL's.
7. EXTRAORDINARY ITEM:
On September 5, 1997, LFI incurred a before-tax extraordinary loss of
$8.4 million on the write-off of deferred financing fees related to the
termination of the Senior Secured Facilities. The after-tax loss was
$5.5 million or $0.18 per share. In the period ended September 30,
1996, LFI 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 $0.07 per share.
8. EARNINGS PER COMMON SHARE:
Primary and fully diluted earnings per common share are based on the
weighted average number of common shares outstanding during each year
plus the weighted average number of common stock equivalents as
determined by the use of the Treasury Stock Method. Common Stock
equivalents consist of stock options, restricted stock and warrants.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share". This standard is effective for financial statements issued
for periods ending after December 15, 1997 and earlier application is
not permitted. At that time, all prior period earnings per share data
will be restated. The implementation of
10
<PAGE>
SFAS No. 128 is not expected to materially affect LFI's consolidated
financial statements.
9. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
SIX MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
-------- --------
Interest paid, net $ 25,964 $ 25,460
======== ========
Income tax refunds, net $ (2,451) $ (6,980)
======== ========
In June 1997, Levitz exercised its option to issue additional term
notes under the Senior Secured Facilities of approximately $1.4 million
in lieu of paying interest in cash.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
COMPARISON OF OPERATIONS
The following table sets forth LFI's results of operations expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 56.3 55.0 55.6 55.2
----- ----- ----- -----
Gross profit 43.7 45.0 44.4 44.8
Selling, general and administrative
expenses 47.2 40.9 44.1 40.3
Unusual operating expenses 1.6 -- 1.7 --
Store closing charge -- -- -- 1.8
Depreciation and amortization 3.1 2.8 3.1 2.9
Interest expense 6.1 6.0 6.4 5.9
----- ----- ----- -----
Loss before reorganization items
and income taxes (14.3) (4.7) (10.9) (6.1)
Reorganization items (12.8) -- (6.4) --
----- ----- ----- -----
Loss before income taxes (27.1) (4.7) (17.3) (6.1)
Income tax benefit 9.5 1.7 6.1 2.2
----- ----- ----- -----
Loss before extraordinary items (17.6) (3.0) (11.2) (3.9)
Extraordinary items, net of tax (2.6) -- (1.3) (0.4)
----- ----- ----- -----
Net loss (20.2)% (3.0)% (12.5)% (4.3)%
===== ===== ===== =====
Comparable store sales decrease (11.1)% (5.6)% (8.8)% (5.7)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net sales of $207.3 million for the three month period ended September 30, 1997
decreased $29.8 million or 12.6% over net sales of $237.1 million in the same
period for the prior year. Sales on a comparable store basis decreased 11.1%.
The decrease in net sales is attributable to the slow-down in shipments and
credit restrictions placed on Levitz by merchandise vendors prior to the
Petition Date.
Gross profit as a percentage of net sales decreased to 43.7% for the three month
period ended September 30, 1997 compared to 45.0% in the same period for the
prior year. The decrease reflects an increase in sales of clearance merchandise
due to the slow-down in shipments of new merchandise.
Selling, general and administrative (SG&A) expenses increased $0.8 million for
the three month period ended September 30, 1997 as compared to the same period
for the prior year. As a percentage of net sales, SG&A expenses increased to
47.2% from 40.9%, respectively. Salaries, payroll taxes and employee benefit
expenses decreased $1.6 million from the comparable period last year. This was
offset by an increase in advertising expense of $2.4 million. The percentage
increase in SG&A was caused by the decline in net sales as previously noted.
12
<PAGE>
During the three month period ended September 30, 1997, Levitz recorded a $3.4
million charge as an unusual operating expense for the write-off of the future
service revenue receivable under the GECC Agreement since Levitz is now required
to account for the transfers of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financing
reporting purposes.
Interest expense for the three month period ended September 30, 1997 decreased
$1.7 million or 11.8% from the same period for the prior year. As a percentage
of net sales, interest expense increased to 6.1% from 6.0%, respectively. As a
result of the Chapter 11 filing, LFI did not record contractual interest expense
of $2.0 million.
As a result of the aforementioned factors, loss before reorganization items and
income taxes for the three month period ended September 30, 1997 amounted to
$29.6 million or 14.3% of net sales as compared to a loss of $11.1 million or
4.7% of net sales for the same period of the prior year.
Reorganization items for the three month period ended September 30, 1997
included an estimated reserve for store closings of $25.9 million for the
closing of eighteen stores. The reserve included the writedown of property,
capital lease assets, furniture and fixtures to their net realizable values and
includes provisions for continuing expenses and severance pay. Also, included
are professional fees of $0.7 million for accounting, legal and consulting
services provided to LFI and the Creditors' Committee while LFI is in Chapter
11.
Income tax benefit for the three month period ended September 30, 1997 was $19.8
million or 9.5% of net sales as compared to an income tax benefit of $3.9
million or 1.7% of net sales for the same period of the prior year. The
effective tax rate was 35.2% in the three month periods ended September 30, 1997
and 1996. LFI has been able to record a benefit for its current NOL since there
are sufficient deferred tax credits that are projected to turn during the
Federal carryforward period. However, future NOL benefits may have to be offset
by allowances. Additionally, if LFI has any NOL carryforwards when it emerges
from bankruptcy, there could be limitations placed on the realization of these
NOL's.
13
<PAGE>
The extraordinary loss net of tax benefit was $5.5 million or 2.6% of net sales
for the three month period ended September 30, 1997. The extraordinary loss was
due to the write-off of deferred financing fees related to the Senior Secured
Facilities.
Net loss for the three month period ended September 30, 1997 was $41.9 million
or 20.2% of net sales as compared to a net loss of $7.2 million or 3.0% of net
sales for the same period of the prior year.
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996
Net sales of $418.6 million for the six month period ended September 30, 1997
decreased $46.7 million or 10.0% over net sales of $465.3 million in the same
period for the prior year. Sales on a comparable store basis decreased 8.8%. The
decrease in net sales is attributable to the slow-down in shipments and credit
restrictions placed on Levitz by merchandise vendors prior to the Petition Date
during the three month period ended September 30, 1997 and the termination of an
advertising agency, decrease in inventory levels and a change in credit
promotion date during the three month period ended June 30, 1997.
Gross profit as a percentage of net sales decreased to 44.4% for the six month
period ended September 30, 1997 compared to 44.8% in the same period for the
prior year. The decrease reflects an increase in sales of clearance merchandise
due to the slow-down in shipments of new merchandise during the three month
period ended September 30, 1997.
Selling, general and administrative (SG&A) expenses decreased $2.5 million for
the six month period ended September 30, 1997 as compared to the same period for
the prior year. As a percentage of net sales, SG&A expenses increased to 44.1%
from 40.3%, respectively. The percentage increase in SG&A was caused by the
decline in net sales as previously noted.
During the six month period ended September 30, 1997, Levitz recorded a $5.9
million charge as an unusual operating expense for the write-off of the future
service revenue receivable under the GECC Agreement since Levitz is now required
to account for the transfers of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financing
reporting purposes. Also, Levitz recorded a $1.3 million charge for the
settlement of an employment agreement upon resignation of an officer.
The store closing charge of $8.3 million for the six month period ended
September 30, 1996 includes the reduction of the carrying value of the store
assets to the estimated fair value net of selling expenses as well as reserves
for future rental payments under operating lease agreements. Five satellite
stores were closed on October 31, 1996.
Interest expense for the six month period ended September 30, 1997 decreased
$0.6 million or 2.3% from the same period for the prior year. As a percentage of
net sales, interest expense increased to 6.4% from 5.9%, respectively. As a
result of the Chapter 11 filing, LFI did not record contractual interest expense
of $2.0 million.
As a result of the aforementioned factors, loss before reorganization items and
income taxes for the six month period ended September 30, 1997 amounted to $45.6
million or 10.9% of net sales as compared to a loss of $28.2 million or 6.1% of
net sales for the same period of the prior year.
Reorganization items for the six month period ended September 30, 1997 included
an estimated reserve for store closings of $25.9 million for the closing of
eighteen stores. The reserve included the writedown of property, capital lease
assets, furniture and fixtures to their net realizable values and includes
provisions for continuing expenses and severance pay. Also, included are
professional fees of $0.7 million for accounting, legal and consulting services
provided to LFI and the Creditors' Committee while LFI is in Chapter 11.
Income tax benefit for the six month period ended September 30, 1997 was $25.4
million or 6.1% of net sales as compared to an income tax benefit of $9.9
million or 2.1% of net sales for the same period of the prior year. The
effective tax rate was 35.2% in the six
14
<PAGE>
month periods ended September 30, 1997 and 1996. LFI has been able to record a
benefit for its current NOL since there are sufficient deferred tax credits that
are projected to turn during the Federal carryforward period. However, future
NOL benefits may have to be offset by allowances. Additionally, if LFI has any
NOL carryforwards when it emerges from bankruptcy, there could be limitations
placed on the realization of these NOL's.
The extraordinary loss net of tax benefit was $5.5 million or 1.3% of net sales
for the six month period ended September 30, 1997. The extraordinary loss was
due to the write-off of deferred financing fees related to the Senior Secured
Facilities. The extraordinary loss for the same period of the prior year net of
tax benefit was $2.0 million. The extraordinary loss was due to the write-off of
deferred financing fees related to the previous bank credit agreement.
Net loss for the six month period ended September 30, 1997 was $52.2 million or
12.5% of net sales as compared to a net loss of $20.3 million or 4.3% of net
sales for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
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 Senior Secured Facilities (as defined below), the
indentures relating to Levitz's outstanding indebtedness and Florida law. LFI's
only outstanding obligations are $8.4 million of Senior Deferred Coupon
Debentures due June 15, 2002.
Levitz's primary sources of liquidity are cash flow from operations (including
the proceeds from the transfer of customer credit obligations to GECC) and
borrowings under the DIP Facility.
On September 5, 1997, LFI and 11 of its subsidiaries filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code. LFI will
continue to conduct business in the ordinary course as debtor-in-possession
under the protection of the Bankruptcy Court while a plan of reorganization is
developed.
LFI's net cash from operations during the six month period ended September 30,
1997 increased $51.5 million over the same period of the prior year due to the
Chapter 11 filing. Requirements for the payment of unsecured debt, accounts
payable and other liabilities that arose prior to the Chapter 11 filing are in
most cases stayed while the company is under the protection of the Bankruptcy
Court. The Bankruptcy Court has issued orders authorizing the payment of
prepetition wages, employee benefits and other payments that are essential to
the daily operations of Levitz. The remaining prepetition liabilities of $370.9
million have been classified as liabilities subject to compromise under the
reorganization proceedings in the consolidated condensed balance sheet as of
September 30, 1997.
Receivables decreased $11.1 million from March 31, 1997 to September 30, 1997.
Trade receivables declined $4.6 million primarily due to the reduction in net
sales. The write-off of the future service revenue receivable due to the loss of
sale accounting treatment under the GECC Agreement was $5.9 million. Inventory
decreased $49.1 million due to a planned reduction in the first three months of
the current fiscal year and the slow-down in shipments by the merchandise
vendors prior to the Petition Date.
Capital expenditures for the six month period ended September 30, 1997 were for
the renovation and maintenance of existing store facilities. The reduction in
property and equipment and property under capital leases was due to the
write-off to net realizable value of the 18 stores which are being closed
between October 1997 and March 1998. Levitz has no plans to open any new stores
during the fiscal year ending March 31, 1998. Proceeds from the sale of property
and equipment includes the sale of two idle facilities that were sold prior to
the Petition Date.
15
<PAGE>
Net cash used in financing activities of $42.1 million included repayments of
debt under the Senior Secured Facilities and the DIP Facility of $19.6 million,
$8.1 million of principal payments on mortgages and capital lease obligations
and a $3.2 million payment for deferred financing fees relating to the DIP
Facility. The decrease in outstanding checks of $11.2 million is primarily due
to the Chapter 11 filings and the slow-down in shipment of merchandise.
Liquidity
LFI and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a Postpetition Credit Agreement dated as of September 5, 1997 (the
"DIP Facility"). The DIP Facility has been approved by the Bankruptcy Court and
provides for up to $260.0 million of availability. The DIP Facility contains
revolving notes of $223.6 million and a term note of $36.4 million. Letter of
credit obligations under the DIP Facility are limited to $25.0 million. The DIP
Facility is intended to provide LFI with the cash and liquidity to conduct its
operations and pay for merchandise shipments at normal levels during the course
of the Chapter 11 proceedings.
The maximum borrowings, excluding the term note, under the DIP Facility are
limited to 85% of eligible accounts receivable, 75% of eligible inventory (as
defined in the DIP Facility) and a fixed asset sublimit which may be permanently
reduced by the sale of fixed assets and leasehold interests. The maximum
borrowings at October 31, 1997 were $223.6 million. Availability under the DIP
Facility at October 31, 1997 reduced by $13.8 million in standy-by letters of
credit was $87.6 million. On October 9, 1997, the DIP Facility was amended to
include, among other things, a decrease in the minimum EBITDA requirements
through March 1998. LFI and Levitz are currently in compliance with the DIP
Facility covenants as amended.
On September 5, 1997 Levitz and General Electric Capital Corporation (GECC)
entered into a Second Amended and Restated Account Purchase and Credit Card
Program Agreement (the "GECC Agreement"), whereby GECC is required to purchase
Levitz's customer credit obligations, subject to certain restrictions, without
recourse up to a maximum investment of $900.0 million.
Levitz is exposed to market risks under the terms of the GECC Agreement. Levitz
may pay a fee or may receive income, based on the relationship among the
interest earned on the portfolio, the amount of the promotional discount fees,
the amount of the servicing fee, the prime rate, and to a limited extent, credit
losses. For the six month periods ended September 30, 1997 and 1996, Levitz
recorded income under the GECC Agreement of $7.8 million and $7.0 million,
respectively. These amounts are included in selling, general and administrative
expenses.
16
<PAGE>
PART II OTHER INFORMATION:
Item 1. Legal Proceedings.
As reported in its report on Form 8-K dated September 5, 1997 Levitz
Furniture Incorporated, Levitz Furniture Corporation and several of its
subsidiaries on that date, filed voluntary petitions for relief under
Chapter 11, Title 11 of the United States Code with the United States
Bankruptcy Court for the District of Delaware, Wilmington, Delaware
19801 (the "Court"). The Court agreed to procedurely consolidate the
cases and provide for the joint administration of their respective
cases.
Item 3. Default Upon Senior Securities.
As a result of the filing by Levitz Furniture Corporation ("Levitz") on
September 5, 1997 of a voluntary petition for relief under Chapter 11,
Title 11 of the United States Code, a default occurred on Levitz's 13
3/8% Senior Notes due October 15, 1998, $97,610,000 outstanding, 9 5/8%
Senior Subordinated Notes due July 15, 2003, $100,000,000 outstanding
and Levitz Furniture Incorporated Senior Deferred Coupon Debentures due
June 15, 2002, $8,439,000 outstanding. As of the date of this report
Levitz has not paid regularly scheduled interest payments on such
Senior Notes in a total arrearage amount of $6,125,348.
Item 5. Other Information.
On September 11, 1997, the New York Stock Exchange announced that
trading in the common stock of LFI would be suspended before the
opening of trading on September 25, 1997 or such earlier date as LFI
commenced trading in another securities market or information is
received that LFI does not meet the listing requirement of the other
securities market. Subsequently, trading in the common stock of LFI was
suspended.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 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.
Exhibit 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.
Exhibit 27: Financial Data Schedule
(b) Report on Form 8-K:
On September 12, 1997 the registrant filed a report on Form 8-K
reporting under Item 3. "Bankruptcy or Receivership" the filing on
September 5, 1997 by Levitz Furniture Incorporated, Levitz
Furniture Corporation and several of its subsidiaries of voluntary
petitions for relief under Chapter 11, Title 11 of the United
States Code.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEVITZ FURNITURE INCORPORATED
(Registrant)
Date: November 14, 1997 /s/ LAWRENCE R. MCDEVITT
---------------------------
Lawrence R. McDevitt
Asst. Treasurer and Asst. Secretary
Chief Accounting Officer
18
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
NUMBER
EXHIBIT TABLE EXHIBIT
------------- -------
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.
10.48 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.
27 Financial Data Schedule.
19
EXHIBIT NUMBER 10.47
FIRST AMENDMENT AND WAIVER TO POSTPETITION
CREDIT AGREEMENT AND POSTPETITION SECURITY AGREEMENT
THIS FIRST AMENDMENT AND WAIVER, dated as of October 7, 1997 (this
"Amendment") to the POSTPETITION CREDIT AGREEMENT and the POSTPETITION SECURITY
AGREEMENT, each dated as of September 5, 1997 (the "Credit Agreement" and the
"Security Agreement," respectively), is among LEVITZ FURNITURE INCORPORATED, a
Delaware corporation and a debtor and debtor in possession ("LFI"), LEVITZ
FURNITURE COMPANY, a Florida corporation and a debtor and debtor in possession
("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation and a debtor
and debtor in possession ("LFR"), LEVITZ SHOPPING SERVICE, INC., a Florida
corporation and a debtor and debtor in possession ("LSS"), LEVITZ FURNITURE
COMPANY OF THE MIDWEST, INC., a Colorado corporation and a debtor and debtor in
possession ("LFC Midwest"), LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation and a debtor and debtor in possession ("LFC Pacific"),
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a Washington corporation and a
debtor and debtor in possession ("LFC Washington") LEVITZ FURNITURE COMPANY OF
THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and debtor in
possession ("LFC Midwest Realty"), LEVITZ FURNITURE COMPANY OF THE PACIFIC
REALTY, INC., a California corporation and a debtor and a debtor in possession
("LFC Pacific Realty"), LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation and debtor and a debtor in possession ("LFC Washington
Realty"), JOHN M. SMYTH COMPANY, an Illinois corporation and a debtor and debtor
in possession ("JMS") and JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
and a debtor and debtor in possession ("JMS Realty") (LFI, LFC, LFR, LSS, LFC
Midwest, LFC Pacific, LFC Washington, LFC Midwest Realty, LFC Pacific Realty,
LFC Washington Realty, JMS and JMS Realty sometimes hereinafter individually
called a "Borrower" and collectively called the "Borrowers"); each Revolving
Lender and Term Lender signatories hereto (collectively the "Lenders"), and BT
COMMERCIAL CORPORATION, a Delaware corporation (in its individual capacity,
hereinafter called "BTCC"), acting in its capacity as agent for the Lenders (in
such capacity, together with its successors in such capacity, hereinafter called
the "Agent"). Capitalized terms used in this Amendment and not otherwise defined
have the meanings assigned such terms in the Credit Agreement and the Security
Agreement.
PRELIMINARY STATEMENTS:
A. The Borrowers and the Lenders are parties to the Credit Agreement.
B. The Borrowers and BTCC are parties to the Security Agreement.
C. The Borrowers have requested the Lenders and the Agent to amend and
to waive the Credit Agreement and the Security Agreement in certain respects.
D. The Lenders and the Agent have agreed to amend and to waive the
Credit Agreement and the Security Agreement as requested on the terms and
conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 Section 7.15 of the Credit Agreement is hereby amended by deleting
the term "no fewer than 20 of the store locations" and replacing such term with
the term "no fewer than 18 of the store locations".
1
<PAGE>
1.2 Section 8.1 of the Credit Agreement is hereby amended by deleting
such section in its entirety and replacing it as follows:
8.1 Minimum EBITDA. At the end of each period beginning on the
Petition Date and ending on the last day of each month set forth below, EBITDA
for such period shall be an amount not less than the following:
PERIOD FROM PETITION
DATE TO END OF AMOUNT
-------------------- -------------
October 1997 $(12,400,000)
November 1997 (8,000,000)
December 1997 (4,500,000)
January 1998 (2,900,000)
February 1998 (2,100,000)
March 1998 (100,000)
1.3 Section 8.6 of the Credit Agreement is hereby amended by deleting
subsections (iv) and (v) in their entirety, respectively, and replacing such
subsections as follows:
(iv) sales or other dispositions of Inventory sold or transferred
outside of the ordinary course of business for cash or Cash Equivalents and for
not less than the fair market value so long as such sale or disposition is
approved by the Bankruptcy Court, (v) obsolete or worn out property disposed of
in the ordinary course of business and (vi) to any Borrower.
1.4 Section 9.2 of the Credit Agreement is hereby amended by deleting
the terms "four (4) Business Days'" and "four (4) business days" in subsection
(b) and (d), respectively, thereof and replacing such terms with the term "five
(5) Business Days'".
2. AMENDMENT TO SECURITY AGREEMENT.
2.1 Section 2(J) of the Security Agreement is hereby amended by
deleting the term ",including without limitation all causes of action of the
Grantors pursuant to the Bankruptcy Code".
3. WAIVER TO CREDIT AGREEMENT.
3.1 Authority. To the extent that the granting of a security interest
in the Borrowers' leasehold properties in favor of the Collateral Agent pursuant
to (I) any Credit Document or (ii) the Permanent Financing Order results in the
breach or termination of, or constitutes a default under any of the Borrowers'
real property leases under Section 6.2(v) of the Credit Agreement, each of the
Lenders waives any Event of Default that may arise under Section 9.2(c) of the
Credit Agreement as a result of such breach, termination or default.
4. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of each of the
following conditions:
(a) The Agent shall have received ten (10) copies of this Amendment,
duly executed by the LFC Funds Administrator, each of the Borrowers,
and each of the Lenders.
(b) The Bankruptcy Court shall have entered an order in form and
substance satisfactory to the Agent authorizing the LFC Funds
Administrator and the Borrowers to enter into this Amendment. Such
order shall be in full force and effect and shall not have been
vacated, reversed, modified or stayed in any respect and, if such order
is the
2
<PAGE>
subject of any pending appeal, no performance of any obligation of any
party hereto shall have been stayed pending such appeal.
5. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Amendment:
(a) all representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Amendment, in each case
as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) no Default or Event or Default has occurred which has not been
waived (or, in the case of an Event of Default, cured) pursuant to the
terms of the Credit Agreement;
(c) this Amendment, and the Credit Agreement as amended hereby,
constitute legal, valid and binding obligations of the LFC Funds
Administrator and each of the Borrowers and are enforceable against
such Persons in accordance with their respective terms; and
(d) the execution and delivery by the LFC Funds Administrator and
each of the Borrowers of this Amendment does not require the consent or
approval of any Person other than the Bankruptcy Court, except such
consents and approvals as shall have been obtained.
6. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
6.1 Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import, and each reference in each of the other Credit Documents to the
"Credit Agreement" shall mean and be a reference to the Credit Agreement as
amended hereby.
6.2 Except as expressly set forth herein, (i) the execution and
delivery of this Amendment shall in no way affect any of the respective rights,
powers or remedies of the Agent or any of the Lenders with respect to any Event
of Default nor constitute a waiver of any provision of the Credit Agreement or
any of the other Credit Documents and (ii) all of the terms and conditions of
the Credit Agreement, the other Credit Documents and all other documents,
instruments, amendments and agreements executed and/or delivered by the
Borrowers and/or the LFC Funds Administrator pursuant thereto or in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed in all respects. The execution and delivery of this Amendment by the
Agent and each of the Lenders shall in no way obligate the Agent or any of the
Lenders at any time hereafter to consent to any other amendment or modification
of any term or provision of the Credit Agreement or any of the other Credit
Documents, whether of a similar or different nature.
7. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
8. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
3
<PAGE>
9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly 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: TREASURER
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its individual
capacity and in its capacity as the LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
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: TREASURER
LEVITZ SHOPPING SERVICE, INC., a Florida
corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
5
<PAGE>
LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
LEVITZ FURNITURE COMPANY OF THE
PACIFIC, INC., a California corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
LEVITZ FURNITURE COMPANY OF THE MIDWEST
REALTY, INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
LEVITZ FURNITURE COMPANY OF THE PACIFIC
REALTY, INC., a California corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
6
<PAGE>
JOHN M. SMYTH COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
JOHN M. SMYTH REALTY COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
-----------------------------------
Name: SHEILA C. REINKEN
Title: TREASURER
AGENT:
BT COMMERCIAL CORPORATION, in its
capacity as Agent
By: /s/ FRANK FAZIO
-----------------------------------
Name: FRANK FAZIO
Title: VICE PRESIDENT
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware
corporation in its respective
capacities as Revolving Lender
and Collateral Agent
By: /s/ FRANK FAZIO
-----------------------------------
Name: FRANK FAZIO
Title: VICE PRESIDENT
CARGILL FINANCIAL SERVICES CORPORATION,
in its capacity as Revolving Lender
By: /s/ JEFFREY D. LEA
-----------------------------------
Name: JEFFREY D. LEA
Title: SENIOR VICE PRESIDENT
FINOVA CAPITAL CORPORATION, it its
capacity as Revolving Lender
By: /s/ PETE MARTINEZ
-----------------------------------
Name: PETE MARTINEZ
Title: VICE PRESIDENT
7
<PAGE>
HELLER FINANCIAL, INC., in its capacity
as Revolving Lender
By: /s/ DWAYNE L. COKER
-----------------------------------
Name: DWAYNE L. COKER
Title: VICE PRESIDENT
LASALLE NATIONAL BANK, in its capacity
as Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
-----------------------------------
Name: CHRISTOPHER G. CLIFFORD
Title: SENIOR VICE PRESIDENT
CONGRESS FINANCIAL CORPORATION (CENTRAL),
in its capacity as Revolving Lender
By: /s/ WILLIAM H. BLOOM
-----------------------------------
Name: WILLIAM H. BLOOM
Title: SENIOR VICE PRESIDENT
TRANSAMERICA BUSINESS CREDIT CORPORATION,
in its capacity as Revolving Lender
By: /s/ THOMAS V. FERNANDES
-----------------------------------
Name: THOMAS V. FERNANDES
Title: SENIOR ACCOUNT EXECUTIVE
SILVER OAK CAPITAL L.L.C., in its
capacity as Revolving Lender
By: /s/ JEFFREY H. ARONSON
-----------------------------------
Name: JEFFREY H. ARONSON
Title: AUTHORIZED SIGNATURE
TERM LENDER:
SILVER OAK CAPITAL L.L.C., in its
capacity as Revolving Lender
By: /s/ JEFFREY H. ARONSON
-----------------------------------
Name: JEFFREY H. ARONSON
Title: AUTHORIZED SIGNATURE
8
EXHIBIT NUMBER 10.48
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
ACCOUNT PURCHASE AND CREDIT CARD PROGRAM AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED ACCOUNT PURCHASE AND
CREDIT CARD PROGRAM AGREEMENT (this "Amendment") dated as of October 7, 1997 is
entered into by and among LEVITZ FURNITURE CORPORATION ("Parent"), a Florida
corporation with its principal place of business and chief executive offices
located at 6111 Broken Sound Parkway NW, Boca Raton, Florida 33487, its
subsidiary operating corporations (collectively, "Operating Subsidiaries"),
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado corporation, LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation, LEVITZ
FURNITURE COMPANY OF WASHINGTON, INC., a Washington corporation, LEVITZ SHOPPING
SERVICE, INC., a Florida corporation, and JOHN M. SMYTH COMPANY, an Illinois
corporation, all with their principal places of business and chief executive
offices located at 6111 Broken Sound Parkway NW, Boca Raton, Florida 33487, and
GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), a New York corporation
having its administrative office located at 260 Long Ridge Road, Stamford,
Connecticut 06902, with reference to the following facts:
WITNESSETH:
WHEREAS, GE Capital, Parent and Operating Subsidiaries entered into
that certain Second Amended and Restated Account Purchase and Credit Card
Program Agreement dated as of September 5, 1997 by and among Parent, Operating
Subsidiaries and GE Capital (the "Agreement"). Unless otherwise defined in this
Amendment, (i) capitalized terms used herein shall have the meanings attributed
to them in the Agreement, and (ii) references to sections shall refer to
sections of the Agreement.
WHEREAS, on September 5, 1997, Parent and Operating Subsidiaries
commenced the Chapter 11 Cases.
WHEREAS, Parent and Operating Subsidiaries continue to operate their
business and manage their properties as debtors and debtors in possession
pursuant to Section 1107(a) and 1108 of the Bankruptcy Code.
WHEREAS, Parent and Operating Subsidiaries have requested certain
amendments be made to the Agreement, and GE Capital has agreed to such
amendments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the continued performance by Parent
and Operating Subsidiaries of their promises and obligations under the Agreement
and the other documents related thereto, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Parent, Operating Subsidiaries and GE Capital hereby agree as follows:
AGREEMENT
1. AMENDMENT TO AGREEMENT. The Agreement shall be amended as follows:
1.1 Section 5.12 is hereby amended by deleting the word "four" and
substituting the word "five" therefor.
1.2 Section 8(j) is hereby amended by deleting the following phrase:
", and copies of all documents and other information
distributed by or on behalf of the Debtors to an official
committee of creditors or any other official committee
appointed in the Chapter 11 Cases (except to the extent such
information is subject to a
1
<PAGE>
confidentiality agreement between the Debtors and such
committee)."
1.3 Section 12.3 is hereby amended by adding the following phrase at
the end thereof: "; provided, that no such termination fee shall be payable if
Parent and Operating Subsidiaries enter into a private label credit card program
or other replacement or modification of the facility established under this
Agreement with the Monogram Credit Card Bank of Georgia."
1.4 Section 13.2 is hereby amended by deleting the word "four" and
substituting the word "five" therefor.
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
upon execution thereof by the parties hereto and entry of the Approval Order
modified as set forth in Exhibit A hereto; provided that the amendment to
Section 8(j) shall be deemed to have taken effect as of September 5, 1997.
3. REFERENCE TO AGREEMENT. Upon the effectiveness of this Amendment, on
and after the date hereof each reference in the Agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of like import shall mean and be a
reference to the Agreement as amended hereby.
4. ENTIRE AGREEMENT. This Amendment, together with the Agreement, is
the entire agreement between the parties hereto with respect to the subject
matter hereof. This Amendment supersedes all prior and contemporaneous oral and
written agreements and discussions with respect to the subject matter hereof.
Except as otherwise expressly modified herein, the Agreement shall remain in
full force and effect.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that the representations and warranties contained in the Agreement were
true and correct in all material respects when made and, except to the extent
that a particular representation or warranty by its terms expressly applies only
to an earlier date, or (b) Parent or any Operating Subsidiary has previously
otherwise advised GE Capital in writing as contemplated under the Agreement, are
true and correct in all material respects as of the date hereof. The Agreement
shall continue in full force and effect in accordance with the provisions
thereof on the date hereof. Parent and Operating Subsidiaries hereby confirm
that the disposition of merchandise by a liquidator does not constitute sales in
the ordinary course of business.
6. MISCELLANEOUS.
6.1 COUNTERPARTS. This Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which shall
constitute one and the same agreement.
6.2 AUTHORITY. Each Person executing this Amendment represents and
warrants that he or she is lawfully authorized and empowered to execute this
Amendment on behalf of the entity on whose behalf such Person is signing, and
that upon execution, this Amendment will be binding upon such entity, without
any further approval, ratification or other action.
6.3 HEADINGS. Section headings used herein are for convenience of
reference only, are not part of this Amendment, and are not to be taken into
consideration in interpreting this Amendment.
6.4 GOVERNING LAW. This Amendment shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
applicable to contracts made and performed in such state, without regard to the
principles thereof regarding conflict of laws.
2
<PAGE>
6.5 NO WAIVER. Except as specifically set forth in paragraphs 1 and
2 of this Amendment, the execution, delivery and effectiveness of this Amendment
shall not (a) limit, constitute a waiver of or otherwise affect any right, power
or remedy by GE Capital under the Agreement, (b) constitute a waiver of any
provision in the Agreement, or (c) alter, modify, amend or in any way affect any
of the terms, conditions, obligations, covenants or agreements contained in the
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.
6.6 CONFLICT OF TERMS. In the event of any inconsistency between the
provisions of this Amendment and any provision of the Agreement, the terms and
provisions of this Amendment shall govern and control.
3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first above written.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ JAMES C. UYAI
-----------------------------------
Name: JAMES C. UYAI
Title: DULY AUTHORIZED SIGNATORY
LEVITZ FURNITURE CORPORATION
By: /s/ PATRICK J. NOLAN
-----------------------------------
Name: PATRICK J. NOLAN
Title:
LEVITZ FURNITURE COMPANY OF THE
MIDWEST, INC.
By: /s/ PATRICK J. NOLAN
-----------------------------------
Name: PATRICK J. NOLAN
Title:
LEVITZ FURNITURE COMPANY OF THE
PACIFIC, INC.
By: /s/ PATRICK J. NOLAN
-----------------------------------
Name: PATRICK J. NOLAN
Title:
LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC.
By: /s/ PATRICK J. NOLAN
-----------------------------------
Name: PATRICK J. NOLAN
Title:
JOHN M. SMYTH COMPANY
By: /s/ PATRICK J. NOLAN
-----------------------------------
Name: PATRICK J. NOLAN
Title:
LEVITZ SHOPPING SERVICE, INC.
By: /s/ PATRICK J. NOLAN
-----------------------------------
Name: PATRICK J. NOLAN
Title:
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,987
<SECURITIES> 0
<RECEIVABLES> 25,030
<ALLOWANCES> 0
<INVENTORY> 120,389
<CURRENT-ASSETS> 158,144
<PP&E> 205,524
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,038,084
<CURRENT-LIABILITIES> 253,926
<BONDS> 7,782
0
0
<COMMON> 303
<OTHER-SE> (145,965)
<TOTAL-LIABILITY-AND-EQUITY> 1,038,084
<SALES> 418,625
<TOTAL-REVENUES> 418,625
<CGS> 232,539
<TOTAL-COSTS> 232,539
<OTHER-EXPENSES> 204,922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,716
<INCOME-PRETAX> (72,180)
<INCOME-TAX> (25,436)
<INCOME-CONTINUING> (46,744)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,462)
<CHANGES> 0
<NET-INCOME> (52,206)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> 0.00
</TABLE>
