SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 1-12046
LEVITZ FURNITURE INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2351830
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7887 NORTH FEDERAL HIGHWAY, BOCA RATON, FL 33487-1613
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(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
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(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK PAR VALUE $.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(d) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On June 8, 1999, there were 30,071,621 shares of the registrant's Common Stock
outstanding of which 26,497,959 shares were Voting Common Stock and 3,573,662
shares were Non-Voting Common Stock, with 249,007 shares held by the registrant
in its treasury. As of that date the aggregate value of the registrant's voting
stock held by non-affiliates, as calculated at $0.32 per share, was $7,596,942.
The decrease of 67,275 shares from last year's report reflects the return to the
treasury of 67,275 shares pursuant to restricted stock award agreement.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS: (1) BANKRUPTCY COURT ACTIONS
OR PROCEEDINGS RELATED TO THE BANKRUPTCY OF LFI AND ITS SUBSIDIARIES; (2)
COMPETITIVE PRESSURE IN LFI'S INDUSTRY; (3) GENERAL ECONOMIC CONDITIONS; (4)
CHANGES IN THE FINANCIAL MARKETS AFFECTING LFI'S FINANCIAL STRUCTURE AND LFI'S
COST OF CAPITAL AND BORROWED MONEY; (5) INVENTORY RISKS DUE TO CHANGES IN MARKET
DEMAND OR LFI'S BUSINESS STRATEGIES; (6) CHANGES IN EFFECTIVE TAX RATES; (7)
YEAR 2000 RISKS; AND (8) THE UNCERTAINTIES INHERENT IN LFI'S OPERATIONS. LFI HAS
NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K.
CHAPTER 11 FILING
On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI" or the "Company"), and 11 of its subsidiaries
(collectively, the "Debtors"), including, Levitz Furniture Corporation, a
Florida corporation and wholly-owned subsidiary of LFI ("Levitz"), filed
voluntary petitions for relief under Chapter 11, Title 11 of the United States
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware (the "Court") under Case No.
97-1842(MFW). Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, LFI, as
debtor and debtor-in-possession, has continued to manage and operate its assets
and businesses pending the confirmation of a reorganization plan or plans and
subject to the supervision and orders of the Court. Because LFI is operating as
debtor-in-possession under Chapter 11 of the Bankruptcy Code, the existing
directors and officers of LFI continue to manage the operations of LFI subject
to the supervision and orders of the Court.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint Plan of
Reorganization" ("Plan of Reorganization" or "Plan"), pursuant to Section 1125
of the Bankruptcy Code with the Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Debtors' Chapter 11 cases and the anticipated organization,
operation and financings of "Reorganized Levitz". The Disclosure Statement
describes the Plan of Reorganization, certain effects of Plan confirmation,
certain risk factors associated with securities to be issued under the Plan, and
the manner in which distribution will be made under the Plan. In addition, the
Disclosure Statement discusses the confirmation process and the voting
procedures that holders of claims in impaired classes must follow for their
votes to be counted. The Plan of Reorganization sets forth certain information,
among other things, the classification and treatment of claims and interests,
means for implementation of the Plan, acceptance or rejection of the Plan and
effect of rejection by one or more classes of claims or interests, provisions
for governing distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of the
effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the Plan
effective date:
(1) All holders of an allowed administrative and priority tax claim
are unimpaired and unclassified, are not entitled to vote on the
Plan and
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will receive cash or such other treatment as to which LFI and such
creditor shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff
claim (Class 2) and miscellaneous secured claim (Class 3) are
unimpaired, are deemed to have accepted the Plan and, therefore
not entitled to vote on the Plan and will receive cash or setoff
or reinstatement or such other treatment as to which LFI and such
creditor shall have agreed in writing.
(3) All holders of a small unsecured claim (less than $1,000, Class 4)
are impaired and are entitled to vote on the Plan and shall
receive in cash 25% of the allowed amount of the claim.
(4) All holders of an allowed general unsecured claim (Class 5) are
impaired, are entitled to vote on the Plan and shall receive their
pro rata share of the new common stock distribution of
"Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are
impaired, are deemed to have rejected the Plan and, therefore, not
entitled to vote on the Plan, and shall not receive or retain any
property or interest in property on account of their subordinated
claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their
holders shall not receive or retain any property or interest in
property on account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former
holder or owner of "old equity securities" authorized and issued
prior to the Plan confirmation date, Class 8) are impaired, are
deemed to have rejected the Plan and, therefore, are not entitled
to vote on the Plan. All Interests shall be cancelled and the
Interest holders shall not receive or retain any property or
interest in property on account of their Interests.
Although the Plan of Reorganization provides for the Debtors' emergence from
bankruptcy, there can be no assurances given that the Plan will be confirmed by
the Court, or that such Plan will be consummated.
At this time, it is not possible to predict the outcome of the Debtors' Chapter
11 cases or their effect on the Debtors' business. Reference is made to Item 7 -
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Report of Independent Public Accountants included on page 32
which indicates the substantial doubt about LFI's ability to continue as a going
concern.
THE COMPANY
LFI was incorporated in Delaware in 1984 under the name LFC Holding Corporation
for the purpose of acquiring Levitz Furniture Corporation. LFI changed its name
to Levitz Furniture Incorporated in 1993. LFI's only material asset is the
common stock of Levitz Furniture Corporation and it conducts no business other
than holding the common stock of Levitz Furniture Corporation. The principal
executive offices of LFI are located at 7887 North Federal Highway, Boca Raton,
FL 33487-1613, and its telephone number is (561) 994-6006.
Levitz Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"), was organized in 1965 as a Florida
corporation, is the successor to a business originally commenced in 1910 and was
acquired by LFI in 1985. Levitz is one of the largest specialty retailers of
furniture in the United States with, as of June 8, 1999, a chain of 64 stores
serviced by 21 warehouses located in major metropolitan areas in 13 states.
Levitz pioneered the warehouse-showroom concept by opening the first
warehouse-showroom in 1963 in Allentown, Pennsylvania. Levitz stores generated
revenues of $653.1 million in the year ended March 31, 1999 ("Fiscal 1999").
Management believes the Levitz name to be one of the most recognized in
furniture retailing.
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Levitz stores offer a wide selection primarily of brand-name furniture and
accessories including living room, bedroom, dining room, kitchen and occasional
furniture and bedding. Some of the well known, nationally advertised brands
offered by Levitz stores include Ashley, Bassett, Benchcraft, Berkline, Douglas,
Klaussner, Lane, Lea Industries, Rowe, Sealy, Simmons, Stanley, and Universal.
Levitz does not manufacture any of the merchandise sold in its stores but
instead devotes all of its resources to the retail sale of furniture.
Levitz has experienced declining profitability and cash flows over the past
several fiscal years. Reference is made to "Restructuring Activities" and Item 7
- - "Management's Discussion and Analysis of Results of Operations and Financial
Condition" for a discussion of action taken with an intent to restore profitable
operations.
BUSINESS STRATEGY
Levitz's retailing concept targets value-conscious consumers by offering:
-- broad selections of furniture and accessories;
-- nationally advertised brands;
-- competitive prices; and
-- immediate availability of merchandise.
Levitz offers one of America's largest selection of quality brand name furniture
at guaranteed low prices. The Company's large stores facilitate the display of a
broad selection of furniture and accessories. Levitz's sales volumes create a
key channel of distribution for its principal vendors. Management has developed
strong partnerships with these principal vendors from whom it purchases large
quantities of quality merchandise, often at substantial savings. This buying
power enables Levitz to price its merchandise very competitively.
MERCHANDISING
Levitz targets value-conscious consumers between 18 and 44 years of age with a
family income between $45,000 and $65,000 per year. Its customers seek
moderately priced merchandise to upper moderately priced merchandise, appreciate
style and recognize value.
Levitz offers a wide array of choices to the value-conscious consumer. The large
product selection is an inducement for consumers to purchase at Levitz and
differentiates Levitz from its competitors. The merchandise sales mix among
product line groupings for Fiscal 1999 was upholstery/seating 44.1%, bedroom
20.0%, occasional 11.1%, dining room (formal and casual) 12.3%, bedding 9.9%,
and other 2.6%. Percentage breakdowns have been relatively consistent for the
past several years.
To attract consumers who prefer more customized merchandise, Levitz can special
order fabrics on upholstered products from a wide variety of preselected
patterns ("Choices Program"). Moreover, Levitz has enhanced its special order
leather program, which allows customers to receive their merchandise generally
within four weeks of purchase. During Fiscal 1999 the Choices Program
represented approximately 9.7% of upholstery sales for continuing stores.
ADVERTISING AND PROMOTION
Levitz retains independent advertising firms for creative and production
services in connection with its print, radio and television advertisements. For
Fiscal 1999, Levitz's advertising expenditures amounted to $93.4 million or
14.3% of net sales, as compared to $108.1 million or 13.3% of net sales, for
Fiscal 1998. Advertising expenditures include promotional finance fees of $28.4
million and $27.2 million in Fiscal 1999 and 1998, respectively.
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Levitz's advertising seeks to attract a broader customer segment and emphasize
the difference between shopping at Levitz and at other stores.
Levitz continues to promote its stores through newspaper inserts and circulars
distributed through the mail ("Preprints"). These Preprint promotions reflect
(i) the great styles offered at Levitz, (ii) the wide array of choices, (iii)
Levitz's low prices and (iv) fast delivery.
CUSTOMER SERVICE
Levitz is committed to providing high-quality customer service in all phases of
its business, including instant store credit and prompt delivery. Levitz offers
its customers instant credit at the time of purchase using point-of-sale
terminals on the showroom floors. In the case of any damaged or defective
merchandise Levitz will repair or replace the item or, if impracticable to
repair or replace, will offer a refund to the customer. Management believes its
commitment to customer service has contributed to the substantial percentage of
repeat purchases by Levitz's customers.
STORE OPERATIONS
STORES
Each of Levitz's sixty-four stores feature selling space of 18,000 to 112,000
square feet. Merchandise is typically displayed in model room settings of which
approximately 240 to 330 are located in each facility containing 50,000 or more
square feet of selling space. Smaller facilities feature approximately 110 to
230 model room settings. Levitz's customers typically have the option to receive
their merchandise at the store immediately upon purchase or within a few days or
to have their merchandise delivered to their homes for a modest delivery charge.
Levitz's stores are typically located within easy access of expressway
interchanges or major highways and have adjacent parking facilities. Levitz
opened one new store in May 1999 and relocated one store in November 1998.
Levitz expects to relocate one additional store in Fiscal 2000. See "Properties"
for information regarding the locations of Levitz's stores.
Levitz's retail facilities are generally open Monday through Saturday from 10:00
a.m. to 9:00 p.m., and on Sundays from 12:00 noon to 6:00 p.m.
SALES SUPPORT CENTERS
Levitz's twenty-one Sales Support Centers (formerly known as warehouses) provide
the selling support for all sixty-four stores. The support provided includes the
warehousing of merchandise, customer service, data processing, inventory control
and delivery. Each Sales Support Center is currently attached to a store and is
in close proximity to other detached stores that it services.
CUSTOMER CREDIT POLICIES
Levitz sells its merchandise either for cash, or through bank credit cards and a
private label credit card program. During Fiscal 1999 and 1998, approximately
48% and 40%, respectively, of sales at Levitz's facilities were for cash
(including bank credit cards), and approximately 52% and 60%, respectively, of
sales were under customer credit plans. The availability of a "private label"
credit-financing program is critical to Levitz's business. Private label credit
supports marketing programs and offers a convenient way for Levitz customers to
spread over time the cost of furniture purchases.
Levitz's private label credit card program is offered under an agreement with
Household Bank (SB), N.A. ("Household"). Under the program, Household approves
the credit application and pays Levitz for the sale. Levitz pays Household a fee
for servicing the accounts and an amount intended to compensate Household for
its invested capital. Levitz receives all income and
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pays all expenses relating to the financing of the portfolio. Levitz is also
responsible for any bad debts associated with the portfolio up to 15% of average
outstanding receivables in any contract year. Any amounts in excess of 15% are
to be shared equally by Levitz and Household.
In the event Household denies credit approval to a customer, Levitz endeavors to
obtain credit approval from other third-party finance companies. Under such
arrangements, Levitz sells the sale transaction to the finance company for a
discount and on a non-recourse basis.
VENDOR PARTNERSHIPS/INVENTORY
Management has established strong partnerships with its principal vendors to
review new merchandise and plan promotions and marketing strategies, as well as
manage inventory levels. Substantially all manufacturers have cooperative
advertising budgets with Levitz. Electronic data interchange ("EDI") is an
important aspect of these partnerships. Ninety-eight manufacturers currently
participate in Levitz's EDI system which enables manufacturers to plan and
produce goods more efficiently while making it possible for Levitz to maintain
an in-stock position with less inventory. The EDI system includes the daily
electronic transmission of purchase orders and bar code data to vendors and
returned receipt of acknowledgements of the purchase orders from vendors. The
acknowledgement authenticates, among other things, price, items and expected
shipment date. The use of EDI combined with the newly implemented demand
forecasting and inventory replenishment system will streamline the merchandise
re-ordering process and allow Levitz to be in a better in-stock position with
less inventory investment. During May 1999, 96.0% of all furniture purchases
were made through the EDI system, as compared to 98.1% for the same month of the
prior year. Levitz has six vendors that send invoices through EDI. This process
is integrated with the accounts payable system. Levitz intends to continue
working with vendors to increase the number of vendors that use EDI for invoices
and also to introduce additional EDI features such as advance ship notices which
are expected to enhance relations and improve efficiencies for the Company.
Levitz currently purchases merchandise from over 247 independent manufacturers.
For Fiscal 1999, Levitz's top ten vendors accounted for 50.3% of purchases.
Levitz has no long-term contractual commitments with any of its manufacturers,
and with the exception of the disruption caused by its 1997 Chapter 11 filing,
has had no difficulty in the past in obtaining merchandise for sale.
Levitz is concentrating its vendor relations on key vendors, which account for
approximately eighty percent of net sales. These enhanced relationships involve
regular assessment reports and periodic strategy planning meetings.
MANAGEMENT INFORMATION SYSTEMS
Levitz maintains an IBM AS/400 computer in each Sales Support Center to track
all inventory and sales activity for the stores that the Sales Support Center
services.
When merchandise arrives at the Sales Support Center, it has been or is
immediately bar coded, enabling scanning by hand-held readers. This information
is directly loaded into the AS/400 thereby eliminating clerical errors,
increasing available inventory for sale and minimizing inventory shrinkage. The
sales floors in all stores are equipped with on-line point-of-sale terminals
enabling sales persons to access inventory status, reserve inventory, schedule
delivery and begin the credit approval process for customers. All data is
transmitted to corporate headquarters each night. Management at corporate
headquarters and at the store level monitor inventory composition, age and
condition.
Levitz is developing a radio-frequency ("RF") system to track all merchandise
movement in and out of its stores and Sales Support Centers. All furniture
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movement will be scanned and updated immediately in the inventory files. The
initial test system will be implemented in Fiscal 2000.
COMPETITION
The home furnishings industry is a highly competitive and fragmented market with
sales for furniture, bedding and decorative accessories by furniture stores in
the United States estimated at $37.6 billion in 1998. According to a leading
industry publication, the nation's 100 largest furniture retailers accounted for
approximately 48.0% of all furniture sales by furniture stores in the United
States in 1998. According to the same publication, in 1998 Levitz represented
1.6% of total domestic furniture sales, and was the fifth largest specialty
retailer of furniture in the United States.
Levitz's competition varies significantly according to geographic areas.
Levitz's principal competitors consist of local independent specialty furniture
retailers. Levitz also competes with national and regional specialty furniture
retailers, general merchandisers, internet and "800" number based retailers and,
in certain limited categories, wholesale clubs. In the future Levitz may have
increasing competition from other major retail operations, some of which may
have greater financial and other resources than Levitz and may derive revenues
from sales of products other than household furnishings.
EMPLOYEES
As of March 31, 1999, Levitz had 2,993 employees, of whom 946 were engaged in
sales, 333 in merchandising and display, 779 in warehouse and maintenance
functions and 935 in office and administrative work. As of March 31, 1999, 2,322
of Levitz's employees were full-time and 671 were part-time. Sales personnel are
paid primarily on a commission basis. Levitz's store managers and key marketing,
distribution and operations personnel may receive, in addition to their base
salaries, bonus compensation based upon achieving planned sales and operating
performance for the location or locations for which the employee has
responsibility. Certain of Levitz's national staff personnel, including
officers, may receive bonuses based upon favorable operating results during the
fiscal year.
Levitz maintains one facility in the state of Washington which its sales
employees are covered by a collective bargaining agreement with a local of the
United Food and Commercial Workers Union ("UFCW"). This collective bargaining
agreement expires in December 2000.
Levitz maintains two facilities in New Jersey in which all non-management
employees are represented by an affiliate of the Teamsters Union. The Union was
certified as bargaining agent for the employees in August 1998. The parties are
engaged in contract negotiations with that union.
In 1995, Levitz withdrew recognition of a UFCW local as bargaining agent for the
employees at a facility in California. That decision was upheld by the NLRB
Regional Director and the local has appealed the matter to the NLRB.
In the past, a number of petitions were received from various unions, including
affiliates of the UFCW and the Teamsters Union, for organization of some or all
of the employees in certain other of Levitz's facilities. Except as noted above,
none of these petitions or other union activities has resulted in a current
collective bargaining agreement. Levitz has not experienced a material work
stoppage due to union activity in the past 10 years.
Levitz expects that union efforts to organize the employees at its facilities
will continue from time to time, but cannot predict what effect these activities
may have on Levitz's business operations, employee relations or income from
operations. Although nationwide organizational campaigns may be instituted by
one or more unions, all union activities to date have been confined to the local
or regional level.
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RESTRUCTURING ACTIVITIES
Since the Petition Date, management of the Company and its advisors in the
bankruptcy proceedings have conducted an extensive analysis of business
operations with the objective of making the changes necessary to improve
operating performance. Levitz has devised a comprehensive strategy to focus and
increase its presence in its most productive markets, streamline its warehousing
and delivery systems, and improve its internal operations and selling functions.
The major restructuring initiatives that have been implemented or are currently
underway include the following:
FOCUS ON MARKETS WITH STRONG COMPETITIVE POSITIONING
Management has studied each of the market areas in which Levitz stores operate.
This study compared the operating performance of Levitz's stores against key
competitors in each market. Levitz determined that a key determinant of the
ability of Levitz to profitably compete was for Levitz to be one of the dominant
furniture retailers, in terms of number of stores and sales revenues, within
each geographic market. The conclusion was based upon the significant
advertising and promotional expenses required to operate in the furniture retail
business and the ability to leverage fixed expenses across a greater sales base
within each market. Accordingly, management decided to close selected markets in
which Levitz did not have sufficient market presence and to refocus those assets
into other core markets by opening new stores or by remodeling existing stores.
Levitz has closed a total of sixty-six stores since the Petition Date, enabling
it to concentrate resources on the remaining core stores, primarily in the
Northeast and on the West Coast. As part of their efforts to increase market
share and to improve profitability, Levitz plans to relocate selected existing
stores and to open additional stores over the next three to five years within
core markets, dependent on general business conditions and Levitz's ability to
finance the openings.
DISTRIBUTION SYSTEM RATIONALIZATION
Levitz is implementing a "warehouse rationalization program," aimed at limiting
the number of warehouses serving each market. This initiative should provide the
following benefits: (i) reduced in-bound freight costs; (ii) reduced warehouse
operating costs; (iii) lower inventory investments; (iv) improved merchandise
in-stock position; (v) better ability to clear discontinued merchandise; and
(vi) overall logistics simplification. In addition, the warehouse
rationalization program may provide Levitz the opportunity to relocate certain
existing stores into more favorable retail locations.
The warehouse rationalization program is being implemented in several phases.
The first phase, begun in June 1998 with the closure of the warehouse facility
in the Paramus, New Jersey store was completed in June 1999. Also, during this
time, 14 other warehouse facilities were shut down and the distribution and
warehousing activities for attached stores were transferred to other
warehouse-showroom stores within the same or adjacent markets. At the completion
of this initial phase, Levitz is operating 64 stores, which are supported by
twenty-one warehouse facilities (Sales Support Centers).
Levitz is analyzing the opportunity to further improve its logistic practices
through the introduction of regional distribution centers in future years. It is
believed such a program would provide significant savings related to in-bound
freight expense, lower the required inventory investment levels and also create
the opportunity to introduce further economies in merchandise buying practices.
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IMPROVED SALES FORCE STAFFING AND MANAGEMENT TECHNIQUES
Levitz has implemented several initiatives to improve the performance of its
sales force, including: (i) hiring additional sales people at its ongoing stores
since the Petition Date, increasing the number of sales people (net of
terminations); (ii) reorganizing the field management structure to provide for
more frequent and detailed store visits; (iii) installing sophisticated sales
force performance measurement tools designed to identify "best practices" within
the stores and to set benchmarks for performance; and (iv) testing various sales
force compensation structures.
CREATION OF NEW STORE PROTOTYPES
Levitz has created a new store design prototype which features a "race-track"
floor layout, as compared to the traditional "alley" design, and a more open,
brighter feeling store environment with higher ceilings and more lighting. To
date, the prototype has been implemented in a remodeling of the store in King of
Prussia, Pennsylvania and at a relocated store in Phoenix, Arizona. The
performance of these stores has improved significantly as compared to periods
immediately before the implementation of the new prototype design. In addition,
in May 1999 Levitz opened a new store in Valencia, California with this new
design. Levitz intends to introduce additional stores in the new prototype
layout over the next several years, either as new stores or as remodels of
existing stores. Levitz's ability to complete such plans may be subject to Court
approval and is dependent on general business conditions and the ability to
finance the required capital expenditures.
MORE FOCUSED VENDOR RELATIONSHIPS
Since the Petition Date, Levitz has undertaken a comprehensive review of their
merchandise vendor structure and have determined to significantly reduce the
number of vendors that they deal with and increase the strength of their
remaining vendor relationships. As part of a more focused relationship with
ongoing vendors, Levitz is exploring opportunities to: (i) increase frequency
and shorten lead times for deliveries; (ii) improve operational and financial
performance of the vendor-merchant relationship for both parties; (iii) develop
special promotions and financing opportunities; and (iv) improve dating.
IMPROVED INVENTORY PLANNING SYSTEMS
Levitz has added specialized employees and dedicated software systems designed
to increase the ability to forecast inventory levels and purchasing requirements
and to allocate inventory to stores so as to improve the in-stock levels at the
stores. The ability to better plan inventory provides Levitz significant
advantages in the following ways: (i) by improving in-stock position, fewer
opportunities are missed to generate sales when a customer wants to purchase an
item but it is unavailable; (ii) by giving vendors more lead time on expected
purchases, Levitz can realize cost savings because of the more orderly
production schedules the vendors can run; and (iii) tighter controls on
inventory allow Levitz to operate with a lower inventory investment in the
stores and to transition out of discontinued items with lower mark-downs.
MERCHANDISING ASSORTMENT PLANNING
Levitz is employing new planning techniques to evaluate the appropriateness of
current merchandise assortment. Every category of merchandise is being evaluated
to ensure the assortment achieves the desired breadth of selection considering
quality, style and price and local market differentiation. The assortment plans
will incorporate consideration of the availability options to be provided to
customers. Vendors will be selected based on their capability to most
efficiently support the vendor assortment programs.
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IMPROVED ADVERTISING PROGRAMS
Levitz has adopted a longer time horizon into planning advertising campaigns in
order to better integrate merchandising planning and marketing efforts. New
themes have been developed and a "new look" adopted to improve the clarity of
the message to the customer on why to shop at Levitz, and Levitz has hired a new
advertising agency. Research is being conducted to better understand customer
profiles in markets where stores are located. This research will impact the
merchandise assortment, pricing and methods Levitz will use to communicate with
customers from market to market.
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ITEM 2. PROPERTIES
On June 8, 1999, Levitz operated 64 retail stores, and 21 Sales Support Centers
located in major metropolitan areas in 13 states, with a concentration in
California. The following table sets forth the number of retail facilities owned
or leased by Levitz on June 8, 1999:
OWNED LEASED
----- ------
Stores with attached Sales Support Centers................ 1 20
Stores that are detached or freestanding.................. -- 43
On June 8, 1999, these facilities contained a total of approximately 7,000,000
square feet, including approximately 3,100,000 square feet of selling space.
Levitz also leases a 45,000 square feet facility for its corporate offices in
Boca Raton, Florida and owns a 35,000 square foot facility in Pottstown,
Pennsylvania which is used for accounting offices.
The following sets forth, as of June 8, 1999, the retail premises operated by
Levitz:
<TABLE>
<CAPTION>
OWNED PREMISES LEASED PREMISES (CONT'D.) (3)
- ------------------------------------------------------------ -----------------------------------------------------
MONTH AND STORE MONTH AND STORE
LOCATION YEAR OPENED TYPE (1) LOCATION YEAR OPENED TYPE (1)
- ------------------------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA (2) Dec-70 WS Enfield, CT Aug-77 WS
Concord, CA Dec-78 ST
LEASED PREMISES (3) Lynnwood, WA (4) Jun-80 ST
- ------------------------------------------------------------ La Puente, CA (4) Jan-81 ST
MONTH AND STORE Woodbridge, NJ (4) Jan-81 WS
LOCATION YEAR OPENED TYPE (1) Modesto, CA (4) Nov-81 ST
- ------------------------------------------------------------ Anaheim, CA Nov-81 ST
Laguna Hills, CA Apr-83 ST
Allentown, PA Sep-63 ST Pleasanton, CA Jan-84 ST
Santa Clara, CA Sep-68 WS San Carlos, CA Apr-84 ST
Wilmington, DE Jun-69 WS Stockton, CA Jun-85 ST
San Bernardino, CA Aug-69 ST Cerritos, CA Jun-85 ST
Huntington Beach, CA Nov-69 WS Phoenix, AZ Nov-85 ST
Sacramento, CA (4) Sep-70 WS Milford, CT Apr-86 ST
Seattle, WA Nov-70 WS Portland, OR (4) Jul-86 ST
Oxnard, CA (4) Jan-71 WS Reading, PA Jan-87 ST
San Leandro, CA (4) Aug-71 WS Bakersfield, CA Mar-87 ST
So. San Francisco, CA (4) Aug-71 ST Pinole, CA Dec-87 ST
Cherry Hill, NJ (4) Sep-71 ST Tacoma, WA Jan-88 ST
Portland, OR (4) Nov-71 WS Smithtown, NY Aug-89 ST
St. Paul, MN (4) Dec-71 WS Brooklyn Park, MN Nov-89 ST
Willowbrook, NJ (4) Dec-71 WS Corona, CA Nov-89 ST
Minneapolis, MN (4) Dec-71 ST Nashua, NH Nov-90 ST
San Dimas, CA May-72 WS Las Vegas, NV Aug-91 WS
Northridge, CA (4) Jun-72 ST Glendale, AZ Nov-92 ST
Fresno, CA (4) Aug-72 WS Victorville, CA Dec-92 ST
Redondo Beach, CA (4) Aug-72 ST Rohnert Park, CA Mar-94 ST
King of Prussia, PA Aug-72 ST Arroyo Grande, CA Apr-94 ST
Mesa, AZ (4) Mar-73 WS Cathedral City, CA Apr-94 ST
Farmingdale, NY (4) Apr-73 WS Tempe, AZ Jun-94 ST
Langhorne, PA May-73 WS Fremont, CA Aug-94 ST
Southington, CT (4) Aug-75 ST Middle Village, NY Oct-94 WS
Paramus, NJ (4) Aug-77 ST Phoenix, AZ Nov-98 ST
Garden City, NY (4) Aug-77 ST Valencia, CA May-99 ST
Dedham, MA Aug-77 ST
Danvers, MA Aug-77 ST
Westboro, MA Aug-77 WS
</TABLE>
- ----------
(1) The column refers to stores with attached Sales Support Centers ("WS") or
to detached or freestanding stores ("ST").
11
<PAGE>
(2) The Los Angeles, CA property is part of the collateral for borrowings
under the DIP Facility and is pending an agreement of sale.
(3) The remaining terms of the leases range from 16 months to 39 years,
including renewal options. Lease payments are either fixed or fixed
minimums coupled with contingent rentals based on the Consumer Price
Index or a percentage of net sales.
(4) Subject to Unitary Lease described in Note 19 to the consolidated
financial statements.
In addition to the above properties, as of June 8, 1999 Levitz had available for
disposition nine owned and nineteen leased properties formerly operated as
retail stores.
As part of its "warehouse rationalization program", the Company has completed
the closing of its warehouses in Dedham, MA, Danvers, MA, Paramus, NJ, Garden
City, NY, Northridge, CA, Minneapolis, MN, San Bernardino, CA, Cherry Hill, NJ,
South San Francisco, CA, Hartford, CT, Redondo Beach CA, Lynwood, WA, Allentown,
PA, Concord, CA and Modesto CA.
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 FILING
On September 5, 1997, LFI and 11 of its subsidiaries, including Levitz, filed
voluntary petitions for relief under the Bankruptcy Code, Chapter 11, Title 11
of the United States Code, with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware 19801 under Case No. 97-1842(MFW).
Under section 362 of the Bankruptcy Code, during a Chapter 11 case, creditors
and other parties in interest may not, without Court approval: (i) commence or
continue judicial, administrative or other proceedings against the Debtors that
were or could have been commenced prior to commencement of the Chapter 11 case,
or recover a claim that arose prior to commencement of the case; (ii) enforce
any pre-petition judgments against the Debtors; (iii) take any action to obtain
possession of or exercise control over property of the Debtors or their estates;
(iv) create, perfect or enforce any lien against the property of the Debtors;
(v) collect, assess or recover claims against the Debtors that arose before the
commencement of the case; or (vi) set off any debt owing to the Debtors that
arose prior to the commencement of the case against a claim of such creditor or
party in interest against the Debtors that arose before the commencement of the
case.
Although the Debtors are authorized to operate their businesses and manage their
properties as debtors-in-possession, they may not engage in transactions outside
of the ordinary course of business without complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Court approval.
As debtors-in-possession, the Debtors have the right, subject to Court approval
and certain other limitations, to assume or reject executory, pre-petition
contracts and unexpired leases. In this context, "assumption" requires the
Debtors to perform their obligations and cure all existing defaults under the
assumed contract or lease and "rejection" means that the Debtors are relieved
from their obligations to perform further under the rejected contract or lease,
but are subject to a claim for damages for the breach thereof subject to certain
limitations contained in the Bankruptcy Code. Any damages resulting from
rejection are treated as general unsecured claims in the reorganization cases.
Under the Bankruptcy Code, a creditor's claim is treated as secured only to the
extent of the value of such creditor's collateral, and the balance of such
creditor's claim is treated as unsecured. Generally, unsecured and undersecured
debt does not accrue interest after the Petition Date.
Pre-petition claims that were contingent or unliquidated at the commencement of
the Chapter 11 cases are generally allowable against the Debtors in amounts to
be fixed by the Court or otherwise agreed upon. These claims, including, without
limitation, those which arise in connection with the rejection of executory
contracts and leases, are expected to be substantial. The Debtors
12
<PAGE>
have established reserves approximating what the Debtors believe will be its
liability under these claims. The Court fixed August 10, 1998 as the last date
by which most creditors of the Debtors could file proofs of claim for claims
that arose prior to the Petition Date.
PLAN OF REORGANIZATION PROCEDURES
For 120 days after the date of the filing of a voluntary Chapter 11 petition, a
debtor has the exclusive right to propose and file a reorganization plan with
the Court and an additional 60 days within which to solicit acceptances to any
plan so filed (the "Exclusive Period"). The Court may increase or decrease the
Exclusive Period for cause shown, and as long as the Exclusive Period continues,
no other party may file a reorganization plan. The Debtors currently retain the
exclusive right to propose and solicit acceptances of a plan or plans of
reorganization until September 30, 1999.
If Levitz fails to obtain acceptance of such plan from impaired classes of
creditors during the exclusive solicitation period, any party in interest,
including a creditor, an equity security holder or a committee of creditors, may
file a reorganization plan for such Chapter 11 debtor.
Inherent in a successful plan of reorganization is a capital structure which
permits the Debtors to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Debtors. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of the Chapter 11 case on the business of the Debtors or on the
interests of creditors.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint Plan of
Reorganization" ("Plan of Reorganization" or "Plan"), pursuant to Section 1125
of the Bankruptcy Code with the Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Debtors' Chapter 11 cases and the anticipated organization,
operation and financings of "Reorganized Levitz". The Disclosure Statement
describes the Plan of Reorganization, certain effects of Plan confirmation,
certain risk factors associated with securities to be issued under the Plan, and
the manner in which distribution will be made under the Plan. In addition, the
Disclosure Statement discusses the confirmation process and the voting
procedures that holders of claims in impaired classes must follow for their
votes to be counted. The Plan of Reorganization sets forth certain information,
among other things, the classification and treatment of claims and interests,
means for implementation of the Plan, acceptance or rejection of the Plan and
effect of rejection by one or more classes of claims or interests, provisions
for governing distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of the
effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the Plan
effective date:
(1) All holders of an allowed administrative and priority tax claim
are unimpaired and unclassified, are not entitled to vote on the
Plan and will receive cash or such other treatment as to which LFI
and such creditor shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff
claim (Class 2) and miscellaneous secured claim (Class 3) are
unimpaired, are deemed to have accepted the Plan and, therefore
not entitled to vote on the Plan and will receive cash or setoff
or reinstatement or such other treatment as to which LFI and such
creditor shall have agreed in writing.
(3) All holders of a small unsecured claim (less than $1,000, Class 4)
are impaired and are entitled to vote on the Plan and shall
receive in cash 25% of the allowed amount of the claim.
13
<PAGE>
(4) All holders of an allowed general unsecured claim (Class 5) are
impaired, are entitled to vote on the Plan and shall receive their
pro rata share of the new common stock distribution of
"Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are
impaired, are deemed to have rejected the Plan and, therefore, not
entitled to vote on the Plan, and shall not receive or retain any
property or interest in property on account of their subordinated
claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their
holders shall not receive or retain any property or interest in
property on account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former
holder or owner of "old equity securities" authorized and issued
prior to the Plan confirmation date, Class 8) are impaired, are
deemed to have rejected the Plan and, therefore, are not entitled
to vote on the Plan. All Interests shall be cancelled and the
Interest holders shall not receive or retain any property or
interest in property on account of their Interests.
Generally, after a plan has been filed with the Court, it will be sent, with a
disclosure statement approved by the Court following a hearing, to members of
all classes of impaired creditors for acceptance or rejection. Following
acceptance or rejection of any such plan by impaired classes of creditors, the
Court, after notice and a hearing, would consider whether to confirm the plan.
Among other things, to confirm a plan the Court is required to find that (i)
each impaired class of creditors and equity security holders will, pursuant to
the plan, receive at least as much as the class would have received in a
liquidation of the debtor and (ii) confirmation of the plan is not likely to be
followed by the liquidation or need for further financial reorganization of the
debtor or any successor to the debtor, unless the plan proposes such liquidation
or reorganization.
To confirm a plan, the Court generally is also required to find that each
impaired class of creditors has accepted the plan by the requisite vote. If any
impaired class of creditors does not accept a plan but all of the other
requirements of the Bankruptcy Code are met, the proponent of the plan may
invoke the so-called "cram down" provisions of the Bankruptcy Code. Under these
provisions, the Court may confirm a plan notwithstanding the non-acceptance of
the plan by an impaired class of creditors if certain requirements of the
Bankruptcy Code are met, including that (i) at least one impaired class of
claims has accepted the plan, (ii) the plan "does not discriminate unfairly" and
(iii) the plan "is fair and equitable with respect to each class of claims or
interests that is impaired under, and has not accepted, the plan." As used by
the Bankruptcy Code, the phrases "discriminate unfairly" and "fair and
equitable" have meanings unique to bankruptcy law.
OTHER LEGAL PROCEEDINGS
In the ordinary course of business, Levitz is party to various legal actions
which it believes are routine in nature and incidental to the operation of its
business. In the opinion of management, the outcome of the proceedings to which
Levitz is currently party will not have a material adverse effect upon its
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to September 24, 1997, LFI's Common Stock was traded on the New York Stock
Exchange ("NYSE"). Effective at the opening of the trading session on December
3, 1997, the NYSE formally removed from listing and registration the Common
Stock of LFI pursuant to an Order, dated December 2, 1997, of the Securities and
Exchange Commission granting the application for removal by the NYSE. As of June
8, 1999, there were 738 holders of record of Voting Common Stock and 7 holders
of record of Non-Voting Common Stock.
LFI has not paid dividends on any class of its Common Stock since 1987 and does
not intend to pay dividends in the foreseeable future. LFI's only material asset
is the common stock of Levitz and, therefore, its ability to pay cash dividends,
interest and principal is dependent upon dividends and other payments from
Levitz. LFI's ability to obtain cash from Levitz is restricted by the Bankruptcy
Court, the DIP Facility, the indentures relating to Levitz's outstanding
indebtedness and Florida law.
The Plan of Reorganization as filed with the Bankruptcy Court on July 7, 1999
provides that all holders of equity securities and/or interests shall not be
entitled to, and shall not, receive any property or interest in property on
account of such equity or equity interest.
The range of high and low sales prices for LFI's Common Stock as reported in the
New York Stock Exchange Composite Index through September 24, 1997 and as
reported by the OTC Bulletin Board (OTCBB), which is a regulated quotation
service, for each quarterly period after September 24, 1997 within the two most
recent fiscal years, is as follows:
QUARTER ENDED HIGH LOW
------------- ---- -----
June 30, 1997 $3.000 $1.438
September 24, 1997 1.688 0.219
September 30, 1997 0.516 0.391
December 31, 1997 0.250 0.234
March 31, 1998 0.359 0.344
June 30, 1998 0.470 0.440
September 30, 1998 0.260 0.250
December 31, 1998 0.210 0.188
March 31, 1999 0.210 0.190
The Company has insufficient information to determine the accuracy of the
quotations after September 24, 1997.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from, and should be read
in conjunction with, the Consolidated Financial Statements of LFI and the Notes
thereto included elsewhere in this document. The only material asset of LFI is
the common stock of Levitz, and it conducts no business other than holding the
common stock of Levitz. See Item 7 - "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Item 8 - "Financial
Statements and Supplementary Data".
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, (1)
--------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
1999 (2) 1998 1997 1996 1995 (21)
----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 653,100 $ 812,948 $ 941,878 $ 961,869 $ 1,021,940
Gross profit 276,773 345,357 408,323 426,916 466,080
Selling, general and administrative
expenses 280,810 337,278 357,018 372,288 (17) 383,460
Unusual operating expenses -- 16,151 (9) -- -- --
Charge for store closings -- -- 8,295 (13) -- --
Restructuring expense -- -- -- 9,000 (18) --
Depreciation and amortization 17,948 24,093 26,993 29,272 28,484
Operating income (loss) (21,985) (32,165)(10) 16,017 16,356 54,136
Interest expense, net 29,477 (3) 39,592 (3) 55,522 53,035 47,797
Reorganization items 42,982 (4) 55,512 (4) -- -- -
Income (loss) before extraordinary
items (94,444) (127,269) (39,505) (23,753) 3,952
Extraordinary items, net of tax benefit -- (5,805)(11) (2,002)(14) -- (1,566)(22)
Net income (loss) available to common
stockholders (94,444) (93,387) (27,586) (23,753) 2,386
Net income (loss) per common share (3.15) (3.12) (0.93) (0.80) 0.08
Weighted average number of shares
outstanding 30,023 29,924 29,655 29,621 29,621
<CAPTION>
AS OF MARCH 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(17)
----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property and equipment, net $ 72,170 (5) $ 235,970 (12) $ 333,703 $ 360,453 $ 394,911
Total assets 333,642 (6) 1,006,804 934,368 (15) 606,887 651,174
Noncurrent portion of capital lease
obligations 29,368 (7) -- (7) 74,466 82,922 87,767
Noncurrent portion of long-term debt -- (7) 5,702 (7) 282,084 (16) 293,433 (19) 348,908
Liabilities subject to compromise 301,326 (8) 369,692 (8) -- -- --
Stockholders' deficit (280,220) (186,061) (94,072) (67,652)(20) (44,277)
</TABLE>
(1) Effective March 31, 1999, LFI elected to reclassify certain revenues in
its consolidated statements of operations. As a result, net sales, gross
profit and selling, general and administrative ("SG&A") expenses have
been restated for the fiscal years ended March 31, 1999, 1998, 1997, 1996
and 1995. LFI now reflects delivery income and miscellaneous revenue in
SG&A expenses. Previously, these revenues were included in net sales. The
effect of this reclassification was to reduce net sales, gross profit and
SG&A expenses by $19.8 million, $23.9 million, $25.0 million, $24.8
million and $25.3 million for the fiscal years ended March 31, 1999,
1998, 1997, 1996 and 1995, respectively.
(2) The reduction in net sales, gross profit and SG&A expenses in Fiscal 1999
is primarily due to the closing of forty-two stores in June 1998 and
January 1999.
(3) As a result of the Chapter 11 filing on September 5, 1997, no principal
or interest payments will be made on most prepetition debt without Court
approval or until a plan of reorganization providing for repayment terms
has been confirmed by the Court and becomes effective. Interest on
prepetition unsecured obligations has not been accrued after the Petition
Date except that interest expense and principal payments will continue to
be recorded on capital lease obligations unless the leases are rejected
by the Debtors. If a capital lease is rejected the obligation will be
limited to the lease rejection claim. Contractual interest expense of
$23.1 million and $13.3 million was not recorded on
16
<PAGE>
certain prepetition debt for Fiscal 1999 and the period from September 5,
1997 through March 31, 1998.
(4) Reorganization items represent the costs to restructure the Company
during the Chapter 11 proceedings. The following costs are included for
Fiscal 1999 and 1998 (dollars in millions):
1999 1998
--------- ---------
Store closings $ 42.3 $ 23.4
Loss on sale of John M. Smyth Company assets -- 22.7
Gain on sale of property held for resale (5.9) --
Deferred finance fees and other -- 2.5
Professional fees 6.6 6.9
--------- ---------
$ 43.0 $ 55.5
========= =========
Store closing charges include the write-down of assets to their net
realizable value, severance pay and continuing expenses.
(5) In Fiscal 1999, property, including capital lease assets, with a net book
value of $16.9 million was classified as property held for sale and $91.9
million was classified as current assets, property under agreement of
sale as a result of the transactions described in Note 19 to the
consolidated financial statements. In addition, assets were written-down
in the amount of $30.1 million to their net realizable value due to store
closings and property and lease assets with a net book value of $14.7
million was sold.
(6) In Fiscal 1999, total assets decreased by $673.2 million to $333.6
million from $1,006.8 million in Fiscal 1998 due to the removal from the
consolidated balance sheets of the receivable under account purchase
agreement and related obligations of $554.3 million, the sale of property
held for resale with net book value of $14.5 million and the reduction of
inventory of $58.4 million.
(7) In Fiscal 1998, all capital lease obligations and all non-current
long-term debt obligations with the exception of mortgages were
reclassified as liabilities subject to compromise. In Fiscal 1999,
capital lease obligations for continuing stores were reclassified on the
consolidated balance sheets. All mortgages were classified as current
pending the transactions described in Note 19 to the consolidated
financial statements.
(8) Liabilities subject to compromise represent all unsecured liabilities of
the Debtor as of the Petition Date. See Note 5 to the consolidated
financial statements for the types of liabilities included as subject to
compromise.
(9) During Fiscal 1998, LFI incurred unusual operating expense of $16.1
million which included the write-off of $2.8 million in goodwill, the
write-off of $5.9 million of the future service revenue receivable under
the GECC Agreement during which period Levitz was not able to account for
a portion of the transactions as a sale, accrual of severance cost of
$1.3 million upon the resignation of an officer and $6.1 million charge
reflecting an adjustment to record inventory at its estimated net
realizable value due to the substantial change in merchandising
assortment. The changes increased net loss by $11.1 million or $0.37 per
share.
(10) Operating income declined significantly from prior periods due to the
unusual operating expenses, increase in SG&A expenses as a percentage of
17
<PAGE>
net sales, and the continued decline in total sales and comparable store
sales from the prior fiscal years.
(11) On the Petition Date, Levitz incurred a before-tax extraordinary loss of
$8.4 million due to the write-off of the pre-petition senior secured
facilities deferred financing fees. The after-tax loss was $5.8 million
or $0.19 per share.
(12) Property and equipment, net of accumulated depreciation decreased $97.7
million during Fiscal 1998 primarily due to the write-down to net
realizable value of closed stores, property and equipment of $20.0
million, the sale of assets with book value of $51.5 million,
reclassification of property to property held for disposal of $17.0
million, amortization and depreciation of $23.0 million less capital
expenditures of $14.1 million.
(13) On October 31, 1996, five satellite stores were closed resulting 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. The charge
increased net loss by $5.4 million or $0.18 per share.
(14) As a result of the July 1996 refinancing, in June 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 Levitz's previous
bank credit agreement. The after-tax loss was $2.0 million or $0.07 per
share.
(15) Effective January 1, 1997 Levitz was required to account for the purchase
of Levitz's customer credit obligations by General Electric Capital
Corporation (GECC) under an Account Purchase and Credit Card Agreement
(the "GECC Agreement") in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards No. 125 (SFAS
No. 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". Based on facts and circumstances at that
date, Levitz was required by SFAS No. 125 to account for these
transactions as a secured borrowing with a pledge of collateral rather
than as a sale for financial reporting purposes. Consequently, Levitz
recorded $327.0 million as a Receivable Under Account Purchase Agreement
and as an Obligation Under Account Purchase Agreement in its March 31,
1997 financial statements.
(16) On July 1, 1996, Levitz entered into new senior secured credit facilities
providing for up to $190.0 million of availability. The proceeds of the
senior secured facilities were used to refinance indebtedness incurred
under the Credit Agreement, to provide liquidity for working capital
needs and for other general corporate purposes.
(17) In March 1996, Levitz amended its non-contributory, defined benefit
pension plan to provide that no benefits would accrue under the plan
after March 31, 1996. The amendment resulted in a curtailment gain of
$8.3 million. No plan assets were withdrawn from the pension plan as a
result of this gain. The curtailment gain decreased net loss $5.4 million
or $0.18 per share.
(18) LFI recorded in Fiscal 1996 restructuring charges totaling $9.0 million.
The restructuring plans included the elimination of six regional/division
offices and certain support positions. A total of 142 employees including
five senior executives were terminated. The charges include $7.8 million
of severance pay and related employee benefit costs and $1.2 million of
idle facility and other costs. The restructuring plans increased net loss
by $5.8 million or $0.20 per share.
18
<PAGE>
(19) In March 1996, LFI and Levitz consummated an exchange offer in which
Levitz issued $91.6 million principal amount of 13.375% Senior Notes due
October 15, 1998 and LFI issued warrants to purchase 283,972 shares of
LFI Common Stock in exchange for $91.6 million principal amount of
12.375% Senior Notes due April 15, 1997 (the Exchange Offer). The
Exchange Offer redeemed 93.8% of the 12.375% Senior Notes leaving an
aggregate principal amount of $6.0 million outstanding. Capital in excess
of par has been increased and the principal amount of the 13.375% Senior
Notes have been decreased by the fair value of the warrants of $0.7
million. The issuance costs of $1.3 million had been charged to interest
expense.
(20) During Fiscal 1996, LFI contracted to issue 700,000 shares of restricted
stock to certain key employees. These shares were issued in Fiscal 1997.
The total market value at the effective date of grant was recorded as
deferred compensation, a separate component of stockholders' deficit. The
deferred compensation was charged to selling, general and administrative
expenses over the three year vesting period.
(21) On June 28, 1994, Levitz acquired all of the outstanding stock of JMS, a
specialty furniture retailer operating six stores in the Chicago,
Illinois area. The acquisition was accounted for as a purchase. The fair
value of assets acquired, including goodwill, was $77.3 million, with
liabilities assumed of $27.4 million.
(22) During the fiscal year ended March 31, 1995, Levitz incurred a before-tax
extraordinary loss of $2.5 million due to the write-off of deferred
financing fees. The after-tax loss was $1.6 million or $0.05 per share.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this document.
GENERAL
On September 5, 1997, the Debtors filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code and are presently operating
their business as debtors-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware. For further
discussion of Chapter 11 proceedings, see "Item 1. Business-Chapter 11 Filing",
"Item 3. Legal Proceedings" and Note 1 to Notes to Consolidated Financial
Statements.
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Chapter 11 filing, related circumstances and the losses from
operations, raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations (see "Liquidity and Capital
Resources" and Note 1 to "Notes to Consolidated Financial Statements"). As a
result of the filing and related circumstances, however, such realization of
assets and liquidation of liabilities is subject to significant uncertainty.
While under the protection of Chapter 11, the Debtors may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the accompanying consolidated financial statements. Further,
a plan of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements. The consolidated financial
statements do not include any adjustments relating to the recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization.
Comparable store sales have declined 0.1%, 6.4% and 1.3% for the last three
fiscal years ended March 31, 1999, 1998 and 1997, respectively. Comparable store
sales increased 1.9% in April 1999 and decreased 2.2% and 0.9% in May and June
1999, respectively.
Operating loss was $22.0 million in Fiscal 1999 and $32.2 million in Fiscal
1998. In Fiscal 1997 operating income was $16.0 million.
20
<PAGE>
The following table sets forth LFI's results of operations expressed as a
percentage of net sales for the periods indicated:
PERCENT OF NET SALES
------------------------------
YEARS ENDED MARCH 31,
------------------------------
1999 1998 1997
------ ------ ------
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 57.6 57.5 56.6
------ ------ ------
Gross profit 42.4 42.5 43.4
Selling, general and administrative expenses 43.0 41.5 37.9
Unusual operating expenses -- 2.0 --
Charge for store closings -- -- 0.9
Depreciation and amortization 2.7 3.0 2.9
Interest expense, net 4.5 4.9 5.9
Reorganization items 6.6 6.8 --
------ ------ ------
Loss before income taxes (14.4) (15.7) (4.2)
Income tax benefit -- 4.9 1.5
------ ------ ------
Loss before extraordinary items (14.4) (10.8) (2.7)
Extraordinary items -- (0.7) (0.2)
------ ------ ------
Net loss (14.4) (11.5) (2.9)
====== ====== ======
Comparable store sales decrease (1) (0.1)% (6.4)% (1.3)%
====== ====== ======
- --------------
(1) Comparable store sales are calculated by excluding the net sales of a
store for any full month of one period if the store was not open during
the same full month of the prior period.
COMPARISON OF OPERATIONS FOR FISCAL 1999 TO FISCAL 1998
Net sales for Fiscal 1999 decreased to $653.1 million or 19.7% from $812.9
million for Fiscal 1998. Comparable store sales for Fiscal 1999 declined 0.1%
from Fiscal 1998. Levitz closed forty-two stores during Fiscal 1999. The
comparable store sales decreased 2.5% and 5.4% in the first and third quarter of
Fiscal 1999, respectively. Comparable store sales increased 8.7% and 0.3% in the
second and forth quarter of Fiscal 1999, respectively. The decrease in
comparable store sales for the first quarter of Fiscal 1999 is primarily
attributed to the announcement of fifteen store closings at the end of June
1999. The increase in comparable store sales for the second quarter of Fiscal
1999 is primarily due to the filing of a Chapter 11 petition in the same quarter
of the previous year. The decrease in comparable store sales for the third
quarter of Fiscal 1999 was impacted by the resumption of normal shipments during
the third quarter of Fiscal 1998 which transferred sales that would have
normally been recorded in the second quarter of Fiscal 1998 to the third quarter
of Fiscal 1998.
Gross profit for Fiscal 1999 was $276.8 million, or 42.4% of net sales, as
compared to $345.4 million, or 42.5% of net sales, for Fiscal 1998. Gross profit
for Fiscal 1999 includes a write-down of $4.8 million for excess, discontinued
and damaged inventory in continuing stores of which $0.9 million of the reserve
remained at March 31, 1999. Excluding the effect of the inventory write-down,
gross profit as a percentage of net sales would have been 42.5%.
Selling, general and administrative (SG&A) expenses decreased by $56.5 million
or 16.8% to $280.8 million in Fiscal 1999 from $337.3 million in Fiscal 1998.
The dollar decrease in SG&A expenses is primarily due to the reduction in costs
attributable to the closing of forty-two stores during Fiscal 1999. The increase
in SG&A in Fiscal 1999 as a percentage of net sales to 43.0% from
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41.5% is due to an increase in advertising expense of 1.0%, an increase in
salaries and related expenses and benefits of 0.8% as offset by an increase in
the service fee income of 0.3% under Levitz's private-label credit card program.
During Fiscal 1998, LFI incurred unusual operating expenses of $1.3 million
under the provisions of an employment agreement due to the termination of an
officer. Additionally, LFI recorded a $5.9 million write-off of the future
service revenue receivable under the GECC Agreement when Levitz was required to
account for the transfer of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financial
reporting purposes. During the fourth quarter of Fiscal 1998, the Company
reviewed certain discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices. Included
in unusual operating expenses is a $6.1 million charge reflecting the Company's
adjustment to record this inventory at its estimated net realizable value. The
Company also wrote off goodwill in the amount of $2.8 million.
Depreciation and amortization expenses decreased to $17.9 million in Fiscal 1999
from $24.1 million in Fiscal 1998. The decrease is primarily attributable to the
suspension of depreciation on assets of the closed stores. At the same time, the
assets were written down to their net realizable value.
Interest expense for Fiscal 1999 decreased to $29.5 million or 4.5% of net sales
from $39.6 million or 4.9% of net sales for Fiscal 1998. Interest on
pre-petition unsecured obligations has not been accrued after the Petition Date
except that interest expense continues to be recorded on capital lease
obligations. Contractual interest expense of $23.1 million and $13.3 million was
not recorded on certain pre-petition debt for Fiscal 1999 and the period from
September 5, 1997 through March 31, 1998.
Reorganization items represent the costs to restructure the Company during the
Chapter 11 proceedings. The following costs are included for Fiscal 1999 and
1998 (dollars in millions):
1999 1998
------- -------
Store closings $ 42.3 $ 23.4
Loss on sale of John M. Smyth Company assets -- 22.7
Gain on sale of property held for resale (5.9) --
Deferred finance fees and other -- 2.5
Professional fees 6.6 6.9
------- -------
$ 43.0 $ 55.5
======= =======
Store closing charges include the write-down of assets to their net realizable
value, severance pay and continuing expenses.
During Fiscal 1998, LFI incurred an after-tax extraordinary loss of $5.8 million
due to the write-off of deferred financing fees related to the previous bank
credit agreements.
As a result of the aforementioned factors, the net loss was $94.4 million or
14.4% of net sales for Fiscal 1999 as compared to $93.4 million or 11.5% of net
sales for Fiscal 1998.
COMPARISON OF OPERATIONS FOR FISCAL 1998 TO FISCAL 1997
Net sales for Fiscal 1998 decreased to $812.9 million or 13.7% from $941.9
million for Fiscal 1997. Comparable store sales for Fiscal 1998 declined 6.4%
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from Fiscal 1997. Levitz attempted to address the decrease in comparable store
sales declines by (i) changing its merchandise lineup, (ii) making a concerted
effort to liquidate older, discontinued merchandise, (iii) shifting its focus in
advertising expenditures by media outlet to those deemed most effective, and
(iv) closing certain underperforming stores to enable it to focus efforts and
resources on key markets. In addition to the comparable store sales decline
experienced during Fiscal 1998, the Company closed 24 under-performing stores.
Gross profit for Fiscal 1998 was $345.4 million, or 42.5% of net sales, as
compared to $408.3 million, or 43.4% of net sales, for fiscal 1997. The decrease
in gross profit percentage of net sales is attributable to the increase in items
sold at lower margins that were deleted from the merchandise assortment.
Selling, general and administrative (SG&A) expenses decreased by $19.7 million
or 5.5% to $337.3 million in Fiscal 1998 from $357.0 million in Fiscal 1997. The
dollar decrease in SG&A expenses is primarily attributable to the reduction in
costs attributable to the disposal of 24 stores during 1998.
During Fiscal 1998, LFI incurred unusual operating expenses of $1.3 million
under the provisions of an employment agreement due to the termination of an
officer. Additionally, LFI recorded a $5.9 million write-off of the future
service revenue receivable under the GECC Agreement when Levitz was required to
account for the transfer of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financial
reporting purposes. During the fourth quarter of Fiscal 1998, the Company
reviewed certain discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices. Included
in unusual operating expenses is a $6.1 million charge reflecting the Company's
adjustment to record this inventory at its estimated net realizable value. The
Company also wrote off goodwill in the amount of $2.8 million.
Depreciation and amortization expenses decreased to $24.1 million in Fiscal 1998
from $27.0 million in Fiscal 1997. The decrease is primarily attributable to the
retirement of depreciable assets related to closed stores and the writeoff of
all goodwill.
Interest expense for Fiscal 1998 decreased to $39.6 million or 4.9% of net sales
from $55.5 million or 5.9% of net sales for Fiscal 1997. Interest on prepetition
unsecured obligations was not accrued after the Petition Date except that
interest expense continues to be recorded on capital lease obligations.
Contractual interest expense of $13.3 million was not recorded on certain
prepetition debt for the period from September 5, 1997 through March 31, 1998.
During Fiscal 1998, LFI recorded reorganization related expenses of $55.5
million which included $33.6 million for 24 store closings, $15.0 million for
the acceleration of goodwill amortization and $6.9 million for professional
services provided to LFI and the Creditors' Committee. In Fiscal 1997, Levitz
closed five satellite stores which resulted in a pre-tax charge for store
closings of $8.3 million. The charge includes the reduction of the carrying
value of the store assets to their estimated fair value net of selling expenses
as well as reserves for future rental payments under operating lease agreements.
During Fiscal 1998 and 1997, LFI incurred after-tax extraordinary losses of $5.8
million and $2.0 million respectively due to the write-off of deferred financing
fees related to the previous bank credit agreements.
As a result of the aforementioned factors, net loss was $93.4 million or 11.5%
of net sales for Fiscal 1998 as compared to $27.6 million or 2.9% of net sales
for Fiscal 1997.
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SEASONALITY AND INFLATION
Management does not believe that seasonal variation has a significant impact on
its business. LFI has generally been able to pass along any price increases
relating to inflation. Accordingly, the effect of inflation, if any, on LFI's
results of operations has been minor.
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 Bankruptcy Court, the DIP Facility (as defined
below), the indentures relating to Levitz's outstanding indebtedness and Florida
law. LFI's only outstanding obligations are $8.7 million of Senior Deferred
Coupon Debentures due June 15, 2002 which includes accrued interest through
September 4, 1997, that are currently classified as liabilities subject to
compromise.
Levitz's primary sources of liquidity are cash flows from operations (including
the proceeds from customer credit obligations under the private-label credit
card program by Household), trade credit and borrowings under the DIP Facility.
During Fiscal 1999, cash flow used in operating activities before changes in
operating assets and liabilities was $46.7 million. Cash used in operating
activities for the months of June 1998 and December 1998 was $22.0 million or
47.1% of the total cash used. Both months were affected by the recording of cash
reserves for store closings of $12.6 million. This was favorably offset by
corresponding increase in cash provided by the change in operating assets and
liabilities.
Cash flows provided by changes in operating assets and liabilities was $45.6
million for Fiscal 1999. Changes in operating assets and liabilities were
favorably impacted by the decrease in inventory of $46.1 million and reduction
in receivables of $3.6 million primarily due to the closing of forty-two stores.
The increase of accrued expenses of $10.8 million also favorably impacted
operating assets and liabilities. This was due primarily to the change in
payment terms for promotional discount fees under the Merchant Agreement with
Household as compared to the GECC Agreement. This was offset by reductions in
other accrued expenses and liabilities associated with store closings. Changes
in operating assets and liabilities were unfavorably impacted by reductions of
$14.9 million in trade payables and other current assets, also due
primarily to the store closings.
Net cash used in financing activities amounted to $14.2 million in Fiscal 1999,
and includes net repayments under the DIP Facilities of $4.2 million, principal
payments on long-term debt and capital lease obligations of $2.4 million and a
decrease in the cash overdraft position of $7.6 million which is reflective of
the decrease in inventory levels and the timing of payments. Net cash used in
financing activities amounted to $19.5 million in Fiscal 1998 and included net
repayments under the credit facilities of $1.4 million, principal payments on
long-term debt and capital lease obligations of $11.7 million, a decrease in
cash overdraft position of $3.1 million and payment of deferred financing fees
for the DIP Facility of $3.2 million.
Cash provided by investing activities for Fiscal 1999 includes the proceeds from
the sale of eight previously closed stores. Proceeds in Fiscal 1998 include
asset sales of the JMS stores, the Company's Boca Raton headquarters, and other
closed facilities. All of these proceeds were applied as repayments to the DIP
Facilities as required by the agreement.
Levitz's capital expenditures (other than for capitalized leases) totaled
approximately $7.8 million, $14.1 million and $11.0 million during Fiscal 1999,
1998 and 1997, respectively. Capital expenditures during Fiscal 1999
24
<PAGE>
were for existing store improvements and equipment and the opening of one new
store in May 1999. Management plans to spend approximately $7.0 million for
capital expenditures in Fiscal 2000 of which approximately $2.9 million is for
maintenance of existing facilities. Levitz expects to relocate one additional
store in Fiscal 2000.
Debt
LFI and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a Postpetition Credit Agreement dated as of September 5, 1997 (the
"DIP Facility") with BT Commercial Corporation ("BTCC") as agent. The DIP
Facility was approved by the Court and included an initial commitment of $260.0
million that was comprised of revolving notes of $223.6 million and a term note
of $36.4 million. Letter of Credit obligations under the revolver portion of the
DIP Facility are limited to $25.0 million. The DIP Facility is intended to
provide 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.
In September 1998, the DIP Facility was amended to include, among other things,
a new term loan in the principal amount of $22.0 million under a second term
note. The proceeds from the second term note were used to pay down the revolver
portion of the DIP Facility.
In December 1998, the Company obtained a waiver to the DIP Facility eliminating
the minimum EBITDA requirements through March 31, 1999.
In March 1999, the DIP Facility was amended to include, among other things:
(1) The availability of an additional $10.0 million loan ("Overadvance
Term Loan") from a third party which would be drawn if the
borrowing base availability declined to $12.0 million. If drawn,
the proceeds from the Overadvance Term Loan would be used to
reduce borrowings under the revolver portion of the DIP Facility.
(2) Set minimum EBITDA requirements for April 1999 and restrict
capital expenditures through May 1999.
(3) Extend the DIP Facility expiration date to June 7, 1999.
In May 1999, the DIP Facility was amended to include, among other things:
(1) An extension of the DIP Facility expiration date to December 31,
1999.
(2) A consent to the repayment of the term notes from the net proceeds
of the Sale-Leaseback Transaction.
(3) The establishment of the fixed asset sublimit under the borrowing
base calculation at $36.0 million, which is reduced by scheduled
reductions upon disposition of specific properties and for the
total elimination of the fixed asset sublimit by September 1,
1999.
(4) A reduction in the total commitment under the DIP Facility to
$125.0 million.
(5) Minimum EBITDA requirements for June and September 1999.
The May 1999 amendment was subject to the closing of the Sale-Leaseback
Transaction described in Note 19 to the consolidated financial statements. On
June 8, 1999, when the Sale-Leaseback Transaction was closed, the term notes of
$58.4 million that accrued interest at sixteen percent were paid in full.
On July 7, 1999, when the Bulk Sale Transaction was closed, net proceeds of
$18.1 million were used to pay down the revolver portion of the DIP Facility. As
a result of the transaction, the fixed asset sublimit was reduced to
approximately $17.1 million by the amount of the net proceeds. After the closing
of the Bulk Sale Transaction on July 7, 1999, the total outstanding borrowings
under the DIP Facility were approximately $74.6 million and the excess
availability was approximately $18.2 million. See Note 19 to the
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<PAGE>
consolidated financial statements for a description of the Bulk Sale
Transaction.
The Company is in negotiations with its lenders to amend the DIP Facility to
include, among other things, a reduction in the EBITDA requirements for June and
September 1999 and the extension of the fixed asset sublimit expiration date to
September 30, 1999. No assurances can be given that such amendment will be
successfully negotiated.
Levitz is aggressively marketing for sale additional properties. At the current
time there are fourteen properties under agreement of sale, letters of intent or
other types of offers estimated to be $34.3 million of gross proceeds. No
assurances can be given that a sufficient number of these transactions will
close prior to the expiration of the fixed asset sublimit on September 30, 1999.
Based on facts and circumstances at that time, Levitz may have to request an
extension of the fixed asset sublimit expiration date or obtain additional
financing. No assurances can be given that an extension of the expiration date
would be granted or that additional financing could be obtained.
Loans made under the revolving notes bear interest, at Levitz's option, at a
rate equal to either Bankers Trust Company's prime lending rate plus 1.50% or
BTCC's LIBOR rate plus 3.75%. The term note bore interest at 16%. Levitz is
required to pay an unused line fee of 0.50%, and a letter of credit fee of 2.0%.
Levitz paid financing fees of $3.2 million on the closing date. These financing
fees have been deferred and were amortized over the original life of the DIP
Facility.
Levitz is exposed to market risk as a result of the terms of the DIP Facility
which requires the Company to pay a variable interest rate based on the
fluctuation of Bankers Trust Company's prime lending rate. The change in annual
cash flow and earnings resulting from a 1% increase or decrease in interest
rates based on outstanding borrowings at July 7, 1999 would be approximately
$0.7 million assuming other variables remained constant.
The maximum borrowings, excluding the term commitments, under the DIP Facility
are limited to 85% of eligible accounts receivable, 75% of eligible inventory
(as defined in the DIP Facility) and a fixed asset sublimit which is permanently
reduced as the proceeds from the sale of fixed assets and leasehold interests
are received. Qualification of accounts receivable and inventory items as
"eligible" is subject to unilateral change at the discretion of the lenders.
The DIP Facility is secured by substantially all of the assets of Levitz and its
subsidiaries and a perfected pledge of stock of all Levitz's subsidiaries. The
DIP Facility contains restrictive covenants including, among other things, the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization as defined (EBITDA), limitations on the incurrence of additional
indebtedness, liens, contingent obligations, sales of assets, and a prohibition
on paying dividends. The lenders under the DIP Facility have a super-priority
administrative expense claim against the estate of the Debtors.
In connection with the Plan of Reorganization, LFI expects to obtain a
post-confirmation financing commitment before December 31, 1999, which would be
an asset based revolving credit facility having substantially the same advance
rate as the DIP Facility. LFI will seek a commitment in an amount sufficient to
execute the Plan of Reorganization. There can be no assurances given that such a
commitment will be obtained.
All mortgages have been classified as current due to the Sale-Leaseback
Transaction and Bulk Sale Transaction as described in Note 19 to the
consolidated financial statements. All mortgages have been paid from the
proceeds of both transactions.
26
<PAGE>
The Company is currently in default of the senior notes, senior deferred coupon
debentures, and senior subordinated notes, all of which are unsecured and have
been classified as liabilities subject to compromise.
On September 4, 1998 Levitz and its operating subsidiaries entered into an
agreement ("Merchant Agreement") with Household Bank (SB), N.A. ("Household")
whereby Household would provide financing to individual consumers purchasing
merchandise from Levitz ("Private-Label Credit Card Program"). The Court
approved the Merchant Agreement and granted a first priority and security
interest and lien to Household on certain reserves retained or accumulated by
Household, totaling $6.1 million at March 31, 1999, and gave administrative
expense status to substantially all obligations of Levitz arising under the
Merchant Agreement.
Also on September 4, 1998, General Electric Capital Corporation ("GECC") and
Levitz terminated the Second Amended and Restated Account Purchase and Credit
Card Agreement (the "GECC Agreement") which was replaced by the Merchant
Agreement. Levitz and GECC jointly released each other from substantially all
obligations under the GECC Agreement. At the same time GECC sold the majority of
the portfolio under the GECC Agreement, approximately $561.0 million, to
Household.
The Company determined that the transfer of the GECC portfolio to Household
qualified for sale treatment under Financial Accounting Standards Board,
Statement of Accounting Standards No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities". Accordingly,
the Receivable under Account Purchase Agreement and the offsetting Obligation
Under Account Purchase Agreement were removed from the consolidated condensed
balance sheets.
At March 31, 1999, Household's portfolio balance was $549.8 million. The
portfolio balance includes Levitz customer purchases through Household as well
as customer accounts transferred to Household from GECC. Levitz recorded income
from both the Merchant Agreement and the GECC Agreement of $13.2 million, $7.9
million and $12.8 million, respectively for the years ended March 31, 1999, 1998
and 1997. The decrease in recorded income for the period ended March 31, 1998
was due to the write-off of $5.9 million in future revenue service fees under
the GECC Agreement as explained in Note 7 to the consolidated financial
statements.
Levitz is exposed to market risk under the terms of the Household Agreement.
Levitz may pay a fee or may receive income, based upon the relationship among
the interest earned on the portfolio, the amount of the servicing fee, the cost
of capital, promotional discount fees and credit losses. Levitz is obligated for
all credit losses under the portfolio, including the GECC portfolio transferred
to Household, up to a maximum of 15% of average outstanding receivables and for
50% of all credit losses above 15%. Levitz is also required under the Merchant
Agreement to fund a merchant risk reserve of 2.5% for the first year and 3.5%
thereafter of all amounts financed up to a stipulated dollar amount. A one
percent increase or decrease in the finance charge to customers or the cost of
capital or the credit loss rate would increase or decrease the annual income
from the portfolio by $3.5 million to $5.5 million.
GOING CONCERN
The Company believes that cash on hand, amounts available under the DIP
Facility, as amended, and funds from operations will enable the Company to meet
its current liquidity and capital expenditures requirements.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint Plan of
Reorganization" ("Plan of Reorganization" or "Plan"), pursuant to Section 1125
of the Bankruptcy Code with the Court. The Disclosure Statement sets forth
certain information regarding, among other things, significant events that have
occurred during the Debtors' Chapter 11 cases and the anticipated
27
<PAGE>
organization, operation and financings of "Reorganized Levitz". The Disclosure
Statement describes the Plan of Reorganization, certain effects of Plan
confirmation, certain risk factors associated with securities to be issued under
the Plan, and the manner in which distribution will be made under the Plan. In
addition, the Disclosure Statement discusses the confirmation process and the
voting procedures that holders of claims in impaired classes must follow for
their votes to be counted. The Plan of Reorganization sets forth certain
information, among other things, the classification and treatment of claims and
interests, means for implementation of the Plan, acceptance or rejection of the
Plan and effect of rejection by one or more classes of claims or interests,
provisions for governing distributions, the treatment of executory contracts and
leases, conditions precedent to confirmation of the Plan and the occurrence of
the effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the Plan
effective date:
(1) All holders of an allowed administrative and priority tax claim
are unimpaired and unclassified, are not entitled to vote on the
Plan and will receive cash or such other treatment as to which LFI
and such creditor shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff
claim (Class 2) and miscellaneous secured claim (Class 3) are
unimpaired, are deemed to have accepted the Plan and, therefore
not entitled to vote on the Plan and will receive cash or setoff
or reinstatement or such other treatment as to which LFI and such
creditor shall have agreed in writing.
(3) All holders of a small unsecured claim (less than $1,000, Class 4)
are impaired and are entitled to vote on the Plan and shall
receive in cash 25% of the allowed amount of the claim.
(4) All holders of an allowed general unsecured claim (Class 5) are
impaired, are entitled to vote on the Plan and shall receive their
pro rata share of the new common stock distribution of
"Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are
impaired, are deemed to have rejected the Plan and, therefore, not
entitled to vote on the Plan, and shall not receive or retain any
property or interest in property on account of their subordinated
claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their
holders shall not receive or retain any property or interest in
property on account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former
holder or owner of "old equity securities" authorized and issued
prior to the Plan confirmation date, Class 8) are impaired, are
deemed to have rejected the Plan and, therefore, are not entitled
to vote on the Plan. All Interests shall be cancelled and the
Interest holders shall not receive or retain any property or
interest in property on account of their Interests.
In connection with the Plan of Reorganization, LFI expects to obtain a
post-confirmation financing commitment before December 31, 1999, which would be
an asset based revolving credit facility having substantially the same advance
rate as the DIP Facility. LFI will seek a commitment in an amount sufficient to
execute the Plan of Reorganization. There can be no assurances given that such a
commitment will be obtained.
Although the Plan of Reorganization provides for the Debtors' emergence from
bankruptcy, there can be no assurances given that the Plan will be confirmed by
the Court, or that such Plan will be consummated.
Inherent in a successful plan of reorganization is a capital structure that
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
28
<PAGE>
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors and stockholders.
YEAR 2000
LFI recognizes the need to ensure its operations will not be adversely impacted
by Year 2000 technology failures. Software failures due to processing errors
potentially arising from calculations using the Year 2000 date are a known risk.
During Fiscal 1998, management established a team to oversee the Company's Year
2000 date conversion project. The project is composed of the following stages:
1) assessment of the problem; 2) prioritization of systems; 3) remediation
activities; and 4) compliance testing. A plan of corrective action using both
internal and external resources to enhance or replace the system for Year 2000
compliance has been implemented. Internal resources consist of permanent
employees of the Company's Information Systems department, whereas external
resources are composed of contract programming personnel that are directed by
the Company's management.
The majority of the financial and operating systems have been completed through
remediation and are in the compliance testing stage.
Since the project's beginning in Fiscal 1998, the Company has incurred
approximately $1.4 million in expenses, excluding in-house salaries, wages and
benefits, for hardware and software and $0.2 million for maintenance and
development of operational systems to alleviate potential Year 2000 problems.
The remaining expenditures are expected to be approximately $0.6 million.
Purchased hardware, software and the costs of implementation are capitalized and
amortized over their useful lives while other costs of remediation associated
with the Year 2000 project are being expensed as incurred.
The remaining cost of the Company's Year 2000 project and the dates on which the
Company plans to complete the Year 2000 compliance program are based on
management's current estimates, which are derived utilizing numerous
assumptions. Such assumptions include, but are not limited to, the continued
availability of certain resources and the readiness of third-parties through
their own remediation plans. These assumptions are inherently uncertain and
actual events could differ significantly from those anticipated.
The Company is also communicating with vendors, financial institutions and
others with which it does business to coordinate Year 2000 conversion. There can
be no assurance, however, that the systems of these other companies will be
converted in a timely manner, or that any such failure to convert by another
company would not have an adverse effect on the Company's systems and
operations. Management believes the Year 2000 compliance issue is being
addressed properly by the Company to prevent any material adverse operational or
financial impacts. However, if such enhancements are not completed in a timely
manner, the Year 2000 issue may have a material adverse impact on the operations
of the Company. The Company is currently assessing the consequences of its Year
2000 project not being completed on schedule or its remediation efforts not
being successful. Management is developing contingency plans to mitigate the
effects of problems experienced by the Company, key vendors or service providers
related to the Year 2000. Contingency plans may include the purchase of
additional levels of inventory as a precaution based on the Company's expected
needs. Management expects to complete its Year 2000 contingency planning during
the second quarter of Fiscal 2000.
INCOME TAXES
LFI has a Federal cumulative net operating loss ("NOL") carry-forward of $163.4
million as of March 31, 1999. LFI has recorded a full valuation
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allowance against the NOL for the fiscal year ended March 31, 1999. In prior
years, LFI had recorded a deferred tax asset (benefit) for its cumulative NOL as
of the fiscal year ended March 31, 1998. LFI has always provided a full
valuation allowance against state net operating losses. The cumulative NOL net
benefit at March 31, 1999 was $24.7 million. The Sale-Leaseback Transaction and
Bulk Sale Transaction as described in Note 19 to the consolidated financial
statements are estimated to utilize approximately $15.9 million of the
cumulative NOL net benefit. The remaining cumulative NOL net benefit of $8.8
million is supported by deferred tax credits that are projected to turn during
the carry-forward periods. LFI will continue its current practice of providing a
valuation allowance against future net operating losses pending a change in
financial condition. Limitations may be placed on the realization of these NOL's
when LFI emerges from bankruptcy.
1999 1998 1997
---- ---- ----
Effective Tax Rate -- 31.2% 35.2%
The effective tax benefit decreased from 35.2% in Fiscal 1997 to 31.2% in Fiscal
1998 due to permanent differences arising from the write-off of goodwill and for
non-deductible expenses.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants................................. 32
Consolidated Balance Sheets.............................................. 34
Consolidated Statements of Operations.................................... 35
Consolidated Statements of Stockholders' Deficit......................... 36
Consolidated Statements of Cash Flows.................................... 37
Notes to Consolidated Financial Statements............................... 38
Consolidated Financial Statement Schedule (Item 14(a))................... 80
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levitz Furniture Incorporated:
We have audited the accompanying consolidated balance sheets of Levitz Furniture
Incorporated (a Delaware corporation) and subsidiaries, debtor-in-possession
(the "Company") as of March 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended March 31, 1999. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Levitz Furniture Incorporated
and subsidiaries as of March 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1, on September 5, 1997 the Company filed a voluntary
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be allowed
and priority thereof; (c) as to stockholder accounts, the effect of any changes
that may be made in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in the business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Chapter 11 filing was the result
of violation of certain debt covenants, recurring losses, deterioration of
vendor support, and cash flow deficiencies. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Although the
Company is currently operating as a debtor-in-possession under the jurisdiction
of the bankruptcy court, the continuation of the business as a going concern is
contingent upon, among other things, the ability to formulate a plan of
reorganization which will gain approval of the creditors and confirmation by the
bankruptcy court, success of future operations, the ability to obtain financing
and the ability to recover the carrying amount of assets and/or the amount and
classification of liabilities. Management's plans in regard to these matters are
described in Note 1. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (CONTINUED)
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole,
considering the matter discussed in the preceding paragraph.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 8, 1999
33
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,046 $ 5,339
Receivables 21,861 24,118
Inventories 84,232 142,618
Deposits and prepaid expenses 4,432 3,442
Income taxes receivable 20 --
Deferred income taxes -- 3,521
Property under agreement of sale 95,571 --
----------- -----------
Total current assets 209,162 179,038
----------- -----------
PROPERTY AND EQUIPMENT:
Land 3,890 25,501
Buildings and building improvements 5,860 91,736
Leasehold improvements 31,616 71,936
Store, warehouse and transportation
equipment 43,243 78,805
----------- -----------
84,609 267,978
Less-Accumulated depreciation and
amortization 45,742 124,729
----------- -----------
38,867 143,249
Property under capital leases, net of
accumulated amortization of $28,926
in 1999 and $85,623 in 1998 33,303 92,721
----------- -----------
72,170 235,970
----------- -----------
OTHER ASSETS:
Receivable under account purchase agreement (See Note 11) -- 554,322
Intangible leasehold interests 5,637 14,151
Deferred financing fees -- 2,061
Property held for disposal 32,469 17,766
Deferred income taxes 4,440 --
Other 9,764 3,496
----------- -----------
52,310 591,796
----------- -----------
$ 333,642 $ 1,006,804
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Cash overdrafts $ 8,823 $ 16,395
Current portion of long-term debt 6,962 1,333
Current portion of obligations under capital leases 9,846 --
Accounts payable, trade 23,060 30,511
Accrued expenses and other liabilities 73,979 55,847
Income taxes payable -- 231
Deferred income taxes 11,590 --
DIP Facility 144,618 148,381
----------- -----------
Total current liabilities 278,878 252,698
----------- -----------
LONG-TERM DEBT, net of current portion -- 5,702
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 29,368 --
----------- -----------
OBLIGATION UNDER ACCOUNT PURCHASE AGREEMENT (See Note 11) -- 554,322
----------- -----------
OTHER NONCURRENT LIABILITIES 4,290 684
----------- -----------
DEFERRED INCOME TAXES -- 9,767
----------- -----------
LIABILITIES SUBJECT TO COMPROMISE 301,326 369,692
----------- -----------
COMMITMENTS AND CONTINGENCIES (See Note 16)
STOCKHOLDERS' DEFICIT:
Common stock, $0.01 par; authorized 63,700,000
shares; 30,320,628 shares issued and 30,071,621
outstanding in 1999 and 30,138,896 outstanding
in 1998 303 303
Preferred stock, $1 par; authorized 2,500,000
shares; issued and outstanding -0- shares in
1999 and 1998 -- --
Capital in excess of par 213,560 213,560
Retained earnings (deficit) (493,782) (399,338)
Deferred compensation -- (298)
Treasury stock, at cost, 249,007 shares in 1999 and
181,732 SHARES IN 1998 (301) (288)
----------- -----------
Total stockholders' deficit (280,220) (186,061)
----------- -----------
$ 333,642 $ 1,006,804
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 653,100 $ 812,948 $ 941,878
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 376,327 467,591 533,555
Selling, general and administrative expenses 280,810 337,278 357,018
Unusual operating expenses -- 16,151 --
Charge for store closings -- -- 8,295
Depreciation and amortization 17,948 24,093 26,993
Interest expense, net 29,477 39,592 55,522
------------ ------------ ------------
704,562 884,705 981,383
------------ ------------ ------------
LOSS BEFORE REORGANIZATION ITEMS AND
INCOME TAXES (51,462) (71,757) (39,505)
REORGANIZATION ITEMS:
Loss on store closings and other 36,359 33,649 --
Acceleration of goodwill amortization -- 14,975 --
Professional fees 6,623 6,888 --
------------ ------------ ------------
Total 42,982 55,512 --
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (94,444) (127,269) (39,505)
INCOME TAX (BENEFIT) -- (39,687) (13,921)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS (94,444) (87,582) (25,584)
EXTRAORDINARY ITEMS, NET OF TAX
BENEFIT OF $2,630 IN 1998 AND $1,090 IN 1997 -- (5,805) (2,002)
------------ ------------ ------------
NET LOSS $ (94,444) $ (93,387) $ (27,586)
============ ============ ============
LOSS PER COMMON SHARE:
Loss before extraordinary items $ (3.15) $ (2.93) $ (0.86)
Extraordinary items -- (0.19) (0.07)
------------ ------------ ------------
NET LOSS $ (3.15) $ (3.12) $ (0.93)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 30,023,119 29,923,578 29,654,913
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL RETAINED ACCUMULATED OTHER
---------------------------- IN EXCESS EARNINGS COMPREHENSIVE
SHARES AMOUNT OF PAR (DEFICIT) INCOME (LOSS)
--------------- ----------- ------------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 30,320,628 $ 303 $ 212,960 $ (278,365) $ (654)
Net loss - - - (27,586) -
Amortization of deferred
compensation - - - - -
Warrants issued - - 600 - -
Minimum pension liability - - - - 17
Treasury stock, 60,457 shares - - - - -
--------------- ----------- ------------ -------------- ------------------
BALANCE, MARCH 31, 1997 30,320,628 303 213,560 (305,951) (637)
Net loss - - - (93,387) -
Amortization of deferred
compensation - - - - -
Minimum pension liability - - - - 637
Treasury stock, 121,275 shares - - - - -
--------------- ----------- ------------ -------------- ------------------
BALANCE, MARCH 31, 1998 30,320,628 303 213,560 (399,338) -
Net loss - - - (94,444) -
Amortization of deferred
compensation - - - - -
Treasury stock, 67,275 shares - - - - -
--------------- ----------- ------------ -------------- ------------------
BALANCE, MARCH 31, 1999 30,320,628 $ 303 $ 213,560 $ (493,782) $ -
=============== =========== ============ ============== ==================
<CAPTION>
COMPREHENSIVE DEFERRED TREASURY
LOSS COMPENSATION STOCK
------------------ ------------------ ------------
BALANCE, MARCH 31, 1996 $ (1,896) $ -
Net loss $ (27,586) - -
Amortization of deferred
compensation - 727 -
Warrants issued - - -
Minimum pension liability 17 - -
Treasury stock, 60,457 shares - - (178)
------------------ ------------------ ------------
BALANCE, MARCH 31, 1997 $ (27,569) (1,169) (178)
==================
Net loss $ (93,387) - -
Amortization of deferred
compensation - 871 -
Minimum pension liability 637 - -
Treasury stock, 121,275 shares - - (110)
------------------ ------------------ ------------
BALANCE, MARCH 31, 1998 $ (92,750) (298) (288)
==================
Net loss $ (94,444) - -
Amortization of deferred
compensation - 298 -
Treasury stock, 67,275 shares - - (13)
------------------ ------------------ ------------
BALANCE, MARCH 31, 1999 $ (94,444) $ - $ (301)
================== ================== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (94,444) $ (93,387) $ (27,586)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 10,750 14,421 15,703
Amortization 7,198 9,672 11,290
Amortization of original issue discount on
deferred debentures -- 331 1,450
Amortization of deferred financing fees 2,061 2,326 2,641
Amortization of deferred compensation 298 871 727
Pension expense 310 901 1,874
Loss (gain) on disposal of property and equipment 58 (39) (637)
Other 390 6,146 384
Deferred tax benefit -- (42,372) (12,242)
Extraordinary loss related to early redemption
of debt, before tax benefit -- 8,435 3,092
Inventory write-down 4,836 6,124 --
Goodwill write-off -- 2,810 --
Reorganization items, non-cash 21,853 45,532 --
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables 3,553 6,265 (3,327)
Inventories 46,065 19,376 (28,570)
Deposits and prepaid expenses (1,381) (49) 306
Income taxes receivable -- 2,299 4,229
Other, net (4,372) 315 49
Increase (decrease) in:
Accounts payable, trade (9,144) (2,320) 17,111
Accrued expenses and other liabilities 10,829 (4,593) 13,646
Income taxes payable (38) 198 --
Other noncurrent liabilities 119 (305) 1,203
----------- ----------- -----------
Total adjustments 93,385 76,344 28,929
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,059) (17,043) 1,343
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,768) (14,130) (11,008)
Proceeds from sale of property and equipment
and other assets 20,685 46,775 3,959
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 12,917 32,645 (7,049)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 840,799 990,740 1,068,493
Repayments under credit facilities (844,951) (992,189) (1,045,789)
Principal payments on long-term debt (145) (8,503) (3,831)
Principal payments under capital lease obligations (2,269) (3,174) (7,222)
Increase (decrease) in cash overdrafts (7,572) (3,129) 1,612
Payment of deferred financing fees -- (3,165) (10,867)
Acquisition of treasury stock (13) (110) (178)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (14,151) (19,530) 2,218
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,293) (3,928) (3,488)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,339 9,267 12,755
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,046 $ 5,339 $ 9,267
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION:
On September 5, 1997 (the "Petition Date"), Levitz Furniture
Incorporated, a Delaware corporation ("LFI"), and 11 of its
subsidiaries (collectively, the "Debtors"), including, Levitz Furniture
Corporation, a Florida corporation and wholly-owned subsidiary of LFI
("Levitz"), filed voluntary petitions for relief under Chapter 11,
Title 11 of the United States Code (the "Bankruptcy Code") with the
United States Bankruptcy Court (the "Court") for the District of
Delaware, Wilmington, Delaware under Case No. 97-1842(MFW). Pursuant to
Sections 1107 and 1108 of the Bankruptcy Code, LFI, as debtor and
debtor-in-possession, has continued to manage and operate its assets
and businesses pending the confirmation of a reorganization plan or
plans and subject to the supervision and orders of the Court. Because
LFI is operating as debtor-in-possession under Chapter 11 of the
Bankruptcy Code, the existing directors and officers of LFI continue to
manage the operations of LFI subject to the supervision and orders of
the Court.
Certain subsidiaries were not included in the Chapter 11 filings. These
subsidiaries are inactive and the results of their operations and
financial position are not material to the consolidated financial
statements.
On July 7 1999, the Debtors filed a "Disclosure Statement" and a "Joint
Plan of Reorganization" ("Plan of Reorganization" or "Plan"), pursuant
to Section 1125 of the Bankruptcy Code with the Court. The Disclosure
Statement sets forth certain information regarding, among other things,
significant events that have occurred during the Debtors' Chapter 11
cases and the anticipated organization, operation and financings of
"Reorganized Levitz". The Disclosure Statement describes the Plan of
Reorganization, certain effects of Plan confirmation, certain risk
factors associated with securities to be issued under the Plan, and the
manner in which distribution will be made under the Plan. In addition,
the Disclosure Statement discusses the confirmation process and the
voting procedures that holders of claims in impaired classes must
follow for their votes to be counted. The Plan of Reorganization sets
forth certain information, among other things, the classification and
treatment of claims and interests, means for implementation of the
Plan, acceptance or rejection of the Plan and effect of rejection by
one or more classes of claims or interests, provisions for governing
distributions, the treatment of executory contracts and leases,
conditions precedent to confirmation of the Plan and the occurrence of
the effective date of the Plan.
The Plan of Reorganization provides, among other things, that as of the
Plan effective date:
(1) All holders of an allowed administrative and priority tax claim
are unimpaired and unclassified, are not entitled to vote on the
Plan and will receive cash or such other treatment as to which
LFI and such creditor shall have agreed in writing.
(2) All holders of an allowed other priority claim (Class 1), setoff
claim (Class 2) and miscellaneous secured claim (Class 3) are
unimpaired, are deemed to have accepted the Plan and, therefore
not entitled to vote on the Plan and will receive cash or setoff
or reinstatement or such other treatment as to which LFI and such
creditor shall have agreed in writing.
38
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
(3) All holders of a small unsecured claim (less than $1,000, Class
4) are impaired and are entitled to vote on the Plan and shall
receive in cash 25% of the allowed amount of the claim.
(4) All holders of an allowed general unsecured claim (Class 5) are
impaired, are entitled to vote on the Plan and shall receive
their pro rata share of the new common stock distribution of
"Reorganized Levitz".
(5) All holders of an allowed subordinated claim (Class 6) are
impaired, are deemed to have rejected the Plan and, therefore,
not entitled to vote on the Plan, and shall not receive or retain
any property or interest in property on account of their
subordinated claim.
(6) All intercompany claims (Class 7) shall be cancelled, and their
holders shall not receive or retain any property or interest in
property on account of their intercompany claims.
(7) All holders of Interests (the rights of any current or former
holder or owner of "old equity securities" authorized and issued
prior to the Plan confirmation date, Class 8) are impaired, are
deemed to have rejected the Plan and, therefore, are not entitled
to vote on the Plan. All Interests shall be cancelled and the
Interest holders shall not receive or retain any property or
interest in property on account of their Interests.
Although the Plan of Reorganization provides for the Debtors' emergence
from bankruptcy, there can be no assurances given that the Plan will be
confirmed by the Court, or that such Plan will be consummated.
The exclusivity period to prepare a plan of reorganization will expire
on September 30, 1999. After the expiration of the exclusivity period,
creditors will have the right to propose alternative plans of
reorganization.
The consolidated financial statements have been presented in accordance
with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" (SOP 90-7) and have been prepared in
accordance with generally accepted accounting principles applicable to
a going concern, which principles, except as otherwise disclosed,
assume that assets will be realized and liabilities will be discharged
in the ordinary course of business. As a result of the Chapter 11 cases
and circumstances relating to this event, including LFI's debt
structure, its recurring losses, and current economic conditions, such
realization of assets and liquidation of liabilities are subject to
significant uncertainty. While under the protection of Chapter 11, the
Company may sell or otherwise dispose of assets, and liquidate or
settle liabilities, for amounts other than those reflected in the
financial statements. Additionally, the amounts reported on the
consolidated balance sheet could materially change because of changes
in business strategies and the effects of any proposed plan of
reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the terms of the DIP
Facility and the ability to generate sufficient cash from operations
and financing arrangements to meet obligations.
In the Chapter 11 cases, substantially all unsecured liabilities as of
the Petition Date are subject to compromise or other treatment under a
plan of reorganization which must be confirmed by the Bankruptcy Court
39
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
after submission to any required vote by affected parties. For
financial reporting purposes, those liabilities and obligations whose
treatment and satisfaction is dependent on the outcome of the Chapter
11 cases have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the consolidated balance
sheets. Generally, all actions to enforce or otherwise effect repayment
of pre-Chapter 11 liabilities as well as all pending litigation against
the Debtors are stayed while the Debtors continue their business
operations as debtors-in-possession. Unaudited schedules have been
filed by the Debtors with the Court setting forth the assets and
liabilities of the Debtors as of the Petition Date as reflected in the
Debtor's accounting records. LFI has notified all known claimants
subject to the August 10, 1998 bar date of their need to file a proof
of claim with the Court. A bar date is the date by which claims against
LFI must be filed if the claimants wish to receive any distribution in
the Chapter 11 cases. Differences between amounts shown by the Debtors
and claims filed by creditors are being investigated and will be either
amicably resolved or adjudicated before the Court. The ultimate amount
of and settlement terms for such liabilities are subject to an approved
plan of reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other prepetition executory contracts, subject to
Court approval. Claims for damages resulting from the rejection of real
estate leases and other executory contracts will be subject to separate
bar dates. The Debtors have not reviewed all real estate leases for
assumption or rejection. As of March 31, 1999, the Debtors had rejected
leases for 17 store locations, reached agreement with the landlord on
one store location to terminate without liability and assumed and
assigned leases on three store locations without liability. The Court
has extended the time for which the Debtors may assume or reject
unexpired leases of nonresidential real property to August 24, 1999.
The liabilities subject to compromise include a reserve for an
estimated amount that may be claimed by lessors for the stores that
have been closed through March 31, 1999. The Debtors will continue to
analyze their real estate leases and executory contracts and may assume
or reject additional leases and contracts. Such rejections could result
in additional liabilities subject to compromise.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Levitz Furniture Incorporated (LFI), a Delaware Corporation, was
incorporated in December 1984 for the purpose of acquiring Levitz
Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"). Levitz is a specialty retailer
of furniture with a chain of 64 stores and 21 sales support centers
located in major metropolitan areas in 13 states.
40
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of LFI and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.
REVENUE RECOGNITION POLICY
Levitz recognizes revenue at the time a sales order is written and the
following conditions are met: the merchandise is in stock and is
available for sale; for a credit sale, the credit is unconditionally
approved; and for items requested to be delivered by a customer, a firm
delivery date is set, and a minimum down payment is received.
CASH, CASH EQUIVALENTS AND CASH OVERDRAFTS
All highly liquid debt instruments purchased with original maturities
of three months or less are considered to be cash equivalents. Cash
overdrafts include checks outstanding that do not have the right of
offset with cash and cash equivalents. The carrying value approximates
fair value because of the short maturity of those instruments.
INVENTORIES
Inventories of furniture and accessories are stated at the lower of
cost or market. In December 1998, the Company reviewed certain
discontinued and/or slower moving inventory as well as damaged
inventory items. Included in cost of sales is a $4.8 million charge
reflecting the Company's adjustment to record this inventory at its
estimated net realizable value. Cost is determined using the last-in,
first-out (LIFO) method. Inventories valued on the LIFO cost method
were approximately $8.8 million and $11.9 million lower than first-in,
first-out (FIFO) costs at March 31, 1999 and 1998, respectively. See
additional discussion in Note 7 to the consolidated financial
statements.
During the year ended March 31, 1999, there was a significant reduction
in inventories as a result of the sale of inventory to third-party
liquidators upon the closing of forty-two facilities. The reduction in
inventory caused the liquidation of prior year LIFO layers. The
liquidation of prior year layers at prior year prices reduced the LIFO
reserve and cost of sales by $3.9 million more than would have resulted
if the liquidation of the layers were measured at current year prices.
PROPERTY AND EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment purchased by LFI are stated at cost. Capital
leases are recorded at the lower of the present value of the future
minimum lease obligations or fair market value of the property.
Depreciation is provided substantially by the straight-line method over
the estimated useful lives of the related assets. The estimated useful
lives range from 10 to 40 years for buildings, building improvements
and leasehold improvements, and 2 to 20 years for store, warehouse and
transportation equipment. Fully depreciated assets are written off
against accumulated depreciation. Capital leases are depreciated over
their initial terms which generally range from 15 to 40 years.
41
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
PROPERTY HELD FOR DISPOSAL
Property held for disposal represents the net book value or net
realizable value of land, buildings, leasehold improvements and
leasehold interests associated with closed facilities. Property held
for disposal was $32.5 million and $17.8 million at March 31, 1999 and
1998, respectively and is classified in other assets.
INTANGIBLE LEASEHOLD INTERESTS
Intangible leasehold interests represent the value associated with
renewal terms of capital leases and original and renewal terms of
operating leases acquired by LFI at rents below market value.
Intangible leasehold interests are amortized by the straight-line
method over the original and renewal terms of the related leases.
Accumulated amortization related to intangible leasehold interests was
$9.1 million and $12.3 million as of March 31, 1999 and 1998,
respectively.
LONG-LIVED ASSETS
In Fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). This
statement requires recognition of impairment losses for long-lived
assets whenever events or changes in circumstances result in the
carrying amount of the assets exceeding the sum of the expected future
undiscounted cash flows associated with such assets. The measurement of
the impairment losses to be recognized is based on the difference
between the fair values and the carrying amounts of the assets. SFAS
No. 121 also requires any long-lived assets held for sale be reported
at the lower of carrying amount or the fair value less selling cost.
The adoption of this statement resulted in a $2.4 million charge during
Fiscal 1997.
GOODWILL
Goodwill was written-off during the fiscal year ended March 31, 1998
due to the sale of substantially all the assets of John M. Smyth
Company (JMS) on January 9, 1998 and the impaired financial condition
of LFI. JMS was a wholly-owned subsidiary of Levitz. Prior to the
write-off, goodwill was being amortized on a straight-line basis over
forty years.
INCOME TAXES
LFI accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
recognized in LFI's financial statements or tax returns. In estimating
future tax consequences, LFI generally considers all expected future
events other than enactment of changes in the tax laws or rates. The
income tax benefit generated as a result of the net loss during the
year ended March 31, 1999 was fully offset by a valuation allowance.
DEFERRED FINANCING FEES
Deferred financing fees represent costs associated with obtaining
financing arrangements. These fees were amortized over the original
terms of the related debt. Accumulated amortization of the DIP
42
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
financing fees was $1.1 million at March 31, 1998. Net deferred
financing costs as of the Petition Date of $8.4 million and $2.5
million for the senior secured facilities and for the various
unsecured-debt obligations were written off during the fiscal year
ended March 31, 1998 as an extraordinary item and as reorganization
items, respectively.
ADVERTISING EXPENSES
LFI expenses all advertising costs the first time the advertising takes
place including direct-response advertising. Advertising expense for
fiscal years ended March 31, 1999, 1998 and 1997 was $93.4 million,
$108.1 million and $102.1 million, respectively. Advertising
expenditures include promotional financing fees of $28.4 million, $27.2
million and $28.3 million for fiscal years ended March 31, 1999, 1998
and 1997, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. See Note 1 regarding proceedings under Chapter
11.
SELF INSURANCE
LFI is generally self-insured up to a maximum of $0.2 million to $0.3
million for losses and liabilities related to worker's compensation,
health and welfare claims and comprehensive general, product and
vehicle liability. Losses are accrued based upon LFI's estimates of the
aggregate liability for claims incurred using certain actuarial
assumptions followed in the insurance industry and based on LFI's
experience.
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
provides for a fair value based method of accounting for grants of
equity instruments to employees or suppliers in return for goods or
services. As permitted under SFAS No. 123, the Company has elected to
continue to account for compensation costs under the provisions
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has included pro forma
disclosures of net loss and loss per share in Note 14 to the
consolidated financial statements as if the fair value based method had
been applied in measuring compensation cost.
EARNINGS PER SHARE
Shares outstanding from the issuance of options, warrants and
restricted stock was 6,178,740, 7,293,737 and 7,811,987 for the years
ended March 31, 1999, 1998 and 1997, respectively. Even though a
portion of these shares may have a dilutive affect on earnings per
share, all had an antidilutive impact on the Company's loss from
continuing operations, and therefore, have no impact on the Company's
earnings per share calculation.
43
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
RECLASSIFICATIONS
Effective March 31, 1999, LFI elected to reclassify certain revenues in
its consolidated statements of operations. As a result, net sales, and
selling, general and administrative ("SG&A") expenses have been
restated for the fiscal years ended March 31, 1999, 1998 and 1997. LFI
now reflects delivery income and miscellaneous revenue in SG&A
expenses. Previously, these revenues were included in net sales. The
effect of this reclassification was to reduce net sales and SG&A
expenses by $19.8 million, $23.9 million and $25.0 million for the
fiscal years ended March 31, 1999, 1998 and 1997, respectively.
Certain other amounts in prior years' consolidated financial statements
have been reclassified to conform to the current year's presentation.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
1999 1998 1997
-------- -------- --------
Cash paid/(received) during
the year for:
Interest $ 26,152 $ 37,853 $ 49,678
Income tax (refunds), net 36 (2,417) (6,985)
Non-cash activities:
Warrants issued -- -- 600
44
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
4. DEBT:
Outstanding balances under debt arrangements are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
MARCH 31, MATURITY
------------------------------- YEAR ENDING
RATE 1999 1998 MARCH 31
-------------- -------------- -----------------
<S> <C> <C> <C> <C>
DIP Facilities Variable $ 144,618 $ 148,381 2000
Senior notes 13.375% 91,267 91,267 1999
Senior deferred coupon
debentures 15.00% 8,439 8,439 2003
Senior subordinated notes 9.625% 100,000 100,000 2004
Mortgages 8.375%-13% 6,962 7,035 2003 to 2006
Lease financing Variable -- 4,000 1999
-------------- --------------
351,286 359,122
Less -
Current portion of long-
term debt 6,962 1,333
DIP Facilities classified
as current 144,618 148,381
Unsecured debt reclassified
as subject to compromise 199,706 203,706
-------------- --------------
$ -- $ 5,702
============== ==============
</TABLE>
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 BT Commercial
Corporation ("BTCC") as agent. The DIP Facility was approved by the
Court and included an initial commitment of $260.0 million that was
comprised of revolving notes of $223.6 million and a term note of $36.4
million. Letter of Credit obligations under the revolver portion of the
DIP Facility are limited to $25.0 million. The DIP Facility is intended
to provide 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.
In September 1998, the DIP Facility was amended to include, among other
things, a new term loan in the principal amount of $22.0 million under
a second term note. The proceeds from the second term note were used to
pay down the revolver portion of the DIP Facility.
In December 1998, the Company obtained a waiver to the DIP Facility
eliminating the minimum EBITDA requirements through March 31, 1999.
In March 1999, the DIP Facility was amended to include, among other
things:
(1) The availability of an additional $10.0 million loan ("Overadvance
Term Loan") from a third party which would be drawn if the
borrowing base availability declined to $12.0 million. If drawn,
the proceeds from the Overadvance Term Loan would be used to
reduce borrowings under the revolver portion of the DIP Facility.
(2) Set minimum EBITDA requirements for April 1999 and restrict
capital expenditures through May 1999.
(3) Extend the DIP Facility expiration date to June 7, 1999.
45
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
In May 1999, the DIP Facility was amended to include, among other
things:
(1) An extension of the DIP Facility expiration date to December 31,
1999.
(2) A consent to the repayment of the term notes from the net proceeds
of the Sale-Leaseback Transaction.
(3) The establishment of the fixed asset sublimit under the borrowing
base calculation at $36.0 million, which is reduced by scheduled
reductions upon disposition of specific properties and for the
total elimination of the fixed asset sublimit by September 1,
1999.
(4) A reduction in the total commitment under the DIP Facility to
$125.0 million.
(5) Minimum EBITDA requirements for June and September 1999.
The May 1999 amendment was subject to the closing of the Sale-Leaseback
Transaction described in Note 19 to the consolidated financial
statements. On June 8, 1999, when the Sale-Leaseback Transaction was
closed, the term notes of $58.4 million that accrued interest at
sixteen percent were paid in full.
On July 7, 1999, when the Bulk Sale Transaction was closed, net
proceeds of $18.1 million were used to pay down the revolver portion of
the DIP Facility. As a result of the transaction, the fixed asset
sublimit was reduced to approximately $17.1 million. After the closing
of the Bulk Sale Transaction on July 7, 1999, the total outstanding
borrowings under the DIP Facility were approximately $74.6 million and
the excess availability was approximately $18.2 million. See Note 19 to
the consolidated financial statements for a description of the Bulk
Sale Transaction.
The Company is in negotiations with its lenders to amend the DIP
Facility to include, among other things, a reduction in the EBITDA
requirements for June and September 1999 and the extension of the fixed
asset sublimit expiration date to September 30, 1999. No assurances can
be given that such amendment will be successfully negotiated.
Levitz is aggressively marketing for sale additional properties. At the
current time there are fourteen properties under agreement of sale,
letters of intent or other types of offers estimated to be $34.3
million of gross proceeds. No assurances can be given that a sufficient
number of these transactions will close prior to the expiration of the
fixed asset sublimit on September 30, 1999. Based on facts and
circumstances at that time, Levitz may have to request an extension of
the fixed asset sublimit expiration date or obtain additional
financing. No assurances can be given that an extension of the
expiration date would be granted or that additional financing could be
obtained.
Loans made under the revolving notes bear interest, at Levitz's option,
at a rate equal to either Bankers Trust Company's prime lending rate
plus 1.50% or BTCC's LIBOR rate plus 3.75%. The term note bore interest
at 16%. Levitz is required to pay an unused line fee of 0.50%, and a
letter of credit fee of 2.0%. Levitz paid financing fees of $3.2
million on the closing date. These financing fees have been deferred
and were amortized over the original life of the DIP Facility.
Levitz is exposed to market risk as a result of the terms of the DIP
Facility which requires the Company to pay a variable interest rate
46
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
based on the fluctuation of Bankers Trust Company's prime lending rate.
The change in annual cash flow and earnings resulting from a 1%
increase or decrease in interest rates based on outstanding borrowing
at July 7, 1999 would be approximately $0.7 million assuming other
variables remained constant.
The maximum borrowings, excluding the term commitments, under the DIP
Facility are limited to 85% of eligible accounts receivable, 75% of
eligible inventory (as defined in the DIP Facility) and a fixed asset
sublimit which is permanently reduced as the proceeds from the sale of
fixed assets and leasehold interests are received. Qualification of
accounts receivable and inventory items as "eligible" is subject to
unilateral change at the discretion of the lenders.
The DIP Facility is secured by substantially all of the assets of
Levitz and its subsidiaries and a perfected pledge of stock of all
Levitz's subsidiaries. The DIP Facility contains restrictive covenants
including, among other things, the maintenance of minimum earnings
before interest, taxes, depreciation and amortization as defined
(EBITDA), limitations on the incurrence of additional indebtedness,
liens, contingent obligations, sales of assets, and a prohibition on
paying dividends. The lenders under the DIP Facility have a
super-priority administrative expense claim against the estate of the
Debtors.
In connection with the Plan of Reorganization, LFI expects to obtain a
post-confirmation financing commitment before December 31, 1999, which
would be an asset based revolving credit facility having substantially
the same advance rate as the DIP Facility. LFI will seek a commitment
in an amount sufficient to execute the Plan of Reorganization. There
can be no assurances given that such a commitment will be obtained.
All mortgages have been classified as current due to the Sale-Leaseback
Transaction and Bulk Sale Transaction as described in Note 19 to the
consolidated financial statements. All mortgages have been paid from
the proceeds of both transactions.
The Company is currently in default of the senior notes, senior
deferred coupon debentures, and senior subordinated notes, all of which
are unsecured and have been classified as liabilities subject to
compromise.
5. LIABILITIES SUBJECT TO COMPROMISE:
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total vary significantly from the stated
amount of proofs of claim that were filed by the bar date set by the
Court of August 10, 1998. The difference between claim amounts
scheduled by the Debtors and the claim amounts filed by creditors are
being investigated and will be either amicably resolved or adjudicated
before the Court. The amounts in total will be subject to future
adjustment depending on Court action, further developments with respect
to potential disputed claims, determination as to the value of any
collateral securing claims, or other events. Additional claims may
arise from the rejection of additional real estate leases and executory
contracts by the Debtors.
47
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
MARCH 31,
1999
(DOLLARS IN
LIABILITIES SUBJECT TO COMPROMISE THOUSANDS)
--------------------------------- ----------
Accounts payable, trade $ 38,520
Accrued expenses 15,205
13.375% Senior Notes due 10/15/98 96,031 (1)
9.625% Senior Subordinated Notes due 7/15/03 101,337 (1)
Senior Deferred Coupon Debentures due 6/15/02 8,716 (1)
Reserve for lease rejection claims 20,054
Executive retirement and employment agreements 16,144
General liability claims 736
Reserve for previous store closings 1,353
Common area maintenance 262
Real estate taxes 2,414
Personal property taxes 554
--------
$301,326
========
(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 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
unsecured obligations has not been accrued after the Petition Date
except that interest expense and principal payments will continue to be
recorded on capital lease obligations unless the leases are rejected by
the Debtors. If a capital lease is rejected the obligation will be
limited to the lease rejection claim. Contractual interest expense of
$23.1 million and $13.3 million was not recorded on certain prepetition
debt for the fiscal year ended March 31, 1999 and for the period from
September 5, 1997 through March 31, 1998.
6. REORGANIZATION ITEMS:
During Fiscal 1999 and 1998 the Company initiated a series of actions
under its reorganization proceedings to improve its performance, which
included store closures and dispositions, and incurred professional
fees in connection with the Bankruptcy proceedings. These
reorganization items aggregated, after-tax, $43.0 million or $1.43 per
share and $38.2 million or $1.28 per share, for the fiscal years ended
March 31, 1999 and 1998, respectively.
In Fiscal 1999, LFI closed forty-two stores in under-performing or
non-strategic markets. Fifteen stores were closed in June 1998 and
twenty-seven stores were closed in January 1999. In addition to the
store closings, certain support functions were or are being eliminated
over a period of time and fifteen warehouses, as part of the "Warehouse
Rationalization Program", were closed where another warehouse in the
same or adjacent market could service the store. The pre-tax charge for
store and warehouse closings and the elimination of certain support
functions was $42.3 million which included non-cash charges of $17.8
48
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
million for the write-down of assets to their net realizable values net
of capital lease obligations of $14.7 million, $7.6 million loss on the
sale of inventory to liquidators and anticipated lease rejection claims
of $4.3 million. Cash charges include severance pay of $3.3 million and
continuing expenses of $9.3 million. At March 31, 1999 approximately
$5.3 million of these reserves remained which provides for the
estimated continuing expenses of the facilities until they are sold.
During Fiscal 1999, LFI recognized $5.9 million in gains on the sale of
eight previously closed stores. The gains were recorded as
reorganizational items.
During October, 1997, the Court approved a motion for Levitz to close
eighteen stores in under-performing markets. The Company recorded a
pre-tax charge of $23.8 million associated with the closing of these
stores. The charge included non-cash items for the write-down of
property, capital lease assets, furniture and fixtures to their net
realizable values of $18.9 million, the loss on sale of inventory
through liquidation in the amount $1.5 million and the write-down of
other assets in the amount of $0.8 million. Cash items include
severance pay of $1.6 million and continuing expenses of $1.0 million.
Additional non-cash reorganization items written off at the same time
included acceleration of goodwill amortization of $4.7 million and
deferred financing fees of $2.5 million. As of March 31, 1999
approximately $0.2 million of this closing reserve remained.
On January 9, 1998, Levitz sold substantially all of the assets of the
John M. Smyth Company ("JMS"), a wholly-owned subsidiary of Levitz,
which then operated five store locations in the Chicago, Illinois
vicinity. The gross proceeds from the sale, which includes reimbursed
amounts, were approximately $35.6 million. The proceeds were used to
pay mortgages, accounts payable, accrued liabilities and reduce
borrowings under the DIP Facilities. In December 1997, Levitz incurred
a charge of $18.0 million on the sale and closing of the JMS
facilities. The charge included non-cash items for loss on sale of
property and equipment of $5.0 million, acceleration of goodwill
amortization of $10.3 million, lease rejection claims of $1.6 million
and write-off of other assets of $0.2 million. The charge included cash
items of $0.3 million for severance pay and $0.6 million for continuing
expenses. At March 31, 1999 approximately $0.1 million of this closing
reserve remained.
Net sales and operating income (loss) (exclusive of certain central
office expense allocations and prior to interest expense, income taxes
and reorganization items) from the forty-two stores closed in Fiscal
1999, the twenty-four stores closed or disposed of during Fiscal 1998
and the five stores closed during Fiscal 1997 (see Note 8) were (in
000's):
1999 1998 1997
--------- --------- ---------
Net sales $ 138,257 $ 299,073 $ 389,232
Operating income (loss) (2,879) (24,044) 10,239
Professional fees include accounting, legal and consulting services
provided to LFI and the Creditors' Committee which, subject to Court
approval, are required to be paid by LFI while it is in Chapter 11.
49
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
Fees accrued for these services totaled $6.6 million and $6.9 million
in Fiscal 1999 and 1998, respectively.
7. UNUSUAL OPERATING EXPENSES:
During Fiscal 1998, upon the resignation of an officer, LFI accrued
severance costs (i.e., future payroll and employee benefit) of $1.3
million under the provisions of an employment agreement. Additionally,
LFI recorded a $5.9 million write-off of the future service revenue
receivable under the GECC Agreement when Levitz was required to account
for the transfer of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for
financial reporting purposes. The charges increased net loss by $5.0
million or $0.17 per share.
During the fourth quarter of Fiscal 1998, the Company reviewed certain
discontinued and/or slow moving inventory items that did not complement
the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices.
Included in unusual operating expenses is a $6.1 million charge
reflecting the Company's adjustment to record this inventory at its
estimated net realizable value. The Company also wrote off goodwill in
the amount of $2.8 million. The charges increased net loss by $6.1
million or $0.20 per share.
8. STORE CLOSING AND RESTRUCTURING EXPENSE:
In the fiscal year ended March 31, 1997, management developed a plan to
close five stores. The stores were closed on October 31, 1996. The plan
resulted in a pre-tax charge for store closings of $8.3 million. The
charge includes the reduction of the carrying value of the store assets
to their estimated realizable value net of selling expenses as well as
reserves for future rental payments under operating lease agreements.
Included in the store closing charge is a $2.4 million charge from the
adoption of SFAS No. 121 effective April 1, 1996 for one of the closed
stores. The charge increased net loss by $5.4 million or $0.18 per
share.
9. EXTRAORDINARY ITEMS:
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 previous credit facilities. The after-tax loss was
$5.8 million or $0.19 per share. In the period ended December 31, 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.
10. LEASING ARRANGEMENTS:
Levitz leases its facilities generally under non-cancelable leases for
original terms ranging from 10 to 40 years. Most leases contain renewal
options and some include options to purchase the properties.
50
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The following is an analysis of property under capital leases by major
classes (dollars in thousands):
1999 1998
-------- --------
Land, buildings and improvements $ 60,913 $177,192
Equipment -- 1,152
-------- --------
60,913 178,344
Less- Accumulated amortization 27,610 85,623
-------- --------
$ 33,303 $ 92,721
======== ========
Amortization expense relating to property under capital leases for the
years ended March 31, 1999, 1998 and 1997 was $6.0 million, $8.3
million and $9.5 million, respectively.
Minimum annual rentals on continuing stores at March 31, 1999 (net of
sublease income to be received) for the five years subsequent to March
31, 1999 and in the aggregate are as follows (dollars in thousands):
CAPITAL OPERATING
YEAR LEASES (1) LEASES (2)
---- -----------------------------
2000 $4,212 $ 24,430
2001 4,095 25,156
2002 4,007 24,240
2003 4,007 23,435
2004 4,007 21,307
Thereafter 72,075 248,720
----------- --------------
Total minimum lease payments 92,403 $367,288
==============
Less - Amount representing interest 62,417
-----------
Present value of net minimum
payments under capital leases 29,986
Less - Current portion of
continuing leases 618
-----------
$29,368
===========
(1) Minimum annual rentals for capital leases have been reduced
for those leases included in the Sale-Leaseback Transaction
described in Note 19 to the consolidated financial statements.
Capital leases included in the Sale-Leaseback Transactions
were determined to be treated as operating leases in
accordance with SFAS No. 13, "Accounting for Leases".
Consequently, the total capital lease obligations of $9.1
million for those leases has been classified as current
liabilities at March 31, 1999 as this obligation will be
retired upon closing of the Sale-Leaseback Transaction and the
future minimum annual rentals for those leases are included
with operating leases.
51
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
(2) Minimum annual rentals of operating leases include rentals for
those capital leases included in the Sale-Leaseback
Transaction and the Unitary Lease Agreement as described in
Note 19 to the consolidated financial statements. The minimum
annual rentals for the Unitary Lease Agreement are as follows
(dollars in thousands):
OPERATING
YEAR LEASES
---------------- --------------
2000 $ 5,889
2001 7,235
2002 7,235
2003 7,235
2004 7,235
Thereafter 118,386
-------------
$ 153,215
=============
Rent expense includes minimum rentals on operating leases, contingent
payments based on either the Consumer Price Index or a percentage of
sales for both capital and operating leases and amortization of
intangible leasehold interests.
Rent expense consists of the following (dollars in thousands):
1999 1998 1997
-------- -------- --------
Rent expense $ 18,630 $ 23,835 $ 24,567
Sublease income (810) (519) (888)
-------- -------- --------
Rent expense, net $ 17,820 $ 23,316 $ 23,679
======== ======== ========
Some rental agreements contain escalation provisions that may require
higher future rent payments. Rent expense incurred under rental
agreements that contain fixed escalation clauses is recognized on a
straight-line basis over the life of the lease.
11. PRIVATE-LABEL CREDIT CARD PROGRAM:
On September 4, 1998 Levitz and its operating subsidiaries entered into
an agreement ("Merchant Agreement") with Household Bank (SB), N.A.
("Household") whereby Household would provide financing to individual
consumers purchasing merchandise from Levitz ("Private-Label Credit
Card Program"). The Court approved the Merchant Agreement and granted a
first priority and security interest and lien to Household on certain
reserves retained or accumulated by Household, totaling $6.1 million at
March 31, 1999, and gave administrative expense status to substantially
all obligations of Levitz arising under the Merchant Agreement.
Also on September 4, 1998, General Electric Capital Corporation
("GECC") and Levitz terminated the Second Amended and Restated Account
Purchase and Credit Card Agreement (the "GECC Agreement") which was
replaced by the Merchant Agreement. Levitz and GECC jointly released
each other from substantially all obligations under the GECC Agreement.
At the
52
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
same time GECC sold the majority of the portfolio under the GECC
Agreement, approximately $561.0 million, to Household.
The Company determined that the transfer of the GECC portfolio to
Household qualified for sale treatment under Financial Accounting
Standards Board, Statement of Accounting Standards No. 125, "Accounting
for Transfer and Servicing of Financial Assets and Extinguishments of
Liabilities". Accordingly, the Receivable under Account Purchase
Agreement and the offsetting Obligation under Account Purchase
Agreement were removed from the consolidated balance sheets.
At March 31, 1999, Household's portfolio balance was $549.8 million.
The portfolio balance includes Levitz customer purchases through
Household as well as customer accounts sold to Household by GECC.
Levitz recorded income from both the Merchant Agreement and the GECC
Agreement of $13.2 million, $7.9 million and $12.8 million,
respectively for the years ended March 31, 1999, 1998 and 1997.
Levitz is exposed to market risk under the terms of the Household
Agreement. Levitz may pay a fee or may receive income, based upon the
relationship among the interest earned on the portfolio, the amount of
the servicing fee, the cost of capital, promotional discount fees and
credit losses. Levitz is obligated for all credit losses under the
portfolio, including the GECC portfolio transferred to Household, up to
a maximum of 15% of average outstanding receivables and for 50% of all
credit losses above 15%. Levitz is also required under the Merchant
Agreement to fund a merchant risk reserve of 2.5% for the first year
and 3.5% thereafter of all amounts financed up to a stipulated dollar
amount. A one percent increase or decrease in the finance charge to
customers or the cost of capital or the credit loss rate would increase
or decrease the annual income from the portfolio by $3.5 million to
$5.5 million.
Included in the consolidated balance sheets for the years ended March
31, are (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------- ---------------------
Asset Liability Asset Liability
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net receivable/
payable (1) $ 2,964 $ -- $ -- $ 859
Merchant risk
reserve (2) 6,117 -- -- --
Credit loss reserve -- 2,328 -- --
Promotional discount
accrual (3) -- 21,460 -- 3,127
------- ------- ------- -------
Total $ 9,081 $23,788 $ -- $ 3,986
======= ======= ======= =======
</TABLE>
(1) The net receivable/payable represents amounts due from or owed
to Household on the settlement of portfolio earnings from the
previous month and customer accounts that were submitted to
Household for purchase. In Fiscal 1998, the amount was due to
GECC.
53
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
(2) The merchant risk reserve is the amounts paid to Household in
case the Merchant Agreement is terminated or Levitz would
discontinue operations. The cash can be returned to Levitz if a
letter of credit is posted or Levitz emerges from bankruptcy
and meets certain financial covenants. The amount is included
in other long-term assets on the consolidated balance sheets.
(3) The promotional discount accrual represents the estimated
interest that will be charged back to Levitz for those
customers that are likely to take advantage of a "no-interest"
finance promotion at their time of purchase. Levitz is required
to make payments of the estimated amount on a monthly basis.
Under the GECC Agreement these amounts were paid in advance.
This accrual is included in accrued liabilities and other
expenses on the consolidated balance sheets.
In addition to the above, Levitz has funded a credit loss reserve of
$33.9 million through the monthly settlement of portfolio earnings as
of March 31, 1999 which is not on the consolidated balance sheets.
12. INCOME TAXES:
LFI has a Federal cumulative net operating loss ("NOL") carry-forward
of $163.4 as of the fiscal year ended March 31, 1999. LFI has recorded
a full valuation allowance against the NOL for the fiscal year ended
March 31, 1999. In prior years, LFI had recorded a deferred tax asset
(benefit) for its cumulative NOL as of the fiscal year ended March 31,
1998. LFI has always provided a full valuation allowance against state
net operating losses. The cumulative NOL net benefit at March 31, 1999
was $24.7 million. The Sale-Leaseback Transaction and Bulk Sale
Transaction as described in Note 19 to the consolidated financial
statements are estimated to utilize approximately $15.9 million of the
cumulative NOL net benefit. The remaining cumulative NOL net benefit of
$8.8 million is supported by deferred tax credits that are projected to
turn during the carry-forward periods. LFI will continue its current
practice of providing a valuation allowance against future net
operating losses pending a change in financial condition. Limitations
may be placed on the realization of these NOL's when LFI emerges from
bankruptcy. Federal NOL carry-forwards are available through Fiscal
2019.
The benefit for income taxes was allocated as follows (dollars in
thousands):
1999 1998 1997
-------- -------- --------
Loss before extraordinary items $ -- $(39,687) $(13,921)
Extraordinary items -- (2,630) (1,090)
-------- -------- --------
$ -- $(42,317) $(15,011)
======== ======== ========
54
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The components of the benefit for income taxes applicable to loss
before extraordinary items is (dollars in thousands):
1999 1998 1997
-------- -------- --------
Current:
Federal $ -- $ -- $ (1,275)
State 52 57 13
-------- -------- --------
52 57 (1,262)
-------- -------- --------
Deferred:
Federal -- (35,249) (11,137)
State (52) (4,495) (1,522)
-------- -------- --------
(52) (39,744) (12,659)
-------- -------- --------
$ -- $(39,687) $(13,921)
======== ======== ========
A reconciliation of the statutory benefit for income taxes on loss
before extraordinary items to the actual tax benefit is as follows
(dollars in thousands):
1999 1998 1997
-------- -------- --------
Computed income tax benefit
at Federal statutory rate $(33,056) $(44,544) $(13,393)
State and local income tax
benefit, net of federal
income tax (5,676) (7,108) (3,676)
Permanent differences 2,938 6,797 182
Federal valuation allowance 31,388 1,072 --
State valuation allowance 7,198 4,223 2,680
Other (2,792) (127) 286
-------- -------- --------
$ -- $(39,687) $(13,921)
======== ======== ========
55
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
Components of the deferred income tax assets and liabilities are
(dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Expense deducted for book and
not for tax $7,820 $8,660
Obligations under capital lease 18,559 20,797
Other liabilities 21,840 28,204
Federal NOL benefit $57,194 $21,837
Less: valuation allowance (32,460) 24,734 (1,072) 20,765
-------------- --------------
State NOL benefit 21,291 14,093
Less: valuation allowance (21,291) - (14,093) -
-------------- --------------
AMT credit carryover 2,039 2,039
Other 24 -
------------ ------------
75,016 80,465
------------ ------------
Deferred tax liabilities:
Inventory 15,757 11,419
Property and equipment 34,593 11,357
Property under capital lease 16,076 47,687
Stepped-up values on plant
and equipment due to
purchase accounting 15,740 15,282
Other - 966
------------ ------------
82,166 86,711
------------ ------------
Net deferred tax liability $7,150 $6,246
============ ============
</TABLE>
13. EMPLOYEE BENEFIT PLANS:
Levitz has a non-contributory, defined benefit plan (the Pension Plan).
In March 1996, Levitz amended the Pension Plan to exclude future
benefit accruals for credited service and annual earnings after March
31, 1996 and also excluded any associate from becoming a participant in
the plan after January 1, 1996 (Pension Curtailment). Pension benefits
are based on length of service and final average compensation as of the
Pension Curtailment date and are integrated with Social Security. The
maximum pension benefit per individual is limited to $130,000 per year.
Plan assets consist primarily of marketable equity and debt securities
and cash equivalents. Levitz's funding policy is to make the minimum
annual contributions required by applicable regulations.
Certain officers of Levitz are participants in an unfunded
non-contributory supplemental executive retirement plan (SERP) and a
life insurance plan. The SERP provides supplemental retirement,
disability and/or death benefits. Retirement and disability benefits
are equal to 4.0% of the highest consecutive five-year average of
salary plus bonus paid for each year of service, limited to a maximum
of 60% of compensation or $0.3 million on an indexed basis. Death
benefits are equal to 3% per year of service to a maximum of 45% of
such compensation. Benefits are subject to a dollar-for-dollar
reduction for benefits paid under the Pension Plan, Social Security and
certain other
56
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
specified pension plan payments. The liability for the SERP and
insurance plan is included in liabilities subject to compromise.
The table below reconciles the funded status of the plans with the
amounts recognized in the consolidated balance sheets (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998
----------------------- ------------------------
PENSION PENSION
PLAN SERP PLAN SERP
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at
beginning of year $ 61,171 $ 15,080 $ 55,879 $ 14,770
Service cost -- 319 -- 272
Interest cost 4,074 105 4,258 559
Actuarial (gain) loss 347 (760) 6,444 42
Settlements (1) -- (13,980) -- --
Special termination benefits -- 14 -- 55
Gross benefits paid (6,685) (6) (5,410) (618)
-------- -------- -------- --------
Net obligation at end of year 58,907 772 61,171 15,080
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at
beginning of year 68,383 -- 55,912 --
Actual return on plan assets (882) -- 18,063 --
Benefits paid and expenses (6,809) -- (5,593) --
-------- -------- -------- --------
Fair value of plan assets at
end of year 60,692 -- 68,382 --
-------- -------- -------- --------
Funded status
Funded status at end of year 1,785 (772) 7,211 (15,080)
Unrecognized net actuarial
(gain) loss 1,113 -- (4,406) 1,752
Unrecognized prior service cost -- -- -- 268
Unrecognized net transition
obligation -- -- -- 370
Other -- (2) -- (23)
-------- -------- -------- --------
Net amount recognized at end
of year $ 2,898 $ (774) $ 2,805 $(12,713)
======== ======== ======== ========
Amounts recognized in the consolidated
balance sheets
Prepaid benefit costs $ 2,898 $ -- $ 2,805 $ --
Accrued benefit costs -- (774) -- (12,713)
-------- -------- -------- --------
Net asset (liability) recognized
at end of year $ 2,898 $ (774) $ 2,805 $(12,713)
======== ======== ======== ========
</TABLE>
(1) Included in settlements above for Fiscal 1999 are
obligations related to inactive employees which are
included in liabilities subject to compromise.
57
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
The tables below list the weighted average assumptions and the
components of periodic (benefit) costs (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- ----------------
PENSION PENSION PENSION
PLAN SERP PLAN SERP PLAN SERP
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions
Discount rate 7.00% 7.00% 7.00% 7.00% 8.00% 8.00%
Expected return on plan assets 9.00% -- 9.00% -- 9.00% --
Rate of compensation increase -- 3.00% -- 3.80% -- 2.00%/5.50%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
PENSION PENSION PENSION
PLAN SERP PLAN SERP PLAN SERP
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Components of periodic
benefit cost
Service cost $ -- $319 $ -- $ 273 $ -- $ 83
Interest cost 4,074 105 4,258 559 4,296 1,108
Expected return on assets (4,576) -- (4,440) -- (4,439) --
Amortization of:
Transition obligation -- 6 -- 36 -- 82
Prior service cost -- 6 -- 45 -- 281
Actuarial loss -- -- -- 31 -- 32
Special termination charge 409 14 114 55 329 45
======= ==== ======= ======= ======= =======
Net periodic (benefit) cost $ (93) $450 $ (68) $ 999 $ 186 $ 1,631
======= ==== ======= ======= ======= =======
</TABLE>
ASSOCIATES SAVINGS PLAN
Levitz has savings plans which were adopted under Section 401(k) of the
Internal Revenue Code. Under the provisions of the Associates Savings
Plans, substantially all employees who meet the age and service
requirements of the plan are entitled to defer a certain percentage of
their compensation. Levitz contributed to the fund 30% of the first 6%
beginning January 1, 1999 and 20% of the first 6% beginning January 1,
1998 and 1997 subject to certain limitations. Such matching
contributions of $0.6 million, $0.8 million and $0.9 million were made
by Levitz for the years ended March 31, 1999, 1998 and 1997,
respectively.
14. CAPITAL STOCK, STOCK OPTION PLANS, RIGHTS AND STOCK WARRANTS:
COMMON STOCK
As of March 31, 1999 LFI had 30,320,628 shares of Common Stock issued
and 30,071,621 shares outstanding. 26,565,234 shares were voting stock
and 3,573,662 shares were non-voting stock. The Plan of Reorganization
filed by the Company on July 7, 1999 does not provide for any
distribution to existing stockholders.
RESTRICTED STOCK
LFI contracted to issue 700,000 shares of restricted stock to certain
key employees during the fiscal year ended March 31, 1996. These shares
of restricted stock were issued in the fiscal year ended March 31,
1997. The total market value at the effective date of grant was
recorded as deferred compensation, a separate component of
stockholders' deficit. The deferred compensation was charged to
selling, general and administrative expenses over the three-year
vesting period.
58
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
STOCK OPTIONS
In May 1993, LFI adopted an Executive Long-Term Incentive Plan (Plan),
which provides for incentive awards to include the issuance of stock
options. The Plan provides that the stock option price shall not be
less than the fair market value of the shares on the date of grant and
that no portion of the options may be exercised beyond ten years from
that date. Options are exercisable in various increments starting one
year from date of grant.
LFI accounts for these plans under APB Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation expense is
recognized because the exercise price of stock options granted equals
the market price of the underlying stock on the date of grant.
Had compensation costs for these plans been determined consistent with
FASB Statement No. 123, LFI's net loss and net loss per common share
would have been adjusted to the following pro forma amounts (dollars in
thousands, except per share data):
1999 1998 1997
-------- -------- --------
Net loss As reported ($94,444) ($93,387) ($27,586)
Pro forma (94,586) (94,291) (29,332)
Net loss per
common share As reported $3.15 ($3.12) ($0.93)
Pro forma (3.15) (3.15) (0.98)
Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to April 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be
expected in future years.
The fair value of each option granted is estimated at the date of grant
using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for grants in the fiscal years
ended March 31:
1999 1998 1997
----------- ---------- -----------
Risk free interest rates 0.00% 6.30% 6.61%
Expected life (in years) 0 6 6
Expected volatility 0.00% 64.77% 71.22%
Expected dividends None None None
59
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
EMPLOYEE STOCK OPTIONS
Employee Stock Option Plans are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------ -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------- ---------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning 1,789,625 $ 3.50 2,037,875 $ 3.91 1,500,000 $ 5.25
of year
Granted - - 250,000 1.25 941,500 4.04
Exercised - - - - - -
Cancelled (947,750) 1.67 (498,250) 2.80 (403,625) 9.72
------------- ------------ -------------
Outstanding at end of year 841,875 4.24 1,789,625 3.50 2,037,875 3.91
============= ============ =============
Exercisable at end of year 644,375 4.09 810,750 3.06 482,625 3.57
Available for grant at end
of year 2,039,156 1,091,406 843,156
</TABLE>
The following table summarizes information concerning outstanding and
exercisable employee options at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------ ---------------- ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
$3.06-$4.81 548,750 6.7 $3.41 435,875 $3.36
5.00-6.25 278,500 6.7 5.58 206,250 5.57
9.63-10.00 14,625 5.2 9.74 2,250 10.00
---------------- ----------------
841,875 644,375
================ ================
</TABLE>
On November 25, 1996, LFI repriced 284,000 shares of stock options
previously granted with option prices ranging from $9.06 to $12.31 to
the market value of the stock on November 25, 1996 of $3.63. All other
conditions of the stock options remained the same. The repricing is
included as a cancellation and new grant of options during 1997 in the
above table.
On August 20, 1996 at the Annual Stockholders Meeting, the stockholders
approved an amendment to the Plan to increase the number of shares of
Common Stock authorized for issuance thereunder to 2,881,031 shares and
to limit the maximum number of shares granted to any participant to
500,000 shares in each fiscal year.
DIRECTORS STOCK OPTIONS
In addition, LFI has adopted a Non-qualified Non-Employee Directors
Stock Option Plan. The Plan provides that the stock option price shall
not be less than the fair market value of the shares on the date of
grant and that no portion of the options may be exercised beyond ten
years from the date of grant. Options are exercisable in various
increments starting one year from date of grant.
60
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
Directors' Option Plans are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 70,140 $6.00 70,140 $6.00 38,544 $7.43
Granted -- -- -- -- 35,596 4.69
Exercised -- -- -- -- --
Cancelled (17,247) 5.92 -- -- (4,000) 8.19
-------- -------- --------
Outstanding at end of year 52,893 6.02 70,140 6.00 70,140 6.00
======== ======== ========
Exercisable at end of year 50,225 60,135 50,145
Available for grant at end
of year 72,107 54,860 54,860
</TABLE>
The following table summarizes information concerning outstanding and
exercisable director's options at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------ ---------------- ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
$4.69-$6.19 44,893 7.0 $5.28 42,225 $5.32
10.19 8,000 5.3 10.19 8,000 10.19
--------------- ---------------
52,893 50,225
=============== ===============
</TABLE>
RIGHTS
In May 1993, the Board of Directors adopted a Rights Agreement which
declared a dividend distribution of one Right for each outstanding
share of LFI's Common Stock effective with the close of the Offering.
Each Right entitles the registered holder to purchase from LFI one
one-hundredth of a share of Series A Junior Participating Preferred
Stock at a purchase price of $50 per share. The Rights are exercisable
at specified number of days following (i) a public announcement that a
person or group of persons has acquired or obtained the right to
acquire beneficial ownership of 15% or more of LFI's outstanding Common
Stock or (ii) the commencement of a tender offer or exchange offer that
would result in persons acquiring 15% or more of LFI's outstanding
Common Stock. LFI has reserved 1,000,000 shares, $1 par value, of
Series A Junior Participating Preferred Stock for issuance upon
exercise of the Rights. The Rights may be redeemed by LFI, subject to
the approval of the Board of Directors, for $0.01 per Right in
accordance with the provisions of the Rights Agreement. If the Rights
are not redeemed, the holder of the Rights may purchase stock of LFI
(or in certain circumstances, stock of an acquiring person) for
approximately half its value. The Rights will expire on July 2, 2003,
unless redeemed earlier by LFI.
61
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
STOCK WARRANTS
In March 1996, LFI issued warrants to purchase 283,972 shares of LFI
Common Stock at an exercise price equal to $3.89 per share as part of
an exchange offer in which Levitz issued $91.6 million aggregate
principal amount of 13.375% Senior Notes due October 15, 1998 for $91.6
million principal amount of 12.375% Senior Notes due April 15, 1997.
The warrants were revalued at $0.7 million which was being amortized as
interest expense over the life of the 13.375% Senior Notes until the
Petition Date. The warrants expire on March 25, 2001.
In July 1996, LFI issued warrants to purchase up to 5,000,000 shares of
LFI Common Stock, subject to downward adjustments if certain targeted
stock prices of LFI were not achieved and other anti-dilution
provisions. The exercise price as of June 19, 1998 was $0.01 per share.
The warrants were issued as part of a refinancing in July 1996. The
warrants were valued at $0.6 million and were amortized as interest
expense over the original life of the DIP Facility which replaced the
previous financing. The warrants expire on July 1, 2001.
15. ACCRUED EXPENSES AND OTHER LIABILITIES (DOLLARS IN THOUSANDS):
1999 1998
------- -------
Payroll $ 9,394 $12,510
Payroll and sales taxes 4,843 4,547
Real estate taxes 3,238 2,809
Interest 2,615 1,687
Promotional discount accrual 21,460 3,127
Workers Compensation 6,708 7,663
Other 25,721 23,504
------- -------
$73,979 $55,847
======= =======
16. COMMITMENTS AND CONTINGENCIES:
As a result of the bankruptcy filing, the initiation of litigation
against the Debtors involving matters arising prior to the filing for
bankruptcy is stayed. Such stay may be lifted by the Bankruptcy Court
in appropriate circumstances.
Levitz has employment agreements with seven officers. Each of these
agreements is for an initial term of eighteen months and will be
automatically renewed for an additional twelve months unless either
party gives prior written notice of intent to terminate the agreement.
The agreements provide that if the officer is terminated by Levitz
other than for Cause (as defined in the agreements) or disability or by
the officer for Good Reason (as defined in the agreements), Levitz must
continue to pay such officer's base salary for eighteen months and, for
certain of the officers, would be required to credit such officer with
three years of additional service and age for purposes of Levitz's
SERP. In the event of such termination following a Change in Control
(as defined in the agreements), Levitz must pay such officer a lump sum
amount equal to one and one-half times his or her annual base salary.
Each agreement also contains certain non-competition provisions.
62
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
LFI is subject to a number of lawsuits, investigations and claims
arising out of the normal conduct of its business, including those
relating to government regulations, general and product liability and
employee relations. Although there are a number of actions pending
against LFI as of March 31, 1999, in the opinion of Management such
actions as currently known would not have a material effect on the
financial position of LFI.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of LFI's unaudited quarterly results of
operations for the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1999
------------ ---------------- --------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 171,276 $ 169,285 $ 182,174 $ 130,365 (1)
Gross profit 74,094 73,303 74,098 55,278
Net loss (37,974) (1) (14,047) (35,451) (1) (6,972)
============ ================ =============== ============
Net loss per common share $ (1.27) $ (0.47) $ (1.18) $ (0.23)
============ ================ =============== ============
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997(2) 1997 1998
------------ ---------------- --------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 205,646 $ 201,148 $ 225,950 $ 180,204
Gross profit 89,879 84,376 96,359 74,743
Net loss before extraordinary items (10,301) (36,443)(2) (26,428) (2) (14,410)
Net loss (10,301) (41,905)(3) (26,771) (14,410)
============ ================ =============== ============
Loss per common share:
Loss before extraordinary items $ (0.34) $ (1.22) $ (0.88) $ (0.48)
Extraordinary items - (0.18)(3) (0.01) -
------------ ---------------- --------------- ------------
Net loss per common share $ (0.34) $ (1.40) $ (0.89) $ (0.48)
============ ================ =============== ============
</TABLE>
(1) See Note 6 to consolidated financial statements.
(2) See Notes 1, 5, 6 and 7 to consolidated financial statements.
(3) See Note 9 to consolidated financial statements.
63
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
18. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of LFI's financial instruments at
March 31, 1999 and 1998, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,046 $ 3,046 $ 5,339 $ 5,339
Receivable under account
purchase agreement -- -- 554,322 554,322
Debt obligations including
current maturities 151,580 151,580 155,416 155,416
Obligation under account
purchase agreement -- -- 554,322 554,322
Letters of credit -- 16,936 -- 17,778
</TABLE>
The carrying amounts of cash and cash equivalents approximate fair value
because of the short maturity of these instruments. The fair value of
LFI's long-term debt, including current maturities, is estimated based
on the quoted market prices for the same or similar issues. The contract
amount of the letter of credit approximates its fair value. The fair
value of the Company's liabilities subject to compromise are not
presently determinable as a result of the Chapter 11 proceedings.
19. SUBSEQUENT EVENTS:
On June 8, 1999, Levitz sold 11 owned properties and leasehold interests
and/or rights on 11 leased properties for gross proceeds of $67.3
million ("Contract of Sale"). Net proceeds, which excludes closing
costs, of $67.1 million were used to pay-off existing mortgages and
related accrued interest, default interest and other fees of $7.6
million; the term notes under the DIP Facility including accrued
interest, extension fees and other fees of $59.2 million and cure costs
relating to pre-petition liabilities of $0.3 million. The aggregate
carrying value of these properties of $72.2 million was classified as
property under agreement of sale at March 31, 1999. Capital lease
obligations relating to these properties were $9.1 million as of March
31, 1999 which were classified as current.
The gain on the sale of owned property and leasehold interests of
approximately $2.2 million, subject to further adjustment, will be
amortized over the initial term of the "Unitary Lease Agreement" as
described below. As part of the Contract of Sale, the purchaser escrowed
an additional $1.0 million to be paid to Levitz on January 1, 2000
subject to Levitz's emergence from bankruptcy by December 31, 1999. In
addition, the Contract of Sale places certain limitations on Levitz
incurring new unsecured debt following the approval of a plan of
reorganization.
At the same time, Levitz entered into a Unitary Lease Agreement to lease
back all of the owned property as well as the property where the
leasehold interest was sold ("Sale-Leaseback Transaction"). The Unitary
Lease Agreement is for an initial term of twenty years with three
additional option periods of five years each. Rent is payable monthly,
in advance, calculated at 10.75% of the gross proceeds for the first
five
64
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1999
years of the initial term with incremental increases of 5% after each
five year period of the initial terms and all option periods.
The Unitary Lease requires Levitz to assume all obligations for payments
and lease terms under the original leases ("the Overleases"). The
Unitary Lease allows Levitz to exercise a right to vacate or surrender
all or a portion of the lease space of the properties by giving notice
on or before the two year anniversary of the Unitary Lease Agreement and
vacating within three years. In some instances, there is also a
requirement that Levitz must vacate the warehouse portion and/or the
showroom portion of some of the properties by specified dates. Levitz
would receive a pro rata reduction in the Unitary Lease rent at the time
it vacates the entire property and would be released of all payment
obligations for the Overlease in the instances described above.
The cash effect for the first twelve month period as the result of the
Sale-Leaseback Transaction is approximately (dollars in thousands):
Decrease in interest on term notes $ 9,337
Decrease in mortgage payments 1,196
Increase in rent payments (7,235)
----------
Total cash effect $ 3,298
==========
On July 7, 1999, Levitz sold five owned properties and leasehold
interests/rights in six properties, all of which locations had
previously been closed. The gross proceeds from the transaction were
$19.8 million (the "Bulk Sale Transaction"). Net proceeds of
approximately $19.4 million, excluding closing costs, were used to
pay-off existing mortgages and accrued interest of $0.6 million, cure
costs relating to pre-petition liabilities of $0.3 million, proration of
real estate taxes and other costs of $0.4 million and to pay down the
revolver portion of the DIP Facility of approximately $18.1 million. The
Bulk Sale Transaction relieved Levitz of all lease obligations for the
leased properties. The aggregate carrying value of these properties of
$20.3 million was classified as property under agreement of sale at
March 31, 1999.
65
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 8, 1999, the name, age, position at
LFI and Levitz and principal occupation or employment for the past five years,
of the directors and executive officers of LFI and Levitz. Each of such persons
is a citizen of the United States. None of the directors or executive officers
is related to each other.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT DURING THE PAST DIRECTOR OF
NAME AND AGE FIVE YEARS LFI SINCE
------------ -------------------------- -----------
<S> <C> <C>
Edward L. Grund (54) Chairman of the Board and Chief Executive 1998
Officer of LFI and Levitz since 1998,
formerly President Store Operations
of LFI and Levitz, formerly Executive
Vice President-General Manager North
American Division of Sunglass Hut
International from 1997 to 1998. He
was also Senior Vice President-Store
Operations of Sunglass Hut
International from 1993 to 1997.
Michael E. McCreery (51) Senior Vice President and Chief Financial Officer
of LFI and Levitz since 1998, formerly Vice
Chairman and Chief Administrative Officer of C.R.
Anthony Company from 1995 to 1998 and Senior
Executive Vice President and Chief Financial
Officer of C.R. Anthony Company from 1990 to 1994.
Nicholas S. Masullo (51) Vice President, Strategic Operations and Human
Resources of Levitz.
Richard J. Mazzoni, Jr. (51) Vice President, Management Information Services
and Logistics of Levitz.
Lawrence R. McDevitt (55) Vice President, Controller of Levitz.
Sheila C. Reinken (38) Treasurer of LFI and Vice President and Treasurer
of Levitz since 1996. Director of Levitz since
1997. Formerly Assistant Treasurer of Levitz.
Edward P. Zimmer (50) Vice President, Secretary and General Counsel of
LFI and Levitz. Director of Levitz since 1996.
Robert M. Harrell (75) Director of LFI. Commercial Real Estate broker 1994
since 1984. Former Executive Vice President of
Merchandising of Montgomery Ward & Company,
Incorporated.
</TABLE>
66
<PAGE>
<TABLE>
<S> <C> <C>
Bruce C. Leadbetter (60) Director of LFI, formerly Chief Executive Officer 1985
of Dalfort Aviation. Managing Partner, the
Security Management Company. President and
Director of the Astraea Company (a management
consulting firm).
Kenneth D. Moelis (40) Director of LFI. Managing Director of Donaldson, 1986
Lufkin & Jenrette Securities Corporation
(investment bankers) since 1990.
Henry B. Reiling (61) Director of LFI. Professor, Harvard Graduate 1990
School of Business Administration.
</TABLE>
The Board of Directors of LFI is divided into three classes serving staggered
three-year terms. The terms of office of Messrs. Harrell, Leadbetter and Moelis
have expired in prior years; however, because the Company did not hold an Annual
Meeting of Stockholders since 1996, such directors continue in office until
their successors are elected. The term of office of Mr. Reiling expires in 1999.
Directors who are employees of LFI or Levitz do not receive any compensation for
serving on the Board of Directors of either LFI or Levitz. Directors who are not
employees of LFI or Levitz receive $15,000 in compensation annually. Audit and
Compensation Committee members receive $1,000 for each committee meeting
attended and each committee chairman receives an additional $5,000 per year for
serving as chairman.
Pursuant to the Company's Non-Employee Directors' Stock Option Plan, following
the Company's Annual Meeting of Stockholders, each director who is not an
employee of the Company receives an annual grant of an option to purchase 2,000
shares of the Company's Common Stock. Such directors may also elect to receive
options to purchase shares of the Company's Common Stock in lieu of their yearly
retainer fee. The exercise price of all options granted pursuant to this plan
will be set at the average of the high and low prices of the Common Stock on the
date of grant. The term of each option is ten years from date of grant. Annual
grant options are exercisable as to one-third of the shares subject to the
option on each of the first, second and third anniversary of the grant. Elective
grant options are exercisable six months after the grant.
LFI has entered into indemnification agreements with each of its officers and
directors. The indemnification agreements provide that LFI shall indemnify the
officers and directors to the fullest extent permitted by law against any and
all expenses, judgments, fines, penalties and settlement amounts paid or
incurred in any threatened, pending or completed action, suit or proceeding
related to their service as a director, officer, employee, agent or fiduciary of
LFI with another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise when they are serving at the request of LFI. LFI's
Restated Certificate of Incorporation also provides for certain indemnification
rights.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information regarding the
annual and long-term compensation awarded or earned for each of the last three
fiscal years to those persons who were, for the fiscal year ended March 31,
1999, the Chief Executive Officer and the four other most highly compensated
executive officers. Mr. Grund was not employed by the Company prior to the 1999
fiscal year and Mr. McCreery was not employed by the Company prior to the 1998
fiscal year. Accordingly, no information is set forth with respect to these
individuals for the prior year(s).
67
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES ALL OTHER
FISCAL ANNUAL STOCK UNDERLYING COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS TION (1)
- --------------------------- ------ ------ ----- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward L. Grund 1999 $ 299,534 $ 200,000 (2) $ -- $ -- -- $ 5,147
Chairman of the Board 1998 -- -- -- -- -- --
and Chief Executive Officer 1997 -- -- -- -- -- --
of LFI and Levitz
Michael Bozic 1999 $ 475,000 $ -- $ -- $ -- -- $ 36,366
former Chairman of the 1998 650,000 -- -- -- -- 42,933
Board and Chief Executive 1997 637,500 150,000 -- -- -- 31,990
Officer of LFI and Levitz
Robert A. Homler 1999 $ 269,240 $ -- $ 109,300 (3) $ -- -- $ 86,963 (4)
former President 1998 242,316 95,000 (5) 36,518 (6) -- 250,000 3,788
Merchandise/Marketing of 1997 -- -- -- -- - --
LFI and Levitz
Michael E. McCreery 1999 $ 282,724 $ 50,000 (7) $ 49,500 (3) $ -- -- $ 6,072
Senior Vice President and 1998 26,445 50,000 (7) -- -- -- --
Chief Financial Officer of LFI1997 -- -- -- -- -- --
and Levitz
Edward P. Zimmer 1999 $ 195,000 $ 25,000 $ -- $ -- -- $ 5,470
Vice President, Secretary 1998 190,392 -- -- -- -- 5,182
and General Counsel of 1997 161,874 -- -- -- 55,000 57,831
LFI and Levitz
Richard J. Mazzoni, Jr. 1999 $ 185,016 $ 25,000 $ -- $ -- -- $ 5,642
Vice President, Management 1998 183,472 -- -- -- -- 5,865
Information Systems and 1997 168,636 -- -- -- 40,000 59,245
Logistics of Levitz
Nicholas S. Masullo 1999 $ 144,976 $ 25,000 $ -- $ -- -- $ 7,779
Vice President, Human 1998 142,368 -- -- -- -- 9,422
Resources of Levitz 1997 125,562 -- -- -- -- 42,762
</TABLE>
- -------------
(1) Included in this column for the fiscal year ended March 31, 1999 are
matching contributions paid pursuant to Levitz's Associates' Savings Plan
to Messrs. Bozic, McCreery, Zimmer, Mazzoni and Masullo in the amounts of
$735, $634, $2,271, $2,256, and $2,047, respectively, and the dollar
value attributable to life insurance premiums paid on behalf of Messrs.
Grund, Bozic, Homler, McCreery, Zimmer, Mazzoni and Masullo in the
amounts of $5,147, $35,631, $6,191, $5,438, $3,199, $3,386 and $5,732,
respectively.
(2) Pursuant to the terms of his employment agreement with the Company, Mr.
Grund received a guaranteed bonus of $100,000 for the fiscal year ended
March 31, 1999 plus a $100,000 signing bonus.
(3) Represents relocation expenses paid by the Company.
(4) Includes $80,772 of payments for termination of employment agreement.
(5) Pursuant to the terms of his employment agreement with the Company, Mr.
Homler received a guaranteed bonus of $70,000 for the fiscal year ended
March 31, 1998 plus a $25,000 signing bonus.
(6) Represents perquisites and other personal benefits of which $33,500 is
attributable to relocation expenses.
(7) Pursuant to the terms of his employment agreement with the Company, Mr.
McCreery received a guaranteed bonus of $50,000 for the fiscal year ended
March 31, 1999 and $50,000 signing bonus for fiscal year ended March 31,
1998.
OPTION GRANTS IN THE LAST FISCAL YEAR
There were no grants of stock options in the fiscal year ended March 31, 1999.
68
<PAGE>
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the officers exercised any options in the fiscal year ended March 31,
1999.
The following table provides information on the number of options held by the
executive officers named in the Summary Compensation Table. Messrs. Grund,
Bozic, Homler and McCreery hold no options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT END OF FISCAL YEAR END OF FISCAL YEAR
------------------------------------ -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ------------------ ---------------- -------------------
<S> <C> <C> <C> <C>
Edward P. Zimmer 53,750 31,250 $ - $ -
Richard J. Mazzoni 30,000 20,000 - -
Nicholas S. Masullo 47,500 22,500 - -
</TABLE>
LEVITZ RETIREMENT PLANS
Certain officers (a total of seven persons) are participants in the Levitz
Furniture Corporation Employees Retirement Plan (the "Retirement Plan") and the
Levitz Furniture Corporation Supplemental Executive Retirement Plan (the
"Supplemental Plan"). After March 31, 1996 no additional benefits accrue under
the Retirement Plan. Retirement and disability benefits pursuant to the
Supplemental Plan are equal to 4% of the highest five-year average of salary
plus bonus for each year of service to a maximum of 15 years of service. The
retirement benefit of a participant who terminates service prior to age 65 is,
except under certain circumstances, subject to reduction. Benefits are subject
to a dollar-for-dollar reduction for similar benefits paid under the Retirement
Plan, pension plans of other employers and Social Security. Retirement and
disability benefits under the Supplemental Plan are limited to a 1999 maximum of
$491,577 per year, to be increased annually by the average increase in annual
salary for Supplemental Plan participants. The following table shows annual
benefits payable (before offsets) under the Supplemental Plan and the Retirement
Plan to participants at age 65 in specified years of service and remuneration
classes:
Pension Plan Table
YEARS OF SERVICE(2)
--------------------------------------------
REMUNERATION(1) 10 15 OR MORE AT AGE 65
--------------- -------------- --------------------
$200,000 $80,000 $120,000
300,000 120,000 180,000
400,000 160,000 240,000
500,000 200,000 300,000
600,000 240,000 360,000
- --------------
(1) For the fiscal year ended March 31, 1999, remuneration equaled the amount
listed for each executive officer under "Annual Compensation" in the
Summary Compensation Table.
(2) As of March 31, 1999, Messrs. Grund and McCreery had less than two years
of service and the remaining listed executive officers had more than 15
years of service under the Supplemental Plan.
69
<PAGE>
EMPLOYMENT AGREEMENTS
Levitz has employment agreements with each of the named executive officers
listed in the Summary Compensation Table on page 68. Each of these agreements is
for an initial term of eighteen months and will be automatically renewed for an
additional twelve months unless either party gives prior written notice of
intent to terminate the agreement. The agreements provide that if the officer is
terminated by Levitz other than for Cause (as defined in the agreements) or
disability or by the officer for Good Reason (as defined in the agreements),
Levitz must continue to pay such officer's base salary for eighteen months and,
for certain of the officers, would be required to credit such officer with three
years of additional service and age for purposes of Levitz's Supplemental Plan.
In the event of such termination following a Change in Control (as defined in
the agreements), Levitz must pay such officer a lump sum amount equal to one and
one-half times his or her annual base salary. Each agreement also contains
certain non-competition provisions.
In the event of termination at their current salary, the current executive
officers listed in the Summary Compensation Table would receive the following
total compensation pursuant to the above-described employment agreements: Mr.
Grund, $637,572, Mr. McCreery, $450,060, Mr. Zimmer, $292,500, Mr. Mazzoni,
$277,524 and Mr. Masullo, $262,548. These amounts assume payments for 18 months
at current salaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
As of June 8, 1999, the Common Stock was held of record by 745 stockholders. The
following table sets forth certain information concerning the beneficial
ownership of Common Stock by each stockholder who is known by the Company to own
beneficially in excess of 5% of the outstanding Common Stock, by each director,
by the executive officers named in the Summary Compensation Table above, and by
all directors and executive officers as a group, as of the Record Date. Except
as otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares of Common Stock.
70
<PAGE>
<TABLE>
<CAPTION>
NO. OF SHARES
OF COMMON
NAME OF BENEFICIAL OWNER STOCK(1) PERCENT(1)
------------------- ---------------
<S> <C> <C>
Apollo Investment Fund III, 5,000,000 (2) 16.6
Apollo Overseas Partners, III, L.P.
and Apollo (U.K.) Partners, III, L.P.
Two Manhattanville Road
Purchase, New York 10577
Court Square Capital, Ltd. ("CSCL") 5,764,888 (3) 19.2
399 Park Avenue, 10th Floor
New York, New York
Robert M. Harrell 6,750 (4) *
9139 Ridge Pine Trail
Orlando, Florida
Bruce C. Leadbetter 147,531 (5) *
7701 Lemon Avenue
Dallas, Texas
Nicholas S. Masullo 62,500 (6) *
7887 North Federal Highway
Boca Raton, Florida
Richard J. Mazzoni 42,500 (6) *
7887 North Federal Highway
Boca Raton, Florida
Kenneth D. Moelis 12,399 (6) *
Donaldson, Lufkin & Jenrette
2121 Avenue of the Stars
Los Angeles, California
Henry B. Reiling 44,397 (7) *
Harvard Graduate School of
Business Administration
Morgan 385, Soldiers Field
Boston, Massachusetts
Edward P. Zimmer 146,474 (8) *
7887 North Federal Highway
Boca Raton, Florida
All Officers and Directors of the Company 389,835 (9) 1.3
as a group (11 persons)
All Officers and Directors of Levitz 308,824 (10) 1.0
as a group (9 persons)
- -----------------
</TABLE>
* Less than 1.0%
(1) Includes Voting Common Stock and Non-Voting Common Stock. The Non-Voting
Common Stock is identical to the Voting Common Stock in all respects,
except that the Non-Voting Common Stock is non-voting and is convertible
into Voting Common Stock. On June 8, 1999, there were 26,497,959 shares
of Voting Common Stock and 3,573,662 shares of Non-Voting Common Stock
outstanding, which were held by 738 and 7 holders of record,
respectively.
(2) Represents warrants to purchase 5,000,000 shares of Common Stock.
(3) CSCL is an indirect wholly-owned subsidiary of Citicorp. Of these shares
3,484,888 are Non-Voting Common Stock.
71
<PAGE>
(4) Includes beneficial ownership of 6,000 shares which may be acquired
within 60 days pursuant to stock option grants.
(5) Includes beneficial ownership of 17,247 shares which may be acquired
within 60 days pursuant to stock option grants.
(6) Consists solely of beneficial ownership of shares which may be acquired
within 60 days pursuant to stock option grants.
(7) Includes beneficial ownership of 17,247 shares which may be acquired
within 60 days pursuant to stock option grants. Also includes 2,250
shares held in trust for members of Mr. Reiling's family. Mr. Reiling
disclaims beneficial ownership of such shares held by members of his
family.
(8) Includes beneficial ownership of 75,000 shares which may be acquired
within 60 days pursuant to stock option grants.
(9) Includes beneficial ownership of 206,143 shares which may be acquired
within 60 days pursuant to stock option grants and other shares as to
which beneficial ownership is disclaimed.
(10) Includes beneficial ownership of 236,250 shares which may be acquired
within 60 days pursuant to stock option grants and other shares as to
which beneficial ownership is disclaimed.
72
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors who are employees of the Company or Levitz do not receive any
compensation for serving on the Board of Directors of either the Company or
Levitz. Directors who are not employees of the Company or Levitz receive $15,000
in compensation annually. Audit and Compensation Committee members receive
$1,000 for each committee meeting attended and each committee chairman receives
an additional $5,000 per year for serving as chairman.
Pursuant to the Company's Non-Employee Directors' Stock Option Plan, each
director who is not an employee of the Company, following the Company's Annual
Meeting of Stockholders, receives an annual grant of an option to purchase 2,000
shares of the Company's Common Stock. Such directors may also elect to receive
options to purchase shares of the Company's Common Stock in lieu of their yearly
retainer fee. The exercise price of all options granted pursuant to this plan
will be set at the average of the high and low prices of the Common Stock on the
New York Stock Exchange on the date of grant. The term of each option is ten
years from date of grant. Annual grant options are exercisable as to one-third
of the shares subject to the option on each of the first, second and third
anniversary of the grant. Elective grant options are exercisable six months
after the grant.
Court Square Capital, Ltd. owns 19.2% of the Company's Common Stock. Court
Square Capital, Ltd. also owns the capital stock of Furniture Comfort
Corporation, which, in the ordinary course of business, sold $31.3 million of
merchandise to Levitz in Fiscal 1999.
73
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the Index to
Consolidated Financial Statements on page 31.
FINANCIAL STATEMENT SCHEDULES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
SCHEDULES PAGE
----
Schedule I - Condensed Financial Information of Registrant . . . . . . 80
All other schedules have been omitted because the required information is shown
in the Consolidated Financial Statements or Notes thereto or they are not
applicable.
(b) REPORT ON FORM 8-K
On February 17, 1999 the registrant filed a Report on Form 8-K reporting
under Item 5. Other Events disclosing a letter to its vendors concerning
the status of the registrant's Chapter 11 Bankruptcy Proceeding.
On July 2, 1999 the registrant filed a Report on Form 8-K reporting under
Item 5. Other Events disclosing the sale of eleven owned parcels of real
property and leasehold interests on twelve leased properties and the
execution of a Unitary Lease to lease the properties back
("Sale-Leaseback Transaction"). The Sale-Leaseback Transaction was
consummated on June 8, 1999.
(c) EXHIBITS
See Page 76 for Index to Exhibits.
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LEVITZ FURNITURE INCORPORATED
Date: July 12, 1999 By: /s/ EDWARD L. GRUND
--------------------------------
Edward L. Grund
Chairman of the Board
and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD L. GRUND Chairman of the Board July 12, 1999
- ------------------------------------------- and Chief Executive
Edward L. Grund Officer
/s/ MICHAEL MCCREERY Senior Vice President July 12, 1999
- ------------------------------------------- and Chief Financial
Michael McCreery Officer
/s/ ROBERT M. HARRELL Director July 12, 1999
- -------------------------------------------
Robert M. Harrell
/s/ BRUCE C. LEADBETTER Director July 12, 1999
- -------------------------------------------
Bruce C. Leadbetter
Director July 12, 1999
- -------------------------------------------
Kenneth D. Moelis
/s/ HENRY B. REILING Director July 12, 1999
- -------------------------------------------
Henry B. Reiling
</TABLE>
75
<PAGE>
INDEX TO EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.01 Form of Restated Certificate of Incorporation of the Company. (1)
3.02 Form of By-Laws of the Company. (1)
3.03 Certificate of Incorporation of Levitz. (2)
3.04 By-Laws of Levitz. (2)
4.01 Form of Stockholder Rights Plan, including exhibits. (1)
10.02 Form of Indemnification Agreement. (1)
10.04 Amendment to Shareholders Agreement dated as of May 14, 1993. (1)
10.05 Senior Deferred Coupon Debenture Indenture dated as of December 1, 1992
between the Company and First Bank National Association, as Trustee.
(1)
10.06 Form of Senior Deferred Coupon Debenture (included as Exhibit A to
10.05 above). (1) 10.07 First Supplemental Indenture dated as of April
21, 1993, relating to the Debenture Indenture. (1)
10.08 Second Supplemental Indenture, dated as of June 16, 1993, relating to
the Debenture Indenture. (1)
10.10 Shareholders Agreement, dated as of December 23, 1986 between the
Company and the Investors. (3)
10.11 Form of Agreement of Indemnification dated March 5, 1985 between Levitz
and certain directors of Levitz Furniture Corporation. (3)
10.14 Supplemental Executive Retirement Plan of Levitz dated April, 1995. (4)
10.15 Levitz Bonus Plan. (4)
10.16 13-3/8% Senior Note Indenture, dated as of March 1, 1996, between
Levitz Furniture Corporation and American Bank National Association, as
Trustee. (4)
10.17 Form of 13-3/8% Senior Note (included as Exhibit A to 10.16 above). (4)
10.18 First Supplemental Indenture, dated as of May 29, 1996, to the 13-3/8%
Senior Note Indenture, dated as of March 1, 1996 between Levitz
Furniture Corporation and American Bank National Association, as
Trustee. (4)
10.19 Warrant Agreement, dated as of March 25, 1996, by and between the
Company and American Stock Transfer & Trust Company, as Agent.(7)
10.20 Form of Warrant, dated March 25, 1996 (included as Exhibit A to Exhibit
10.19 above). (4)
10.22 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo Investment Fund III, L.P. (4)
10.23 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo Overseas Partners III, L.P. (4)
10.24 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo (U.K.) Partners III, L.P. (4)
10.25 Registration Rights Agreement, dated as of July 1, 1996, by and among
the Company, Apollo Investment Fund III, L.P., Apollo Overseas Partners
III, L.P., Apollo (U.K.) Partners II, L.P. and Court Square Capital
Limited. (4)
10.26 $150,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, Levitz Furniture Company of the Midwest, Inc.,
Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company
of Washington, Inc., John M. Smyth Company, each of the lenders from
time to time parties thereto, Apollo Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., Apollo U.K. Partners III, L.P. and BT
Commercial Corporation, as agent. (4)
76
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.27 $40,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, Levitz Furniture Company of the Midwest, Inc.,
Levitz Furniture Company of the Pacific, Inc., Levitz Furniture Company
of Washington, Inc., John M. Smyth Company, each of the lenders from
time to time parties thereto, Apollo Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., Apollo U.K. Partners III, L.P. and BT
Commercial Corporation, as agent. (4)
10.28 Intercreditor and Collateral Agency Agreement, dated as of July 1,
1996, among Levitz Furniture Corporation, Levitz Furniture Company of
the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., John M. Smyth Company, BT
Commercial Corporation and the lenders named therein. (4)
10.29 Intercreditor Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, General Electric Capital Corporation, BT
Commercial Corporation and the lenders named therein. (4)
10.30 Revolving Note, dated July 1, 1996, by and among BT Commercial
Corporation, Levitz Furniture Corporation, Levitz Furniture Company of
the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (4)
10.31 Term Note, dated July 1, 1996, by and among Apollo (UK) Partners III,
L.P. and Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.32 Term Note, dated July 1, 1996, by and among Apollo Overseas Partners
III, L.P. and Levitz Furniture Corporation, Levitz Furniture Company of
the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (4)
10.33 Term Note, dated July 1, 1996, by and among Apollo Investment Fund III,
L.P. and Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.34 Note, dated July 1, 1996, by and among BT Commercial Corporation and
Levitz Furniture Corporation, Levitz Furniture Company of the Midwest,
Inc., Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., and John M. Smyth Company. (4)
10.35 Security Agreement, dated as of July 1, 1996, by Levitz Furniture
Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz
Furniture Company of the Pacific, Inc., Levitz Furniture Company of
Washington, Inc., and John M. Smyth Company in favor of BT Commercial
Corporation. (4)
10.36 Pledge Agreement, dated as of July 1, 1996, by and between Levitz
Furniture Corporation and BT Commercial Corporation. (4)
10.37 Amendment No. 1 dated as of December 6, 1996 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al. and
BT Commercial Corporation, as Agent. (5)
10.39 Amendment No. 2 dated as of December 16, 1996 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al. and
BT Commercial Corporation, as Agent. (6)
10.40 Amendment No. 3 dated as of June 13, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al. and
BT Commercial Corporation, as Agent. (7)
77
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- ------- -----------------------
10.41 Amendment No. 4 dated as of June 30, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation et al. and
BT Commercial Corporation, as Agent. (7)
10.44 Amendment No. 5 dated as of July 25, 1997 to the Credit Agreements
among Levitz Furniture Corporation, et al. and BT Commercial
Corporation, as agent. (8)
10.45 $260,000,000 Postpetition Credit Agreement among Levitz Furniture
Incorporated, Levitz Furniture Corporation and certain other
subsidiaries and certain financial institutions, with Levitz Furniture
Corporation, as LFC Funds Administrator and, BT Commercial Corporation,
as Agent, dated as of September 5, 1997. (9)
10.46 Second Amended and Restated Account Purchase and Credit Card Program
Agreement by and among Levitz Furniture Corporation, certain other
subsidiaries and General Electric Capital Corporation, dated September
5, 1997. (9)
10.47 Amendment No. 1 dated as of October 7, 1997 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent. (10)
10.48 Amendment No. 1 dated as of October 7, 1997 to the Second Amended and
Restated Account Purchase and Credit Card Agreement among Levitz
Furniture Corporation, et al. and General Electric Capital Corporation.
(10)
10.49 Amendment No. 2, dated as of December 30, 1997 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (11)
10.50 Amendment No. 3 dated as of February 23, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (12)
10.51 Amendment No. 4 dated as of February 20, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (12)
10.52 Amendment No. 5 dated as of May 14, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent. (12)
10.53 Amendment No. 6 dated as of June 23, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent. (12)
10.54 Form of Employment Agreement by and among Levitz Furniture Corporation
and Edward L. Grund dated as of June 1, 1998. (12)
10.55 Form of Employment Agreement between Levitz and certain officers. (12)
10.56 Merchant Agreement among Levitz Furniture Corporation and certain other
subsidiaries and Household Bank (SB) N.A., dated September 4, 1998.
(13)
10.57 Amendment No. 7 dated as of September 4, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (13)
10.58 Amendment No. 8 dated as of September 18, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (13)
10.59 Waiver dated as of December 31, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent. (14)
10.60 Amendment No. 9 dated as of March 5, 1999 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent.
10.61 Amendment No. 10 dated as of May 14, 1999 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent.
78
<PAGE>
10.62 Contract of Sale by and among Levitz Furniture Corporation and certain
other subsidiaries and Klaff Realty, LP, Lubert-Adler Capital Real
Estate Fund II, L.P., Lubert-Adler Real Estate Fund II, L.P. and
Lubert-Adler Parallel Fund II, L.P., dated as of April 20, 1999. (15)
10.63 First Amendment to Contract of Sale by and among Levitz Furniture
Corporation and certain subsidiaries and the various purchasers set
forth therein, dated as of June 8, 1999. (15)
10.64 Unitary Lease by and among Levitz Furniture Corporation and certain
other subsidiaries and the various purchasers set forth therein, dated
as of June 8, 1999. (15)
21.01 Wholly Owned Subsidiaries of Levitz Furniture Incorporated.
27 Financial Data Schedule.
- ------------------
(1) Incorporated by reference from the Company's and Levitz's Registration
Statement Nos. 33-61534 and 33-61534-01 on Form S-1 filed April 23,
1993.
(2) Incorporated by reference from Levitz's Registration Statement No.
33-1325 on Form S-1 declared effective on August 13, 1986.
(3) Incorporated by reference from Levitz's Registration Statement No.
33-12639 on Form S-1 declared effective on May 12, 1987.
(4) Incorporated by reference from Levitz Furniture Incorporated's Form
10-K for the fiscal year ended March 31, 1996.
(5) Incorporated by reference to Form 8-K filed December 6, 1996.
(6) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended December 31, 1996.
(7) Incorporated by reference from Levitz Furniture Incorporated's Annual
Report on Form 10-K for the year ended March 31, 1997.
(8) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended June 30, 1997.
(9) Incorporated by reference to Form 8-K filed September 12, 1997.
(10) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended September 30, 1997.
(11) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended December 31, 1997.
(12) Incorporated by reference from Levitz Furniture Incorporated's Annual
Report on Form 10-K for the year ended March 31, 1998.
(13) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended September 30, 1998.
(14) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended December 31, 1998.
(15) Incorporated by reference to Form 8-K filed July 2, 1999.
79
<PAGE>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Income taxes receivable $ 20 $ --
Income taxes receiviable from
subsidiary 13,635 13,633
Deferred taxes -- 103
--------- ---------
Total current assets 13,655 13,736
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Income taxes payable $ -- $ 231
--------- ---------
Total current liabilities -- 231
Deferred taxes 839 942
--------- ---------
Excess of losses over investment in subsidiary 284,319 189,907
--------- ---------
Liabilities subject to compromise 8,717 8,717
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par; authorized 63,700,000
shares; 30,320,628 shares issued and 30,071,621
outstanding in 1999 and 30,138,896 shares
outstanding in 1998 303 303
Preferred stock $1 par; authorized 2,500,000
shares; issued outstanding -0- shares in
1999 and 1998 -- --
Capital in excess of par 213,560 213,560
Retained earnings (deficit) (493,782) (399,338)
Deferred compensation (298)
Treasury stock, at cost, 249,007 shares in 1999
and 181,732 shares in 1998 (301) (288)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIT (280,220) (186,061)
--------- ---------
$ 13,655 $ 13,736
========= =========
</TABLE>
The accompanying note is an integral part of these financial statements.
80
<PAGE>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE $ 32 $ 47 $ 131
INTEREST EXPENSE -- 618 1,469
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (32) (665) (1,600)
INCOME TAX (BENEFIT) -- (250) (467)
------------ ------------ ------------
LOSS BEFORE EQUITY IN NET INCOME (LOSS)
OF SUBSIDIARY AND EXTRAORDINARY ITEMS (32) (415) (1,133)
EQUITY IN NET LOSS OF SUBSIDIARY (94,412) (87,167) (24,451)
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS (94,444) (87,582) (25,584)
EXTRAORDINARY ITEMS, NET OF TAX BENEFIT
OF $2,630 IN 1998 AND $1,090 IN 1997 -- (5,805) (2,002)
------------ ------------ ------------
NET LOSS $ (94,444) $ (93,387) $ (27,586)
============ ============ ============
LOSS PER COMMON SHARE:
LOSS BEFORE EXTRAORDINARY ITEMS $ (3.15) $ (2.93) $ (0.86)
EXTRAORDINARY ITEMS -- (0.19) (0.07)
------------ ------------ ------------
NET LOSS PER COMMON SHARE $ (3.15) $ (3.12) $ (0.93)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 30,023,119 29,923,578 29,654,913
============ ============ ============
</TABLE>
The accompanying note is an integral part of these financial statements.
81
<PAGE>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($94,444) ($93,387) ($27,586)
Deferred tax benefit -- (198) (716)
Amortization of original issue discount
on deferred debentures -- 331 1,450
Amortization of deferred financing fees -- 8 21
Equity in net loss of subsidiaries 94,412 87,167 24,451
Extraordinary loss related to early
redemption of debt -- 5,805 2,002
Decrease (increase) in income tax receivables (20) 2,299 4,229
Decrease (increase) in receivable from
subsidiary (2) (3,348) (4,400)
Other 67 1,433 727
-------- -------- --------
Net cash provided by operating
activities 13 110 178
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock (13) (110) (178)
-------- -------- --------
Net cash used in financing activities (13) (110) (178)
-------- -------- --------
Net increase in cash and cash equivalents -- -- --
CASH AND CASH EQUIVALENTS, beginning of year -- -- --
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
Fair value of warrants contributed to subsidiary $ -- $ -- $ 600
======== ======== ========
</TABLE>
The accompanying note is an integral part of these financial statements.
82
<PAGE>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO FINANCIAL STATEMENTS
MARCH 31, 1999
1. These statements should be read in conjunction with LFI's Consolidated
Financial Statements and Notes thereto as described in the index listed
in Item 8.
83
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.60 Amendment No. 9 dated as of March 5, 1999 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent.
10.61 Amendment No. 10 dated as of May 14, 1999 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT Commercial
Corporation, as agent.
21.01 Wholly Owned Subsidiaries of Levitz Furniture Incorporated.
27 Financial Data Schedule.
EXHIBIT 10.60
NINTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS NINTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT, dated
as of March 5, 1999 (this "AMENDMENT"), is among LEVITZ FURNITURE INCORPORATED,
a Delaware corporation and a debtor and debtor in possession, LEVITZ FURNITURE
CORPORATION, a Florida corporation and a debtor and debtor in possession
("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation and a debtor
and debtor in possession, LEVITZ SHOPPING SERVICE, INC., a Florida corporation
and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE
COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and
debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE
COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a
debtor in possession, LEVITZ REINSURANCE CORPORATION, JOHN M. SMYTH COMPANY, an
Illinois corporation and a debtor and debtor in possession, and JOHN M. SMYTH
REALTY COMPANY, an Illinois corporation and a debtor and debtor in possession
(collectively, the "BORROWERS"), each Revolving Lender, Term Lender and
Overadvance Term Lender (defined herein) signatories hereto (collectively the
"LENDERS"), and BT COMMERCIAL CORPORATION, a Delaware corporation, acting in its
capacity as collateral agent and agent for the Lenders (in such capacity,
together with its successors in such capacity, the "AGENT"). Capitalized terms
used in this Amendment and not otherwise defined have the meanings assigned to
such terms in the Postpetition Credit Agreement dated as of September 5, 1997
(as amended, restated, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among the Borrowers, the Lenders and the Agent.
PRELIMINARY STATEMENTS:
A. The Borrowers, the Lenders and the Agent are parties to the Credit
Agreement.
B. The Borrowers have requested that M.D. SASS CORPORATE RESURGENCE
PARTNERS, L.P. (together with any successors and permitted assigns, the
"OVERADVANCE TERM LENDER") extend credit by extending a term loan (the
"OVERADVANCE TERM LOAN") to the Borrowers in the original principal amount of
$10,000,000 to be evidenced by a promissory note (the "OVERADVANCE TERM NOTE"),
made by the Borrowers in favor of the Overadvance Term Lender.
C. The Borrowers, the Lenders and the Agent have agreed to amend the
Credit Agreement to, among other things, extend the Overadvance Term Loan on the
terms and subject to the conditions of this Amendment.
1
<PAGE>
AGREEMENT:
In consideration of the premises and the mutual agreements contained in
this Amendment, the Borrowers, the Lenders and the Agent agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
On the date each of the conditions set forth in SECTION 3 is satisfied
by the Borrowers (the "CLOSING Date"), the Credit Agreement is amended as
follows:
1.1 The Credit Agreement is amended by adding Article 2C to the Credit
Agreement as follows:
ARTICLE 2C. OVERADVANCE TERM LOAN
Subject to the terms and conditions set forth in this Credit
Agreement, and in reliance on the representations and warranties of the
Borrowers set forth herein, at any time prior to the Overadvance
Maturity Date and upon receipt of notice from the Agent that Excess
Availability is less than $12,000,000 (which amount shall include the
amount set forth in subsection (d) in the definition of Borrowing
Base), the Overadvance Term Lender will make a term loan (the
"OVERADVANCE TERM LOAN") to the Borrowers, as soon as reasonably
practicable and in no event more than 10 Business Days after receiving
notice from the Agent, in the original principal amount of $10,000,000.
The proceeds of the Overadvance Term Loan will be immediately deposited
with the Agent and, notwithstanding the provisions of SECTION 4.11,
will be applied by the Agent to pay down the outstanding principal of
the Revolving Loans on such date. The Overadvance Term Loan shall be
evidenced by an Overadvance Term Note and shall be governed in all
respects by the terms of this Credit Agreement and the other Credit
Documents.
1.2 SECTION 1.1 of the Credit Agreement is amended by deleting the
definition of "BORROWING BASE" in its entirety and replacing it as follows:
BORROWING BASE means, at any time, the sum at such time of:
(a) the Fixed Asset Sublimit (which may be a negative
number), PLUS
(b) eighty-five percent (85%) of Eligible Accounts
Receivable, PLUS
(c) seventy-five percent (75%) of Eligible Inventory;
provided that the foregoing percentage may be
adjusted by the Agent in the exercise of its
Permitted Discretion based upon appraisals of the
Borrowers' inventory prepared from time to time at
the Agent's or the Majority Lenders' direction, PLUS
2
<PAGE>
(d) solely for the purposes of accepting the borrowing of
the Overadvance Term Loan, $10,000,000 (the
"OVERADVANCE TERM LOAN AMOUNT"); provided, that,
effective as of the earlier to occur of (I) ten (10)
Business Days after the date on which the Overadvance
Term Lender receives notice from the Agent that
Excess Availability is less than $12,000,000 or (II)
the date on which the proceeds of the Overadvance
Term Loan are received by the Agent for the account
of the Debtors, the Overadvance Term Loan Amount will
be automatically and permanently reduced to zero
(-0-); and, provided, further, that, notwithstanding
anything to the contrary contained in this Agreement
or any of the other Credit Documents, (X) only the
Overadvance Term Lender shall have any obligation to
fund the Overadvance Term Loan and (Y) prior to the
date on which the Overadvance Term Loan Amount is
reduced to zero pursuant to the foregoing proviso to
this PARAGRAPH (D), the Revolving Lenders shall have
no obligation whatsoever to make any Revolving Loan
or other extension of credit under this Agreement to
the extent that, immediately before or after giving
effect to such Revolving Loan or extension of credit,
Excess Availability is less than $10,000,000, LESS
(e) the aggregate amount of the Borrowers' allowed
professional fees and disbursements to which the
Postpetition Obligations and the Prepetition
Obligations may be subordinated pursuant to the
Interim Financing Order and the Permanent Financing
Order following a Default or an Event of Default;
PROVIDED, THAT so long as the LFC Funds Administrator has delivered a current
Borrowing Base Certificate to the Agent in accordance with the requirements of
SECTION 7.2, the Agent may rely on such Borrowing Base Certificate for purposes
of computing the amounts referred to in CLAUSES (B) and (C) above.
In addition, the Agent, in the exercise of its Permitted Discretion,
may (I) establish and increase or decrease reserves against Eligible Accounts
Receivable and Eligible Inventory, (II) reduce the advance rates provided for in
this definition, or restore such advance rates to any level equal to or below
the advance rates in effect as of the date of this Credit Agreement, and (III)
impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in the definitions of "ELIGIBLE ACCOUNTS RECEIVABLE" and
"ELIGIBLE INVENTORY." Notwithstanding anything herein to the contrary, on and
subsequent to the close of the Sale/Leaseback Transaction, the Agent will not
increase the advance rates without receiving prior consent of the Majority Term
Lenders and the Overadvance Term Lender.
1.3 SECTION 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
"EXCESS AVAILABILITY" means an amount equal to (i) the lesser
of (a) the Revolving Line of Credit and (b) the Borrowing Base minus,
in
3
<PAGE>
each case, the aggregate outstanding Letter of Credit Obligations minus
(ii) the aggregate outstanding principal amount of Revolving Loans
(which may be a negative amount to account for credit balances of
cash).
1.4 SECTION 1.1 of the Credit Agreement is further amended by deleting
the definition of "EXPIRATION DATE" in its entirety and replacing it as follows:
EXPIRATION DATE means the earlier of (i) June 7, 1999 and (ii)
the date on which this Credit Agreement is terminated pursuant to
SECTION 9.2(B).
1.5 SECTION 1.1 of the Credit Agreement is further amended by deleting
the definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as
follows:
FIXED ASSET SUBLIMIT means an amount equal to $43,606,713;
provided, that such amount shall be automatically and permanently
reduced (and may thereby become a negative number or a greater negative
number) on each date on which an Asset Disposition (other than the
Sale/Leaseback Transaction) occurs with respect to any real property,
other fixed assets or any leasehold interest in real property of any
Borrower, in an amount equal to (i) in the case of any Asset
Disposition of or with respect to any real property or any leasehold
interest in real property, the greater of (a) the Appraised Value and
(b) the Net Cash Disposition Proceeds thereof; (other than any Asset
Disposition with respect to the Borrowers' properties located in
Colorado Springs, Colorado; Springdale, Ohio; Denver, Colorado; or San
Diego, California; in which case, the amount of such reduction to the
Fixed Asset Sublimit shall be to equal the average of the Appraised
Value and the Net Cash Disposition Proceeds with respect to each such
property) and (ii) in the case of any Asset Disposition of or with
respect to any other fixed assets (including without limitation
fixtures, furniture and equipment), twenty-five percent (25%) of the
Appraised Value thereof, provided that, no reduction of the Fixed Asset
Sublimit pursuant to this clause (ii) shall occur as a result of the
Borrowers' selling, transferring or otherwise disposing of obsolete or
worn out fixed assets with an aggregate Appraised Value of up to
$1,800,000; provided, further, that upon payment of all Net Cash
Disposition Proceeds from the Sale/Leaseback Transaction to the Agent
the Fixed Asset Sublimit shall be a negative number such that Excess
Availability as of the date of such payment shall be $10,000,000 plus
the amount set forth in subsection (d) of the definition of Borrowing
Base and shall thereafter continue to be reduced in the manner
described in the first proviso of this definition in respect of all
future asset dispositions.
1.6 SECTION 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
OVERADVANCE TERM LENDER means the person identified on ANNEX
II as the "Overadvance Term Lender."
4
<PAGE>
1.7 SECTION 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
OVERADVANCE TERM LOAN has the meaning set forth in ARTICLE 2C.
1.8 SECTION 1.1 of the Credit Agreement is further amended by deleting
the definition of "REVOLVING LINE OF CREDIT" in its entirety and replacing it as
follows:
REVOLVING LINE OF CREDIT means the aggregate revolving line of
credit extended pursuant to this Credit Agreement by the Revolving
Lenders to the Borrowers for Revolving Loans and Letters of Credit, in
an aggregate principal amount at any time of up to (i) on the Closing
Date and through and including the day prior to the Sale/Leaseback
Transaction closing date, $192,356,250 less the aggregate outstanding
principal amount of the Original Term Loan and the Second Term Loan, as
such amount may be reduced from time to time pursuant to the terms and
provisions hereof and (ii) on and subsequent to the Sale/Leaseback
Transaction closing date, $148,356,250 less the aggregate outstanding
principal amount of the Original Term Loan and the Second Term Loan, as
such amount may be reduced from time to time pursuant to the terms and
provisions hereof.
1.9 SECTION 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
SALE/LEASEBACK TRANSACTION means that certain transaction
described in the Side Letter dated as of March 2, 1999 from the
Borrowers to the Agent.
1.10 SECTION 1.1 of the Credit Agreement is further amended by adding
the following definition to such section as follows:
OVERADVANCE TERM NOTE means the promissory note evidencing the
Overadvance Term Loan, substantially in the form of EXHIBIT C-3 as
amended, restated, supplemented or otherwise modified from time to
time, and including all notes issued in replacement or in substitution
of the foregoing.
1.11 SECTION 1.1 of the Credit Agreement is amended by deleting the
definition of "LENDERS" in its entirety and replacing it as follows:
"LENDERS" means the Revolving Lenders and the Term Lenders
(except, for purposes of Section 9.3, Article 10 and Sections 11.2,
11.4, 11.5, 11.6, 11.7, 11.8, 11.9, 11.10, 11.14, 11.15 and 11.16, the
term "Lenders" means the Revolving Lenders, the Term Lenders and the
Overadvance Term Lender).
1.12 SECTION 1.1 of the Credit Agreement is amended by adding the term
"Overadvance Term Note," immediately after the term "Notes" in the definition of
"CREDIT DOCUMENTS".
1.13 SECTION 1.1 of the Credit Agreement is amended by adding (i) the
term "Overadvance Term Loan" immediately after the term "Term Loan
5
<PAGE>
and (ii) the words "or the Overadvance Term Lender" immediately after the term
"Lenders", in each case appearing in the definition of "POSTPETITION
OBLIGATIONS".
1.14 SECTION 1.1 of the Credit Agreement is amended by adding the
following definition to such section as follows:
"OVERADVANCE MATURITY DATE" means the earlier of (i) September
30, 1999 or (ii) the Expiration Date.
1.15 SECTION 4.7(d) of the Credit Agreement is hereby amended by adding
the following sentence to such section as follows:
All cash not permitted under the Credit Agreement to be held
by the Borrowers shall be held by the Agent on behalf of the Borrowers
and distributed pursuant to the terms hereof. The Borrowers shall only
be permitted to use excess cash to the extent of any Excess
Availability.
1.16 SECTION 4.7A of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
4.7A NO PERMITTED PREPAYMENT OF TERM LOANS.
Until payment in full of all Postpetition Obligations in
respect of Revolving Loans and Letter of Credit Obligations and
termination of the Revolving Commitments pursuant to the terms and
provisions hereof, the Borrowers may not prepay the Term Loans at any
time in whole or in part. After payment in full of all Postpetition
Obligations in respect of Revolving Loans and Letter of Credit
Obligations and termination of the Revolving Commitments pursuant to
the terms and provisions hereof, the Borrowers may prepay the Term
Loans at any time in whole or in part; PROVIDED, that any such
prepayment shall be applied on a pro rata basis against the then
outstanding balances of both the Original Term Loan and the Second Term
Loan and must include all of the interest (including default rate
interest, to the extent applicable) accrued on the principal amount of
the Term Loans so repaid through and including the relevant date of
repayment.
1.17 The following Section 4.7B is hereby added to the Credit Agreement
as follows:
4.7B NO PERMITTED PREPAYMENT OF OVERADVANCE TERM LOAN.
Until payment in full of all Postpetition Obligations in
respect of Revolving Loans, Term Loans and Letter of Credit Obligations
and termination of the Revolving Commitments pursuant to the provisions
hereof, the Borrowers may not prepay or make any other payment or
distribution of any kind (in cash, securities or otherwise but
excluding payments of accrued and unpaid interest, fees and expenses)
in respect of or in connection with the Overadvance Term Loan at any
time in whole or in part and all such principal amounts otherwise
distributable in respect of or in connection with the Overadvance Term
Loan shall be paid to the Agent for allocation to the
6
<PAGE>
Postpetition Obligations in respect of Revolving Loans, Letters of
Credit Obligations and Term Loans as provided herein until all such
obligations are indefeasibly paid in full in cash and the Revolving
Commitments are fully terminated.
1.18 SECTION 4.11 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
4.11 DISTRIBUTION AND APPLICATION OF COLLECTIONS AND OTHER
AMOUNTS.
(a) So long as no Actionable Default has occurred and is
continuing, all amounts distributed to the Agent
pursuant to SECTION 4 of the Postpetition Collateral
Agency Agreement for application to the Postpetition
Obligations shall be applied by the Agent in the
following order: FIRST, to the payment of any Fees,
Expenses or other Postpetition Obligations due and
payable to the Agent under any of the Credit
Documents, including Agent Revolving Advances and any
other amounts advanced by the Agent on behalf of the
Revolving Lenders; SECOND, to the payment of any
Fees, Expenses or other Postpetition Obligations due
and payable to the Issuing Bank under any of the
Credit Documents; THIRD, to the ratable payment of
any Fees, Expenses or other Postpetition Obligations
due and payable to the Revolving Lenders under any of
the Credit Documents other than those Postpetition
Obligations specifically referred to in this Section
4.11(A); FOURTH, to the ratable payment of any Fees,
Expenses or other Postpetition Obligations due and
payable to the Original Term Lenders and the Second
Term Lenders under any of the Credit Documents other
than those Postpetition Obligations specifically
referred to in this Section 4.11(A); FIFTH, to the
ratable payment of interest due and payable on the
Revolving Loans to the Revolving Lenders; SIXTH, to
the ratable payment of principal due on the Revolving
Loans to the Revolving Lenders; SEVENTH, to the
payment of interest due and payable on the Original
Term Loan and the Second Term Loan to the Original
Term Lenders and the Second Term Lenders; EIGHTH, to
the payment of principal due on the Original Term
Loan and the Second Term Loan to the Original Term
Lenders and the Second Term Lenders; NINTH, to the
payment of any Fees, Expense or other Postpetition
Obligations due and payable to the Overadvance Term
Lender under any of the Credit Documents other than
those Postpetition Obligations specifically referred
to in this SECTION 4.11(A); TENTH, to the payment of
interest due and payable on the Overadvance Term Loan
to the Overadvance Term Lender; and ELEVENTH, to the
payment of principal due on the Overadvance Term Loan
to the Overadvance Term Lender, it being understood
and agreed that, notwithstanding any acceleration of
the maturity of the Postpetition Obligations in
respect of (i) the Original Term Loan and the Second
Term Loan pursuant to SECTION 9.2A or any other
provision of this Credit Agreement or any
7
<PAGE>
other Credit Document, no amounts shall be
distributed to the Term Lenders pursuant to the
foregoing clause eighth if no Actionable Default has
occurred and is continuing until all Postpetition
Obligations owing to the Revolving Lenders have been
indefeasibly paid in full and the Revolving
Commitments have been terminated and (ii) the
Overadvance Term Loan pursuant to SECTION 9.213 or
any other provision of this Credit Agreement or any
other Credit Document, no amounts shall be
distributed to the Overadvance Term Lender pursuant
to the foregoing clause eleventh until all
Postpetition Obligations owing to the Revolving
Lenders and the Term Lenders have been indefeasibly
paid in full and the Revolving Commitments have been
terminated.
(b) After an Actionable Default has occurred and is
continuing, all amounts distributed to the Agent
pursuant to SECTION 4 of the Postpetition Collateral
Agency Agreement for application to the Postpetition
Obligations and the Prepetition Obligations shall be
applied by the Agent to the payment of the
Postpetition Obligations in the order prescribed in
SECTION 4.11(A), except that in such circumstance no
payments shall be made pursuant to (i) clauses
fourth, seventh or eighth of SECTION 4.11(A) until
all Postpetition Obligations owing to the Revolving
Lenders have been indefeasibly paid in full and the
Revolving Commitments have been terminated and (ii)
clauses ninth, tenth or eleventh of SECTION 4.11(A)
until all Postpetition Obligations owing to the
Revolving Lenders and the Term Lenders have been
indefeasibly paid in full and the Revolving
Commitments have been terminated.
1.19 SECTION 5.2 of the Credit Agreement is amended by adding a new
subsection (d) as follows:
(d) The Borrowers will have Excess Availability of at
least $10,000,000 after giving effect to such
Revolving Loan or Letter of Credit; provided, that if
the Overadvance Term Loan is funded on such date by
the Overadvance Term Lender as set forth in ARTICLE
2C, then the representation and warranty set forth in
this subsection (d) will not be applicable.
1.20 SECTION 8.1 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
8.1 MINIMUM EBITDA
At the end of the period beginning on April 1, 1999 and ending
on the last day of April 1999, MINIMUM for such period shall be an
amount not less than negative (-)$500,000. For purposes herein, such
MINIMUM covenant shall be tested on May 18, 1999.
1.21 SECTION 8.2 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
8
<PAGE>
8.2 CAPITAL EXPENDITURES.
The Borrowers shall not make payments for Capital Expenditures
in the aggregate for all Borrowers in excess of $2,500,000 during the
period from March 5, 1999 to and including May 31, 1999.
1.22 SECTION 8.2A of the Credit Agreement is amended by deleting such
section in its entirety.
1.23 SECTION 8.18(a) of the Credit Agreement is amended by deleting the
terms "or the Bankruptcy Court order approving the amendment to this Credit
Agreement incorporating the Second Term Loan" after the terms "Permanent
Financing Order" and replacing such terms with the following: "or the Bankruptcy
Court orders approving any amendments to this Credit Agreement."
1.24 SECTION 9.1(1) of the Credit Agreement is amended by adding the
following terms "or the Bankruptcy Court orders approving any amendments to this
Credit Agreement" after the terms "Permanent Financing Order" wherever appearing
in such section.
1.25 SECTION 9.2A is hereby amended by deleting the terms "and by
delivery of written notice" appearing on the seventh and eighth lines thereof
and by deleting the term "from" and replacing such term with the term "and"
appearing on the eighth line thereof.
1.26 The following SECTION 9.2B is hereby added to the Credit Agreement
as follows:
9.2B ACCELERATION OF POSTPETITION OBLIGATIONS IN
RESPECT OF OVERADVANCE TERM LOAN
Upon the earlier of (i) the Overadvance Maturity Date or (ii)
the occurrence and during the continuance of any Event of Default under
SECTION 9.1(A), by reason of the Borrowers' failure to make any payment
of interest on the Overadvance Term Loan when the same shall become
payable, then, without prejudice to the rights of the Agent or
Overadvance Term Lender to enforce its claims against the Borrowers,
upon notice from the Overadvance Term Lender to the LFC Funds
Administrator and the Agent, all Postpetition Obligations in respect of
the Overadvance Term Loan shall be immediately due and payable without
presentment, demand, protest or any other action or obligation of the
Agent or Overadvance Term Lender; PROVIDED, THAT, notwithstanding the
foregoing, the Overadvance Term Lender may not accelerate the maturity
of the Overadvance Term Loan pursuant to this SECTION 9.2B nor exercise
any rights or remedies with respect hereto nor cause the Agent to
exercise any rights or remedies on behalf of the Overadvance Term
Lender with respect hereto (other than to enforce its rights under
Section 4.11(a) in accordance with the terms thereof) until all
Postpetition Obligations owing to the Revolving Lenders and the Term
Lenders have been indefeasibly paid in full and the Revolving
Commitments and Term Commitments have been terminated. In addition, the
Overadvance Term Lender, acting in its capacity as Overadvance Term
Lender agrees that it shall be bound by all, and shall not object to
any, modifications, extensions of maturity and
9
<PAGE>
amendments to the Credit Agreement executed by the Agent, Lenders,
Majority Lenders and/or Majority Term Lenders (as applicable) and that
none of the same shall require advance notice to, or the consent of,
any Overadvance Term Lender; provided, however, that no such
modification, extension, waiver or amendment shall (a) extend the
maturity date of any portion of the principal amount of or interest or
fees payable to the Overadvance Term Lender, provided that the
principal maturity date may be so extended to the earlier of (i)
September 30, 1999 and (ii) the date on which the Revolving Loans and
the Terms Loans become due in full, (b) reduce the principal amount of
or the rate of interest or fees payable on the Overadvance Term Loan,
(c) release all or substantially all of the Collateral, (d) alter,
amend or otherwise impair the lien granted hereunder to the Overadvance
Term Lender or the priority thereof or any priority granted to the
Overadvance Term Lender under section 364 of the Bankruptcy Code or the
Amendment Approval Order, (e) alter, amend or otherwise impair the
Overadvance Term Lender's rights under the Amendment Approval Order,
(f) increase the principal amount of the Term Loans to an amount
greater than $58,356,250 or (g) amend Article 2C or this Section
9.2(B).
1.27 SECTION 10.6 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
10.6 INDEMNIFICATION OF AGENT.
To the extent the Agent is not reimbursed and indemnified by
the Borrowers, each Revolving Lender and Term Lender will reimburse and
indemnify the Agent, in proportion to its voting percentage from time
to time as a Revolving Lender and Term Lender hereunder, for and
against all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in
performing its duties hereunder, in any way relating to or arising out
of this Credit Agreement. In addition, to the extent the Agent is not
reimbursed and indemnified by the Borrowers, the Overadvance Term
Lender will reimburse and indemnify the Agent, in an amount equal to a
percentage of the total amount sought by the Agent, the numerator of
which, is the amount of the Overadvance Term Loan at such time and the
denominator of which, is the amount of the Overadvance Term Loan at
such time plus the amount of the Revolving Commitments and the Term
Loans at such time, for and against all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including counsel fees and disbursements) or disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in performing its duties hereunder, in any way
relating to or arising out of this Credit Agreement; PROVIDED, THAT no
Revolving Lender, Term Lender shall be liable for any portion of such
liabilities' obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Agent's gross negligence or willful misconduct.
10
<PAGE>
1.28 SECTION 11.11(b) of the Credit Agreement is amended by adding the
following term to clause (iii) "8.2" immediately after "7.14".
1.29 ANNEX I of the Credit Agreement is amended by replacing such annex
with the ANNEX I attached to this Amendment as EXHIBIT A.
1.30 ANNEX II of the Credit Agreement is amended by replacing such
annex with the ANNEX II attached to this Amendment as EXHIBIT B.
1A. AMENDMENT TO SECOND TERM NOTE.
The Second Term Note is hereby amended by deleting the terms
"and all Make-Whole Premiums payable to the Second Term Lenders,"
appearing in the second paragraph thereof.
2. CONSENT.
2.1 OVERADVANCE TERM LOAN. On the Closing Date, the Agent and each
Lender consents to the extension of the Overadvance Term Loan by the Overadvance
Term Lender in accordance with the terms of the Credit Agreement, as amended by
this Amendment. The Agent and each Lender acknowledge that the Overadvance Term
Loan and all interest, fees, costs and expenses in respect thereof shall be
secured by an interest in the Collateral PARI passu and pro rata with the Term
Loans and the term "Secured Obligations" as used in the Postpetition Collateral
Agency Agreement and the Postpetition Security Agreement shall include the
obligations of the Borrowers under the Credit Agreement with respect to the
Overadvance Term Loan and all interest, fees, costs and expenses in respect
thereof PROVIDED, however, that, notwithstanding anything to the contrary
contained herein or in the Credit Agreement, no principal payment or other
distribution of any kind (in cash, securities or otherwise but excluding
payments of accrued and unpaid interest, fees and expenses) shall be made in
respect of or in connection with the Overadvance Term Loan at any time in whole
or in part, and all such principal amounts otherwise distributable in respect of
or in connection with the Overadvance Term Loan shall be paid to the Agent for
allocation to the Postpetition Obligations in respect of Revolving Loans,
Letters of Credit Obligations and Term Loans as provided herein, until all such
Postpetition Obligations owing are indefeasibly paid in full in cash and the
Revolving Commitments are fully terminated. The obligations of the Borrowers
under the Credit Agreement with respect to the Overadvance Term Loan and all
interest, fees, costs and expenses in respect thereof will be secured by the
Collateral without having to amend the Collateral Documents. The Agent and each
Lender agree that at any time and from time to time, at the cost and expense of
the Borrowers, they will execute and deliver all further instruments and
documents, and take such further actions, that may be reasonably necessary in
the opinion of the Overadvance Term Lender to so secure the Overadvance Term
Loan and all interest, fees, costs and expenses in respect thereof.
2.2 UNEXPIRED LEASES. On the Closing Date, the Agent and each Lender
consents to extending the Borrowers' time to assume or reject unexpired leases,
pursuant to section 365(d)(4) of the Bankruptcy Code, through July 7, 1999.
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2.3 SALE/LEASEBACK TRANSACTION. On or prior to the date of the hearing
at which the Borrowers will seek approval of the Bankruptcy Court to enter into
the Sale/Leaseback Transaction the Borrowers shall request the Agent and the
Majority Term Lenders to consent to the Borrowers entering into such
transaction, such consent shall not be unreasonably withheld. At such time that
the Agent and the Majority Term Lenders provide the Borrowers with consent to
enter into the Sale/Leaseback Transaction, no further action will be required
under the Credit Agreement.
2.4 OTHER. Nothing in this Amendment should in any way be deemed (i) a
waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any
such Event of Default.
3. CONDITIONS PRECEDENT.
This Amendment becomes effective upon satisfaction of the
following conditions:
3.1 AMENDMENT APPROVAL ORDER. This Amendment has been approved by the
Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER"), which
order is in full force and effect and has not been reversed, modified, amended,
appealed or stayed. The Agent, the Majority Term Lenders and the Overadvance
Term Lender shall have been satisfied with the form and substance (and the
timing of the notice) of the motion for the entry of the Amendment Approval
Order. In addition, the Agent, the Majority Term Lenders and the Overadvance
Term Lender shall have been satisfied with the form and substance of the
Amendment Approval Order.
3.2 365(D)(4) APPROVAL ORDER. The Borrowers have obtained an order of
the Bankruptcy Court (the "365(D)(4) APPROVAL ORDER") extending the Borrowers'
time to assume or reject unexpired leases, pursuant to section 365(d)(4) of the
Bankruptcy Code, through July 7, 1999, which order is in full force and effect
and has not been reversed, modified, amended, appealed or stayed provided,
however that such order need to apply to (I) any unexpired lease that has an
Appraised Value equal to or less than zero; (II) any unexpired lease that has
been assumed pursuant to an order of the Bankruptcy Court, acceptable to the
Agent and the Majority Term Lenders in their reasonable discretion, that
specifically reserves for a Debtor the right to subsequently assign such
unexpired lease under section 365(f) of the Bankruptcy Code without, among other
things, the consent of the relevant counterparties to such unexpired lease; or
(III) leases with respect to the following locations of the respective Debtors:
South San Francisco, California, San Leandro, California, Garden City (Roosevelt
Field), New York (Ground Lease), Springdale, Ohio, Langhorne, Pennsylvania,
Falls Church (Fairfax), Virginia and Manchester (South St. Louis), Missouri,
provided, that the Debtors shall have moved to assume such leases no later than
March 2, 1999, the motion seeks an order of the Bankruptcy Court (in a form
similar to comparable orders previously entered) which specifically reserves for
the Debtors the right to subsequently assign such unexpired leases under SECTION
365(F) of the Bankruptcy Code, without, among other things, the consent of the
relevant counterparties to such unexpired leases. The Agent and the Majority
Term Lenders shall have been satisfied with the form and substance (and the
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<PAGE>
timing of the notice) of the motion for the entry of the 365(d)(4) Approval
Order. Furthermore, the Agent and the Majority Term Lenders shall have been
satisfied with the form and substance of the 365(d)(4) Order. Unless the Agent
and the Majority Term Lenders agree otherwise, the 365(d)(4) Approval Order
shall have become final and non-appealable.
3.3 FEES AND EXPENSES. The Agent and the Lenders shall have been paid a
closing fee in the amount of $150,000. The Majority Term Lenders shall have been
paid such fees in such amounts and on such terms as provided for in a side
letter from the Borrowers to the Majority Term Lenders. For all purposes under
the Credit Agreement, as amended by this Amendment, any deferred portion of such
fees shall constitute Postpetition Obligations owed to the Term Lenders pursuant
to the Credit Agreement, as amended by this Amendment. Furthermore, the Agent,
the Revolving Lenders, the Term Lenders and the Overadvance Term Lender shall
have been reimbursed for all fees and expenses (including reasonable attorneys'
fees and expenses) incurred in connection with the preparation of this
Amendment. On and after the Closing Date of this Amendment, the Borrowers will
reimburse only the expenses of the Overadvance Term Lender that relate to the
negotiation, documentation, administration and enforcement of this Amendment.
3.4 DOCUMENTS. The Agent has received all of the following, each duly
executed and dated as of the Closing Date (or such other date as is satisfactory
to the Agent) in form and substance satisfactory to the Agent:
(a) NINTH AMENDMENT. Ten copies of this Amendment
executed by the LFC Funds Administrator, the
Borrowers, the Agent and all Lenders;
(b) OVERADVANCE TERM NOTE. The Overadvance Term Note,
substantially in the form of Exhibit C-2 to the
Credit Agreement (to be dated the date of funding of
the Overadvance Term Loan), made by the Borrowers in
favor of the Overadvance Term Lender;
(c) AMENDMENT APPROVAL ORDER AND 365(D)(4) APPROVAL
ORDER. A copy of the Amendment Approval Order and the
365(d)(4) Approval Order;
(d) REVOLVING ASSIGNMENT AND ASSUMPTION AGREEMENTS. The
Revolving Assignments and Assumption Agreements,
substantially in the form of Exhibit G-I to the
Credit Agreement (dated as of the Closing Date), made
by such applicable Revolving Lenders; and
(e) OTHER. Such other documents as the Agent may
reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Agent and each
Lender that, after giving effect to this Amendment or any part of this
Amendment:
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4.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
contained in the Credit Agreement and the other Credit Documents are true and
correct in all material respects on and as of the date of this Amendment, in
each case as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such representations
and warranties were true and accurate on and as of such earlier date).
4.2 EVENTS OF DEFAULT. No Default or Event of Default has occurred
which has not been waived (or, in the case of an Event of Default, cured) under
the terms of the Credit Agreement.
4.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by SECTIONS 3.1 AND 3.2), this Amendment and the Credit Agreement,
as amended by this Amendment, will constitute legal, valid and binding
obligations of the LFC Funds Administrator and each of the Borrowers and will be
enforceable against such Persons in accordance with their respective terms.
4.4 CONSENTS. The execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the consent or
approval of any Person other than the Bankruptcy Court (as contemplated by
SECTIONS 3.1 AND 3.2), except such consents and approvals as have been obtained.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
5.1 REFERENCES. Upon the effectiveness of this Amendment, or any part
of this Amendment, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference in
each of the other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended by this Amendment or any part of
this Amendment.
5.2 RATIFICATION. Except as expressly set forth in this Amendment, all
of the terms and conditions of the Credit Agreement and the other Credit
Documents remain in full force and effect and are ratified and confirmed in all
respects. The execution and delivery of this Amendment by the Agent and each of
the Lenders in no way obligates the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term or
provision of the Credit Agreement or any of the other Credit Documents, whether
of a similar or different nature.
6. GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK.
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7. HEADINGS; COUNTERPARTS.
Section headings in this Amendment are included for convenience of
reference only and do not constitute a part of this Amendment for any other
purpose. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its capacity as LFC Funds
Administrator
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its individual capacity
and it its capacity as the LFC Funds
Administrator
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Treasurer
----------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
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LEVITZ SHOPPING SERVICE, a Florida
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC,
INC., a California corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST
REALTY, INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC
REALTY, INC., a California corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
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LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
JOHN M. SMYTH COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
AGENT:
BT COMMERCIAL CORPORATION, in its capacity
as Agent
By: /s/ WAYNE D. HILLOCK
----------------------------------
Name: Wayne D. Hillock
----------------------------------
Title: Principal
----------------------------------
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REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware
corporation in its respective capacities
as Revolving Lender and Collateral Agent
By: /s/ WAYNE D. HILLOCK
----------------------------------
Name: Wayne D. Hillock
----------------------------------
Title: Principal
----------------------------------
FINOVA CAPITAL CORPORATION, in its
capacity as Revolving Lender
By: /s/ BRIAN RUJAWITZ
----------------------------------
Name: Brian Rujawitz
----------------------------------
Title: AVP
----------------------------------
HELLER FINANCIAL, INC., in its capacity as
Revolving Lender
By: /s/ JOHN BUFF
----------------------------------
Name: John Buff
----------------------------------
Title: SVP
----------------------------------
LASALLE NATIONAL BANK, in its capacity as
Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
----------------------------------
Name: Christopher G. Clifford
----------------------------------
Title: Sr. VP
----------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL),
in its capacity as Revolving Lender
By: /s/ STEVEN LINDERMAN
----------------------------------
Name: Steven Linderman
----------------------------------
Title: Vice President
----------------------------------
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TRANSAMERICA BUSINESS CREDIT CORPORATION,
in its capacity as Revolving Lender
By: /s/ R. L. HEINZ
----------------------------------
Name: R. L. Heinz
----------------------------------
Title: SVP
----------------------------------
TERM LENDERS:
AG CAPITAL FUNDING PARTNERS, L.P., in its
capacity as Second Term Lender
By: Angelo Gordon & Co., L.P., as
Investment Advisor
By: /s/ JEFFREY H. ARONSON
----------------------------------
Name: Jeffrey H. Aronson
----------------------------------
Title: Authorized Signatory
----------------------------------
SILVER OAK CAPITAL L.L.C., in its capacity
as Term Lender
By: /s/ JEFFREY H. ARONSON
----------------------------------
Name: Jeffrey H. Aronson
----------------------------------
Title: Authorized Signatory
----------------------------------
M.D. SASS CORPORATE RESURGENCE PARTNERS,
L.P., as Overadvance Term Lender
By: /s/ ROBERT T. SIMINGTON
----------------------------------
Name: Robert T. Simington
----------------------------------
Title: Senior Vice President
----------------------------------
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<PAGE>
EXHIBIT A
ANNEX I
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF REVOLVING LENDERS/REVOLVING COMMITMENT
AMOUNTS; AND APPLICABLE LENDING OFFICES
1. BT COMMERCIAL CORPORATION
233 South Wacker Drive
Chicago, Illinois 60606
REVOLVING COMMITMENT AMOUNT: $23,517,311
DOMESTIC LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
2. LA SALLE NATIONAL BANK
135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
REVOLVING COMMITMENT AMOUNT: $23,489,818
DOMESTIC LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
LIBOR LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
3. CONGRESS FINANCIAL CORPORATION
150 South Wacker Drive
Suite 2200
Chicago, Illinois 60606
REVOLVING COMMITMENT AMOUNT: $20,318,469
DOMESTIC LENDING OFFICE: 150 South Wacker Drive
Suite 2200
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 150 South Wacker Drive
Suite 2200
Chicago, Illinois 60606
21
<PAGE>
4. HELLER FINANCIAL, INC.
500 West Monroe Street
18th Floor
Chicago, Illinois 60661
REVOLVING COMMITMENT AMOUNT: $22,300,000
DOMESTIC LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
LIBOR LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
5. TRANSAMERICA BUSINESS CREDIT CORPORATION
8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
REVOLVING COMMITMENT AMOUNT: $16,374,402
DOMESTIC LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
LIBOR LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
6. FINOVA CAPITAL CORPORATION
355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
REVOLVING COMMITMENT AMOUNT: $23,000,000
DOMESTIC LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
LIBOR LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
22
<PAGE>
7. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, NY 10167
REVOLVING COMMITMENT AMOUNT: $5,000,000
DOMESTIC LENDING OFFICE: c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
LIBOR LENDING OFFICE: c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
23
<PAGE>
ANNEX II
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF TERM LENDERS AND TERM COMMITMENTS COMMITMENT
AMOUNTS
ORIGINAL TERM LENDERS:
1. SILVER OAK CAPITAL L.L.C.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $36,356,250
SECOND TERM LENDERS:
1. AG CAPITAL FUNDING PARTNERS, L.P.
c/o Angelo, Gordon & Company
245 Park Avenue, 26th Floor
New York, New York 10167
Term Commitment Amount: $22,000,000
OVERADVANCE TERM LENDER:
1. M.D. SASS CORPORATE RESURGENCE
PARTNERS, L.P.
10 New King Street
First Floor
White Plains, New York 10604
Term Commitment Amount: $10,000,000
24
EXHIBIT 10.61
TENTH AMENDMENT AND CONSENT TO POSTPETITION
CREDIT AGREEMENT
THIS TENTH AMENDMENT AND CONSENT TO POSTPETITION CREDIT AGREEMENT, dated
as of May 14, 1999 (this "AMENDMENT"), is among LEVITZ FURNITURE INCORPORATED, a
Delaware corporation and a debtor and debtor in possession, LEVITZ FURNITURE
CORPORATION, a Florida corporation and a debtor and debtor in possession
("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a Florida corporation and a debtor
and debtor in possession, LEVITZ SHOPPING SERVICE, INC., a Florida corporation
and a debtor and debtor in possession, LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation and a debtor and debtor in possession, LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession, LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation and a debtor and debtor in possession, LEVITZ FURNITURE
COMPANY OF THE MIDWEST REALTY, INC., a Colorado corporation and a debtor and
debtor in possession, LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation and a debtor and a debtor in possession, LEVITZ FURNITURE
COMPANY OF WASHINGTON REALTY, INC., a Washington corporation and debtor and a
debtor in possession, LEVITZ REINSURANCE CORPORATION, JOHN M. SMYTH COMPANY, an
Illinois corporation and a debtor and debtor in possession, and JOHN M. SMYTH
REALTY COMPANY, an Illinois corporation and a debtor and debtor in possession
(collectively, the "BORROWERS"), each Revolving Lender and Overadvance Term
Lender signatories hereto (collectively, the "LENDERS"), and BT COMMERCIAL
CORPORATION, a Delaware corporation, acting in its capacity as collateral agent
and agent for the Lenders (in such capacity, together with its successors in
such capacity, the "AGENT"). Capitalized terms used in this Amendment and not
otherwise defined have the meanings assigned to such terms in the Postpetition
Credit Agreement dated as of September 5, 1997 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the Borrowers, the Lenders and the Agent.
PRELIMINARY STATEMENTS:
A. The Borrowers, the Lenders and the Agent are parties to the Credit
Agreement.
B. The Borrowers have requested that the Lenders and the Agent amend
the Credit Agreement in certain respects.
C. The Borrowers, the Lenders and the Agent have agreed to amend the
Credit Agreement on the terms and subject to the conditions of this Amendment.
1
<PAGE>
AGREEMENT:
In consideration of the premises and the mutual agreements contained in
this Amendment, the Borrowers, the Lenders and the Agent agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
On the date each of the conditions set forth in SECTION 3 is satisfied by
the Borrowers (the "CLOSING Date"), the Credit Agreement is amended as follows:
1.1 Section 1.1 of the Credit Agreement is amended by adding the
following definition to such Section in proper alphabetical order:
BULK SALE TRANSACTION means the transactions contemplated in that
certain Agreement of Sale dated as of _________, 1999 among certain of
the Borrowers, Klaff Realty, LP, Lubert-Adler Capital Real Estate Fund
II, L.P., Lubert-Adler Real Estate Fund II, L.P. and Lubert-Adler
Parallel Fund II, L.P.
1.2 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "EXPIRATION DATE" in its entirety and replacing it as follows:
EXPIRATION DATE means the earlier of (i) December 31, 1999 and
(ii) the date on which this Credit Agreement is terminated pursuant to
SECTION 9.2(B).
1.3 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as
follows:
FIXED ASSET SUBLIMIT means an amount equal to $36,000,000.00;
PROVIDED, that such amount shall be automatically and permanently reduced
on each date on which an Asset Disposition occurs with respect to any
real property, other fixed assets or any leasehold interest in real
property of any Borrower, in an amount equal to (i) in the case of Asset
Dispositions occurring in connection with the Bulk Sale Transaction, in
an amount equal to one hundred percent (100%) of the Net Cash Disposition
Proceeds thereof, (ii) in the case of any Asset Disposition of any real
property identified on SCHEDULE 1.1 hereof, the amount set forth opposite
such property on such Schedule, (iii) in the case of any Asset
Disposition of a fee interest in real property other than as provided in
clauses (i) and (ii), above, one hundred percent (100%) of the Net Cash
Disposition Proceeds thereof, and (iv) in the case of any Asset
Disposition of any other fixed assets (including without limitation
fixtures, furniture and equipment), twenty-five percent (25%) of the
Appraised Value thereof, provided that, no reduction of the Fixed Asset
Sublimit pursuant to this clause (iv) shall occur as a result of the
Borrowers' selling, transferring or otherwise disposing of obsolete or
worn out fixed assets with an aggregate Appraised Value of up to
$1,800,000; PROVIDED, FURTHER, that on and after September 1, 1999, the
Fixed Asset Sublimit shall be zero ($0). Additionally, the Fixed
2
<PAGE>
Asset Sublimit shall automatically become zero ($0) if at any time the
Borrowers' cease to be entitled to assume or reject executory contracts
and unexpired leases pursuant to section 365(d)(4) of the Bankruptcy
Code.
1.4 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "OVERADVANCE MATURITY DATE" in its entirety and replacing it
as follows:
OVERADVANCE MATURITY DATE means the earlier of (i) December
31, 1999 or (ii) the Expiration Date.
1.5 Section 1.1 of the Credit Agreement is further amended by deleting
the definition of "REVOLVING LINE OF CREDIT" in its entirety and replacing it as
follows:
REVOLVING LINE OF CREDIT means the aggregate revolving line of
credit extended pursuant to this Credit Agreement by the Revolving
Lenders to the Borrowers for Revolving Loans and Letters of Credit, in an
aggregate principal amount at any time of up to $125,000,000 less, on and
after the Bulk Sale Transaction closing date, the Net Cash Disposition
Proceeds received from the Bulk Sale Transaction, as such amount may be
reduced from time to time pursuant to the terms and provisions hereof.
1.6 Section 8.1 of the Credit Agreement is amended by deleting such
section in its entirety and replacing it as follows:
8.1 MINIMUM EBITDA
At the end of the period beginning on April 1, 1999 and
ending on each of the days set forth below, EBITDA for such period shall
not be an amount not less than the following:
PERIOD END AMOUNT
---------- ------
June 30, 1999 $2,500,000
September 30, 1999 $7,000,000
1.7 The Credit Agreement is further amended by adding a new Schedule 1.1
thereto in the form set forth as EXHIBIT A hereto.
1.8 Annex I of the Credit Agreement is amended by replacing such annex
with the Annex I attached to this Amendment as EXHIBIT B.
1.9 Annex II of the Credit Agreement is amended by replacing such annex
with the Annex II attached to this Amendment as EXHIBIT C.
2. CONSENT.
2.1 REPAYMENT OF ORIGINAL TERM LOAN AND SECOND TERM LOAN; PURCHASE OF A
PORTION OF THE REVOLVING LOANS.
3
<PAGE>
(a) Upon the effectiveness of this Amendment and subject to the
terms and conditions hereof, the Agent and each Lender consents to the
payment by the Borrowers to Agent for distribution to the Original Term
Lenders and the Second Term Lenders on the Sale/Leaseback Transaction
closing date of the entire outstanding principal amount of the Original
Term Loan and the Second Term Loan, respectively, and all interest
accrued thereon through such date with the Net Cash Disposition Proceeds
received by the Borrowers from the Sale/Leaseback Transaction.
(b) On the Sale/Leaseback Transaction closing date, each Revolving
Lender also agrees that it will purchase by way of assignment from Silver
Oak Capital, L.L.C., in its capacity as a Revolving Lender ("Silver
Oak"), its Proportionate Share (calculated after giving effect to the
transactions described in this Section 2.1) of the aggregate unpaid
Revolving Lender Advances made by Silver Oak outstanding on the
Sale/Leaseback Transaction closing date, and all unpaid interest accrued
thereon, after giving effect to any payments made to Silver Oak with
respect to the Revolving Loans made from any Net Cash Disposition
Proceeds from the Sale/Leaseback Transaction remaining after the payments
referred to in subsection (a) above. Any such assignment shall be
consummated on the terms set forth in the form of Revolving Assignment
and Assumption Agreement attached as Exhibit G-1 of the Credit Agreement,
without the necessity of the execution of separate Revolving Assignment
and Assumption Agreements.
2.2 BULK SALE TRANSACTION. On or prior to the date of the hearing at
which the Borrowers will seek approval of the Bankruptcy Court to enter into the
Bulk Sale Transaction the Borrowers shall request the Agent to consent to the
Borrowers entering into such transaction, such consent shall not be unreasonably
withheld. At such time that the Agent provides the Borrowers with consent to
enter into the Bulk Sale Transaction, no further action will be required under
the Credit Agreement.
2.3 HOUSEHOLD AMENDMENT. The Agent and the Lenders hereby consent to the
amendment to the Household Merchant Agreement attached as EXHIBIT D hereto.
2.4 OTHER. Nothing in this Amendment should in any way be deemed (i) a
waiver of any Event of Default (other than as specifically set forth above) or
(ii) an agreement to forbear from exercising any remedies with respect to any
such Event of Default.
3. CONDITIONS PRECEDENT.
This Amendment becomes effective upon satisfaction of the
following conditions:
3.1 AMENDMENT APPROVAL ORDER. This Amendment has been approved by the
Bankruptcy Court pursuant to an order (the "AMENDMENT APPROVAL ORDER"), which
order is in full force and effect and has not been reversed, modified, amended,
appealed or stayed. The Agent shall have been satisfied with the form and
substance (and the timing of the notice)
4
<PAGE>
of the motion for the entry of the Amendment Approval Order. In addition, the
Agent shall have been satisfied with the form and substance of the Amendment
Approval Order.
3.2 FEES AND EXPENSES. The Agent and the Lenders shall have been paid a
closing fee in the amount of $200,000.
3.3 DOCUMENTS. The Agent has received all of the following, each duly
executed and dated as of the Closing Date (or such other date as is satisfactory
to the Agent) in form and substance satisfactory to the Agent:
(a) TENTH AMENDMENT. Ten copies of this Amendment executed by
the LFC Funds Administrator, the Borrowers, the Agent and
all Lenders; and
(b) OTHER. Such other documents as the Agent may reasonably
request.
3.4 SALE/LEASEBACK TRANSACTION. The Agent shall have received evidence
satisfactory to it that (i) the Sale/Leaseback Transaction shall have closed on
the terms approved by the Agent and the Lenders, (ii) the Borrowers shall have
received Net Cash Disposition Proceeds of at least $59,000,000 from the
Sale/Leaseback Transaction and (iii) the Net Cash Disposition Proceeds from the
Sale/Leaseback Transaction shall have been paid to the Agent for distribution to
the Persons contemplated in SECTION 2.1 of this Amendment.
3.3 PAYMENT AND RELEASE LETTER. The Agent shall have received a payment
and release letter in form and substance satisfactory to the Agent and its
counsel executed by each Term Lender and by Silver Oak relating to the repayment
of the Loans contemplated under SECTION 2.1 of this Amendment.
4. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers represents and warrants to the Agent and each
Lender that, after giving effect to this Amendment or any part of this
Amendment:
4.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties
contained in the Credit Agreement and the other Credit Documents are true and
correct in all material respects on and as of the date of this Amendment, in
each case as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such representations
and warranties were true and accurate on and as of such earlier date).
4.2 EVENTS OF DEFAULT. No Default or Event of Default has occurred which
has not been waived (or, in the case of an Event of Default, cured) under the
terms of the Credit Agreement.
4.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by SECTIONS 3.1 AND 3.2), this Amendment and the Credit Agreement,
as amended by this Amendment, will constitute legal, valid and
5
<PAGE>
binding obligations of the LFC Funds Administrator and each of the Borrowers and
will be enforceable against such Persons in accordance with their respective
terms.
4.4 CONSENTS. The execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the consent or
approval of any Person other than the Bankruptcy Court (as contemplated by
SECTIONS 3.1 AND 3.2), except such consents and approvals as have been obtained.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
5.1 REFERENCES. Upon the effectiveness of this Amendment, or any part of
this Amendment, each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference in
each of the other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended by this Amendment or any part of
this Amendment.
5.2 RATIFICATION. Except as expressly set forth in this Amendment, all of
the terms and conditions of the Credit Agreement and the other Credit Documents
remain in full force and effect and are ratified and confirmed in all respects.
The execution and delivery of this Amendment by the Agent and each of the
Lenders in no way obligates the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term or
provision of the Credit Agreement or any of the other Credit Documents, whether
of a similar or different nature.
6. GOVERNING LAW.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AMENDMENT IS
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND DECISIONS OF THE
STATE OF NEW YORK.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
6
<PAGE>
7. HEADINGS; COUNTERPARTS.
Section headings in this Amendment are included for convenience of
reference only and do not constitute a part of this Amendment for any other
purpose. This Amendment may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its capacity as LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida
corporation, in its individual capacity
and it its capacity as the LFC Funds
Administrator
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Treasurer
----------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
7
<PAGE>
LEVITZ SHOPPING SERVICE, a Florida
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC,
INC., a California corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST
REALTY, INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC
REALTY, INC., a California corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
8
<PAGE>
LEVITZ FURNITURE COMPANY OF WASHINGTON
REALTY, INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
JOHN M. SMYTH COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois
corporation
By: /s/ SHEILA C. REINKEN
----------------------------------
Name: Sheila C. Reinken
----------------------------------
Title: Vice President
----------------------------------
9
<PAGE>
AGENT:
BT COMMERCIAL CORPORATION, in its
capacity as Agent
By: /s/ WAYNE D. HILLOCK
----------------------------------
Name: Wayne D. Hillock
----------------------------------
Title: Principal
----------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware
corporation in its respective capacities
as Revolving Lender and Collateral Agent
By: /s/ WAYNE D. HILLOCK
----------------------------------
Name: Wayne D. Hillock
----------------------------------
Title: Principal
----------------------------------
FINOVA CAPITAL CORPORATION, in its
capacity as Revolving Lender
By: /s/ BRIAN RUJAWITZ
----------------------------------
Name: Brian Rujawitz
----------------------------------
Title: AVP
----------------------------------
HELLER FINANCIAL, INC., in its capacity
as Revolving Lender
By: /s/ JOHN BUFF
----------------------------------
Name: John Buff
----------------------------------
Title: SVP
----------------------------------
LASALLE NATIONAL BANK, in its capacity as
Revolving Lender
By: /s/ CHRISTOPHER G. CLIFFORD
----------------------------------
Name: Christopher G. Clifford
----------------------------------
Title: Sr. VP
----------------------------------
10
<PAGE>
CONGRESS FINANCIAL CORPORATIONN (CENTRAL),
in its capacity as Revolving Lender
By: /s/ STEVEN LINDERMAN
----------------------------------
Name: Steven Linderman
----------------------------------
Title: Vice President
----------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION,
in its capacity as Revolving Lender
By: /s/ R. L. HEINZ
----------------------------------
Name: R. L. Heinz
----------------------------------
Title: SVP
----------------------------------
M.D. SASS CORPORATE RESURGENCE PARTNERS,
L.P., as Overadvance Term Lender
By: /s/ ROBERT T. SIMINGTON
----------------------------------
Name: Robert T. Simington
----------------------------------
Title: Senior Vice President
----------------------------------
11
<PAGE>
EXHIBIT A TO TENTH AMENDMENT
SCHEDULE I
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
FIXED ASSET SUBLIMIT REDUCTIONS FOR SELECTED PROPERTIES
12
<PAGE>
EXHIBIT B TO TENTH AMENDMENT
ANNEX I
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF REVOLVING LENDERS/REVOLVING COMMITMENT
AMOUNTS; AND APPLICABLE LENDING OFFICES
1. BT COMMERCIAL CORPORATION
233 South Wacker Drive
Chicago, Illinois 60606
REVOLVING COMMITMENT AMOUNT: $41,000,000
DOMESTIC LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
LIBOR LENDING OFFICE: 233 South Wacker Drive
Chicago, Illinois 60606
2. LA SALLE NATIONAL BANK
135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
REVOLVING COMMITMENT AMOUNT: $23,000,000
DOMESTIC LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
LIBOR LENDING OFFICE: 135 South LaSalle Street
Suite 425
Chicago, Illinois 60603
3. HELLER FINANCIAL, INC.
500 West Monroe Street
18th Floor
Chicago, Illinois 60661
REVOLVING COMMITMENT AMOUNT: $22,000,000
DOMESTIC LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
LIBOR LENDING OFFICE: 500 West Monroe Street
18th Floor
Chicago, Illinois 60661
13
<PAGE>
4. TRANSAMERICA BUSINESS CREDIT CORPORATION
8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
REVOLVING COMMITMENT AMOUNT: $16,000,000
DOMESTIC LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
LIBOR LENDING OFFICE: 8750 W. Bryn Mawr Avenue
Suite 720
Chicago, Illinois 60631
5. FINOVA CAPITAL CORPORATION
355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
REVOLVING COMMITMENT AMOUNT: $23,000,000
DOMESTIC LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
LIBOR LENDING OFFICE: 355 South Grand Avenue
Suite 2400
Los Angeles, California 90071
14
<PAGE>
EXHIBIT C TO TENTH AMENDMENT
ANNEX II
TO
POSTPETITION CREDIT AGREEMENT
DATED AS OF SEPTEMBER 5, 1997
LIST OF TERM LENDERS AND TERM COMMITMENTS COMMITMENT
AMOUNTS
ORIGINAL TERM LENDERS:
1. NONE (PAID IN FULL)
SECOND TERM LENDERS:
1. NONE (PAID IN FULL)
OVERADVANCE TERM LENDER:
1. M.D. SASS CORPORATE RESURGENCE
PARTNERS, L.P.
10 New King Street
First Floor
White Plains, New York 10604
Term Commitment Amount: $10,000,000
15
EXHIBIT 21.01
Subsidiaries of Levitz Furniture Incorporated:
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
Levitz Furniture Corporation Florida
Subsidiaries of Levitz Furniture Corporation:
JURISDICTION OF
NAME INCORPORATION
- ---- -------------
Levitz Furniture Company
of the Midwest, Inc. Colorado
Levitz Furniture Company
of the Pacific, Inc. California
Levitz Furniture Company
of Washington, Inc. Washington
John M. Smyth Company Illinois
Levitz Furniture Realty Corporation Florida
Levitz Furniture Reinsurance Ltd. Turks and Caicos Islands
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,046
<SECURITIES> 0
<RECEIVABLES> 21,861
<ALLOWANCES> 0
<INVENTORY> 81,232
<CURRENT-ASSETS> 209,162
<PP&E> 84,609
<DEPRECIATION> 45,742
<TOTAL-ASSETS> 333,642
<CURRENT-LIABILITIES> 278,878
<BONDS> 0
0
0
<COMMON> 303
<OTHER-SE> (280,523)
<TOTAL-LIABILITY-AND-EQUITY> 333,642
<SALES> 653,100
<TOTAL-REVENUES> 653,100
<CGS> 376,327
<TOTAL-COSTS> 376,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,477
<INCOME-PRETAX> (94,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (94,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,444)
<EPS-BASIC> (3.15)
<EPS-DILUTED> 0
</TABLE>
