SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-12046
LEVITZ FURNITURE INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2351830
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7887 NORTH FEDERAL HIGHWAY, BOCA RATON, FL 33487-2799
- ------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
On July 31, 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.
<PAGE>
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF
SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) BANKRUPTCY COURT ACTIONS OR
PROCEEDINGS RELATED TO THE BANKRUPTCY OF 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) 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 QUARTERLY REPORT ON FORM 10-Q.
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1999
TABLE OF CONTENTS PAGE
- ----------------- ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets.................... 3
Consolidated Condensed Statements of Operations.......... 4
Consolidated Condensed Statements of Cash Flows.......... 5
Notes to Consolidated Condensed Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of Operations................................. 12
Liquidity and Capital Resources.......................... 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................... 17
Signatures ................................................... 18
Exhibit Index................................................... 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
(Unaudited)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,545 $ 3,046
Receivables 20,116 21,861
Inventories 87,002 84,232
Deposits and prepaid expenses 5,203 4,432
Income taxes receivable -- 20
Property under agreement of sale 23,372 95,571
--------- ---------
Total current assets 139,238 209,162
--------- ---------
PROPERTY AND EQUIPMENT, net 38,355 38,867
--------- ---------
PROPERTY UNDER CAPITAL LEASES, net 32,634 33,303
--------- ---------
OTHER ASSETS:
Intangible leasehold interests 5,445 5,637
Property held for disposal 23,540 32,469
Deferred income taxes -- 4,440
Other 11,066 9,764
--------- ---------
40,051 52,310
--------- ---------
$ 250,278 $ 333,642
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdrafts $ 8,648 $ 8,823
Current portion of long-term debt 610 6,962
Current portion of obligations under capital leases 1,549 9,846
Accounts payable, trade 24,740 23,060
Accrued expenses and other liabilities 63,928 73,979
Income taxes payable 799 --
Deferred income taxes 1,251 11,590
DIP Facility 95,777 144,618
--------- ---------
Total current liabilities 197,302 278,878
--------- ---------
OBLIGATION UNDER CAPITAL LEASES, net of current portion 29,201 29,368
--------- ---------
OTHER NONCURRENT LIABILITIES 6,572 4,290
--------- ---------
DEFERRED INCOME TAXES 5,064 --
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE 301,415 301,326
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, at par value 303 303
Capital in excess of par 213,560 213,560
Retained earnings (deficit) (502,838) (493,782)
Treasury stock, 249,007 shares at cost (301) (301)
--------- ---------
Total stockholders' deficit (289,276) (280,220)
--------- ---------
$ 250,278 $ 333,642
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 119,988 $ 171,276
------------ ------------
Costs and expenses:
Cost of sales 68,101 97,182
Selling, general and administrative expenses 49,735 76,628
Depreciation and amortization 2,921 5,192
Interest expense, net 7,223 7,501
------------ ------------
127,980 186,503
------------ ------------
Loss before reorganization items and income taxes (7,992) (15,227)
------------ ------------
Reorganization items:
Loss on store closings -- 21,135
Professional fees 1,064 1,612
------------ ------------
1,064 22,747
------------ ------------
Loss before income taxes (9,056) (37,974)
Income tax -- --
------------ ------------
Net loss $ (9,056) $ (37,974)
============ ============
Net loss per common share $ (0.30) $ (1.27)
============ ============
Weighted average number of common shares outstanding 30,071,621 29,988,896
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
4
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,056) $ (37,974)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,750 3,162
Amortization 1,171 2,030
Loss (gain) on sale of property and equipment and
other long-term assets (17) 2
Amortization of deferred financing fees -- 553
Amortization of deferred compensation -- 128
Pension expense (13) 101
Other -- 106
Reorganization items -- 16,133
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables 1,745 2,073
Inventories (2,770) 5,505
Deposits and prepaid expenses (771) (1,029)
Other, net (1,391) 14
Increase (decrease) in:
Accounts payable, trade 1,669 (9,281)
Accrued expenses and other liabilities (10,206) 2,326
Income taxes payable (16) (34)
Other noncurrent liabilities (272) (221)
--------- ---------
Total adjustments (9,121) 21,568
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (18,177) (16,406)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,276) (1,365)
Proceeds from sale of property and equipment and other assets 75,572 4,334
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 74,296 2,969
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under DIP Facility 174,342 220,933
Repayments under DIP Facility (223,183) (201,748)
Principal payments on long-term debt (6,352) (31)
Principal payments under capital lease obligations (252) (664)
Decrease in cash overdrafts (175) (5,460)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (55,620) 13,030
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 499 (407)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,046 5,339
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,545 $ 4,932
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
5
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION:
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 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.
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 financing 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 stockholders and other parties holding equity
interests in the Company will not receive any distributions and
unsecured creditors will receive a distribution of stock in a
"Reorganized Levitz".
Although the Plan of Reorganization provides for the Debtors' emergence
from bankruptcy, there can be no assurances given that the Court will
confirm the Plan, 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.
6
<PAGE>
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
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 pre-petition executory contracts, subject
to Court approval. Claims for damages resulting from the rejection of
real estate leases and other executory contracts will be subject to
separate bar dates. The Debtors have not reviewed all real estate
leases for assumption or rejection. As of June 30, 1999, the Debtors
had rejected leases for nineteen store locations, reached agreement
with the landlord on one store location to terminate without liability
and assumed and assigned leases on four 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. On August 6, 1999, a motion was filed with the Court
to further extend the time within which the Debtors may assume or
reject unexpired leases of nonresidential real property to October 29,
1999. There can be no assurances made that this motion will be approved
by the Court. 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.
7
<PAGE>
Levitz Furniture Incorporated, 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").
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments consisting of
normal recurring accruals necessary to present fairly the financial
position as of June 30, 1999; the results of operations and cash flows
for the periods then ended. The results of operations for the period
ended June 30, 1999, are not necessarily indicative of the results to
be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in LFI's audited
financial statements for the year ended March 31, 1999, which is
included in its Form 10-K.
2. DEBT:
LFI and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a Postpetition Credit Agreement,
as amended, dated as of September 5, 1997 (the "DIP Facility") with BT
Commercial Corporation (BTCC) as agent. The DIP Facility has been
approved by the Court and includes a total commitment of $117.0 million
which is comprised of revolving notes of $107.0 million and an
overadvance term note of $10.0 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.
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. Excess availability
under the DIP Facility at August 9, 1999 was $18.5 million.
The DIP Facility is secured by substantially all of the assets of
Levitz and its subsidiaries and a perfected pledge of stock of all
Levitz's subsidiaries. The DIP Facility contains restrictive covenants
including, among other things, the maintenance of minimum earnings
before interest, taxes, depreciation and amortization as defined
(EBITDA), limitations on the incurrence of additional indebtedness,
liens, contingent obligations, sales of assets, capital expenditures
and a prohibition on paying dividends. LFI and Levitz are currently in
compliance with the DIP Facility covenants as amended.
On July 23, 1999, the DIP Facility was amended to include, among other
things, a reduction in the EBITDA requirements for June and September
1999 and an extension of the fixed asset sublimit expiration date to
September 30, 1999. The Company may be required to seek a further
reduction of the September 30, 1999 EBITDA requirement. There can be
no assurances given that such a reduction will be granted.
Levitz is aggressively marketing additional properties for sale. Since
March 31, 1999 Levitz has sold twenty-one owned properties and
leasehold interest in nineteen properties. Leases were rejected on
three additional properties. As of August 10, 1999, there are four
properties under agreement of sale, letters of intent or other types of
offers estimated to be $12.0 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.
8
<PAGE>
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estate of the Debtors. The DIP Facility
expires on December 31, 1999.
3. LIABILITIES SUBJECT TO COMPROMISE:
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total may vary significantly from the
stated amount of proofs of claim that will be filed with the Court and
may 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.
June 30,
1999
(Dollars in
LIABILITIES SUBJECT TO COMPROMISE thousands)
--------------------------------- ----------
Accounts payable, trade $ 38,509
Accrued expenses 15,219
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 19,812
Executive retirement and employment agreements 16,658
General liability claims 736
Reserve for previous store closings 1,353
Common area maintenance 262
Real estate taxes 2,216
Personal property taxes 566
--------
$301,415
========
(1) Includes accrued interest at September 4, 1997.
As a result of the Chapter 11 filing, no principal or interest payments
will be made on most pre-petition debt without Court approval or until
a plan of reorganization providing for the repayment terms has been
confirmed by the Court and becomes effective. Interest on pre-petition
unsecured obligations has not been accrued after the Petition Date
except that interest expense and principal payments will continue to be
recorded on capital lease obligations unless the Debtors reject the
leases. If a capital lease is rejected the obligation will be limited
to the lease rejection claim. Contractual interest expense of $5.8
million was not recorded on certain pre-petition debt for the periods
ended June 30, 1999 and 1998.
4. PRIVATE-LABEL CREDIT CARD PROGRAM:
On September 4, 1998 Levitz and its operating subsidiaries entered into
an agreement ("Merchant Agreement") with Household Bank (SB), N.A.
("Household") whereby Household would provide financing to individual
consumers purchasing merchandise from Levitz ("Private-Label Credit
Card Program"). The Court approved the Merchant Agreement and granted a
first priority and security interest and lien to Household on certain
reserves retained or accumulated by Household, totaling $7.7 million at
June 30, 1999, and gave administrative expense status to substantially
all obligations of Levitz arising under the Merchant Agreement.
9
<PAGE>
At June 30, 1999, Household's portfolio balance was $499.5 million.
Levitz recorded income from both the Merchant Agreement and the former
agreement with General Electric Capital Corporation of $10.2 million
and $1.4 million for the three month periods ended June 30, 1999 and
1998, respectively.
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.
5. SALE-LEASEBACK TRANSACTION:
On June 8, 1999, Levitz sold 11 owned properties and leasehold
interests and/or rights in 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 gain on the sale of owned property and leasehold interests of
approximately $2.2 million, subject to further adjustment, is being
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 and is calculated at 10.75% of the gross proceeds for the
first five years of the initial term with incremental increases of 5%
after each five year period of the initial term 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 the property 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 specific 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.
10
<PAGE>
The cash effect of the Sale-Leaseback Transaction for the first twelve
month period 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
=======
6. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
Three Months Ended
June 30,
--------------------
1999 1998
------ ------
Interest paid $8,569 $6,713
====== ======
Income tax, net $ 17 $ 34
====== ======
7. LOSS PER COMMON SHARE:
Common stock equivalents consist of stock options, restricted stock and
warrants. As of June 30, 1999 and 1998, there were common stock
equivalents outstanding for 6,166,865 and 7,254,737 shares,
respectively. All common stock equivalents have an antidilutive impact
on LFI's loss from continuing operations for the periods presented and,
therefore, are not included in LFI's computations of loss per share.
8. RECLASSIFICATIONS:
Effective March 31, 1999, LFI elected to reclassify certain revenues in
its consolidated condensed statements of operations. As a result, net
sales and selling, general and administrative ("SG&A") expenses have
been restated for the three month periods ended June 30, 1999 and 1998.
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 $3.9 million and $5.2 million for the three month periods
ended June 30, 1999 and 1998, respectively.
Certain other amounts in prior year's consolidated condensed financial
statements have been reclassified to conform to the current year's
presentation.
9. SUBSEQUENT EVENTS:
On July 7, 1999, Levitz sold five owned properties and leasehold
interests/rights in five 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 June 30, 1999.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
COMPARISON OF OPERATIONS
GENERAL
On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI"), and 11 of its subsidiaries (collectively, the
"Debtors"), including, Levitz Furniture Corporation, a Florida corporation and
wholly-owned subsidiary of LFI ("Levitz"), filed voluntary petitions for relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the District of Delaware,
Wilmington, Delaware 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.
COMPARISON OF OPERATIONS
The following table sets forth LFI's results of operations expressed as a
percentage of net sales for the periods indicated:
Percentage of Net Sales
-----------------------
Three Months Ended
June 30,
-------------------
1999 1998
----- -----
Net sales 100.0 % 100.0 %
Cost of sales 56.8 56.7
----- -----
Gross profit 43.2 43.3
Selling, general and administrative expenses 41.4 44.7
Depreciation and amortization 2.4 3.0
Interest expense 6.0 4.4
----- -----
Loss before reorganization items and income taxes (6.6) (8.8)
Reorganization items 0.9 13.3
----- -----
Loss before income taxes (7.5)% (22.1)%
===== =====
Comparable store sales decrease (0.6)% (2.5)%
===== =====
12
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net sales of $120.0 million for the period ended June 30, 1999 decreased $51.3
million or 29.9% from net sales of $171.3 million in the same period for the
prior year. Approximately $51.3 million of the net sales decrease was due to the
closing of forty-two stores during the last six months of fiscal 1998. Sales on
a comparable store basis decreased 0.6%. The comparable store sales decline was
offset by the increase in net sales from the addition of one new store in
Valencia, California in May 1999. Comparable store sales for April 1999
increased 1.9% for the same month of the prior year. May and June 1999
comparable store sales decreased 1.6% from the comparable period for the prior
year
Selling, general and administrative (SG&A) expenses of $49.7 million for the
period ended June 30, 1999 decreased $26.9 million or 35.1% from SG&A expenses
of $76.6 million in the same period for the prior year. The reduction in SG&A
expenses included $21.3 million due to the closing of forty-two stores at the
end of June 1998 and January 1999, $1.9 million due to the elimination of
corporate support functions and expenses and $4.1 million in comparable store
expenses. These reductions were offset by an increase in SG&A Expenses of $0.4
million with the opening of one new store in May 1999. The reduction in SG&A
Expenses for comparable stores was due to the increase in service fee income
under the Company's private-label credit card program of $9.0 million. The
increase in service fee income was offset by increases in advertising expense of
$2.2 million primarily due to the increase in "interest free" promotions offered
under the Company's private-label credit card program of $1.2 million and an
increase in media advertising of $1.0 million; an increase in salaries and
benefits of $0.7 million and delivery and other expenses of $1.4 million
primarily due to inefficiencies in the implementation of the warehouse
rationalization program; and an increase in occupancy costs of $0.6 million due
to the Sale-Leaseback Transaction as described in Note 5.
Depreciation and amortization for the three month period ended June 30, 1999
decreased to $2.9 million from $5.2 million or 44.2% from the same period of the
prior year. The decrease was primarily due to the closing of forty-two stores
and the Sale-Leaseback Transaction.
Interest expense for the period ended June 30, 1999 decreased to $7.2 million
from $7.5 million for the same period of the prior year. Interest expense as a
percentage of net sales increased to 6.0% from 4.4% primarily due to increased
bank fees charged for amendments to the Credit Agreement and other fees incurred
with the Sale-Leaseback Transaction. Interest expense will decrease in future
periods due to the Sale-Leaseback and Bulk Sale Transactions assuming other
variables as the prime interest rate remain constant. 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 $5.8 million was not recorded on certain
pre-petition unsecured debt for the periods ended June 30, 1999 and 1998.
Reorganization items for the three month period ended June 30, 1998 included a
charge of $21.1 million for the closing of fifteen stores in under-performing
markets and the elimination of certain support functions and the closing of
warehouses in certain locations. Professional fees and other expenses related to
bankruptcy services rendered during the three month periods ended June 30, 1999
and 1998 were $1.1 million and $1.6 million, respectively.
LFI has not recorded any tax benefits for the losses incurred during the periods
ended June 30, 1999 and 1998. LFI does not anticipate recording any tax
provision for the remainder of Fiscal 2000, subject to changes in operating
performance.
As a result of the aforementioned factors, net loss for the period ended June
30, 1999 amounted to $9.1 million or 7.5% of net sales as compared to net loss
of $38.0 million or 22.1% of net sales for the same period of the prior year.
13
<PAGE>
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, 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 unsecured and are classified as liabilities subject to compromise.
Levitz's primary sources of liquidity are cash flow 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 the quarter ended June 30, 1999, Levitz used approximately $6.2 million
of net cash flow in operations before changes in operating assets and
liabilities. Changes in operating assets and liabilities further reduced net
cash flow from operations by $12.0 million primarily due to the reduction of
accrued expenses and other liabilities of $10.2 million. The reduction of
accrued expenses consisted of a decrease in accrued interest of $1.4 million due
to reduced borrowings, payments applied against closed store reserves of $3.5
million and reduction of other items of $5.3 million due to the timing of
payments.
Cash provided by investing activities for the period ended June 30, 1999
includes $8.9 million of proceeds from asset sales of closed facilities and
$66.7 million in proceeds from the Sale-Leaseback Transaction. All of these
proceeds were applied as repayments to the DIP Facility as required by the
agreement.
Levitz's total capital expenditures were approximately $1.3 million during the
period ended June 30, 1999. Levitz spent $0.3 million on renovations and
equipment for one new store in Valencia, CA and $1.0 million for existing store
improvements and equipment. Management plans to spend approximately $7.0 million
for capital expenditures in the current fiscal year of which approximately $2.9
million is for maintenance of existing facilities.
Net cash used in financing activities amounted to $55.6 million in the period
ended June 30, 1999 and includes repayment of borrowings under the DIP Facility
of $48.8 million, principal payments under long-term obligations of $6.6 million
and a decrease in outstanding checks and cash overdrafts of $0.2 million.
Debt
LFI and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a Postpetition Credit Agreement, as amended, dated as of September 5,
1997 (the "DIP Facility") with BT Commercial Corporation (BTCC) as agent. The
DIP Facility has been approved by the Court and includes a total commitment of
$117.0 million which is comprised of revolving notes of $107.0 million and an
overadvance term note of $10.0 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.
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.
Excess availability under the DIP Facility at August 9, 1999 was $18.5 million.
The DIP Facility is secured by substantially all of the assets of Levitz and its
subsidiaries and a perfected pledge of stock of all Levitz's subsidiaries. The
14
<PAGE>
DIP Facility contains restrictive covenants including, among other things, the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization as defined (EBITDA), limitations on the incurrence of additional
indebtedness, liens, contingent obligations, sales of assets, capital
expenditures and a prohibition on paying dividends. LFI and Levitz are currently
in compliance with the DIP Facility covenants as amended.
On July 23, 1999, the DIP Facility was amended to include, among other things, a
reduction in the EBITDA requirements for June and September 1999 and an
extension of the fixed asset sublimit expiration date to September 30, 1999. The
Company may be required to seek a further reduction of the September 30, 1999
EBITDA requirement. There can be no assurances given that such a reduction
will be granted.
Levitz is aggressively marketing additional properties for sale. Since March 31,
1999 Levitz has sold twenty-one owned properties and leasehold interests in
nineteen properties. Leases were rejected on three additional properties. As of
August 10, 1999, there are four properties under agreement of sale, letters of
intent or other types of offers estimated to be $12.0 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.
The lenders under the DIP Facility have a super-priority administrative expense
claim against the estate of the Debtors. The DIP Facility expires on December
31, 1999.
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 $7.7 million at June 30, 1999, and gave administrative
expense status to substantially all obligations of Levitz arising under the
Merchant Agreement.
At June 30, 1999, Household's portfolio balance was $499.5 million. Levitz
recorded income from both the Merchant Agreement and the former agreement with
General Electric Capital Corporation of $10.2 million and $1.4 million for the
three month periods ended June 30, 1999 and 1998, respectively.
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 organization,
operation and
15
<PAGE>
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 stockholders and other parties holding equity interests in the
Company will not receive any distributions and unsecured creditors will receive
a distribution of stock in a "Reorganized Levitz".
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.
Year 2000
There have been no significant changes to the Company's Year 2000 project as
reported in its Form 10-K for the fiscal year ended March 31, 1999. The majority
of the financial and operating systems have been completed through remediation
and are in the compliance testing stage. The Company has and is continuing to
communicate with vendors, financial institutions and others with which it does
business to coordinate year 2000 conversion. The remaining estimated cost of
achieving Year 2000 compliance, excluding in-house salaries, wages and benefits,
is expected to be approximately $0.6 million for software maintenance and
development and other operational systems.
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.
Although the Company is communicating with vendors 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.
16
<PAGE>
PART II OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.65: Amendment No. 11 dated as of July 23,
1999 to the Credit Agreements among Levitz Furniture
Corporation, et al. and BT Commercial Corporation, as
Agent.
Exhibit 27: Financial Data Schedule
(b) Report on Form 8-K:
On July 7, 1999 the registrant filed a Report on Form
8-K reporting under Item 5. Other Events disclosing
the filing of a Disclosure Statement and Plan of
Reorganization (the "Plan") by the registrant and
each of its debtor subsidiaries with the United
States Bankruptcy Court for the District of Delaware.
As part of the Plan, stockholders will not receive
distributions and unsecured creditors will receive
stock in the reorganized Company.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEVITZ FURNITURE INCORPORATED
(Registrant)
Date: August 13, 1999 /s/ MICHAEL MCCREERY
----------------------------------
Michael McCreery
Senior Vice President and
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
Exhibits to Form 10-Q
NUMBER
EXHIBIT TABLE EXHIBIT
------------- -------
10.65 Amendment No. 11 dated as of July 23, 1999 to the
Credit Agreements among Levitz Furniture
Corporation, et al. and BT Commercial
Corporation, as agent.
27 Financial Data Schedule.
19
EXHIBIT NUMBER 10.65
ELEVENTH AMENDMENT TO POSTPETITION CREDIT AGREEMENT
THIS ELEVENTH AMENDMENT TO POSTPETITION CREDIT AGREEMENT, dated as of
July 23, 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.
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 2 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 deleting the
definition of "FIXED ASSET SUBLIMIT" in its entirety and replacing it as
follows:
1
<PAGE>
FIXED ASSET SUBLIMIT means an amount equal to $17,135,438;
PROVIDED, that such amount shall be automatically and permanently
reduced on each date on which either (A) an Asset Disposition occurs
with respect to any real property, other fixed assets or any leasehold
interest in real property of any Borrower or (B) any Borrower rejects
any lease of real property or assumes any lease of real property
without procuring contemporaneously a right to assign such lease, in an
amount equal to (i) in the case of any Asset Disposition of any real
property identified on SCHEDULE 1.1 hereof or in the event that any
Borrower rejects any lease of real property or assumes any lease of
real property without procuring contemporaneously a right to assign
such lease, the amount set forth opposite such property on such
Schedule, (ii) in the case of any Asset Disposition of a fee interest
in real property other than as provided in clause (i), above, one
hundred percent (100%) of the Net Cash Disposition Proceeds thereof,
and (iii) 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 (iii) 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 30, 1999, the Fixed Asset Sublimit
shall be zero ($0).
1.2 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 be an
amount not less than the following:
PERIOD END AMOUNT
---------- ------
June 30, 1999 $1,400,000
September 30, 1999 $4,400,000
1.3 The Credit Agreement is further amended by amending and restating
SCHEDULE 1.1 thereto in the form set forth as EXHIBIT A hereto.
1.4 Annex I of the Credit Agreement is amended by replacing such annex
with the Annex I attached to this Amendment as EXHIBIT B.
2. CONDITIONS PRECEDENT.
This Amendment becomes effective upon satisfaction of the following
conditions:
2.1 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) 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.
2.2 FEES AND EXPENSES. The Agent and the Lenders shall have been paid a
closing fee in the amount of $100,000.
2
<PAGE>
2.3 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) ELEVENTH 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. 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:
3.1 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).
3.2 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.
3.3 ENFORCEABILITY. Upon approval by the Bankruptcy Court (as
contemplated by SECTION 2.1), 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.
3.4 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
SECTION 2.1), except such consents and approvals as have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 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.
4.2 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.
3
<PAGE>
5. 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]
4
<PAGE>
6. 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
in 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
5
<PAGE>
LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation
By: /s/ SHEILA C. REINKEN
------------------------------
Name: Sheila C. Reinken
Title: Vice President
LEVITZ SHOPPING SERVICE, a Florida
corporation
By: /s/ SHEILA C. REINKEN
------------------------------
Name: Sheila C. Reinken
Title: Vice President
LEVITZ FURNITURE COMPANY OF THE MIDWEST,
INC., a Colorado corporation
By: /s/ SHEILA C. REINKEN
Name: Sheila Reinken
Title: Vice President
LEVITZ FURNITURE COMPANY OF THE PACIFIC,
INC., a California corporation
By: /s/ SHEILA C. REINKEN
------------------------------
Name: Sheila C. Reinken
Title: Vice President
LEVITZ FURNITURE COMPANY OF WASHINGTON,
INC., a Washington corporation
By: /s/ SHEILA C. REINKEN
------------------------------
Name: Sheila C. Reinken
Title: Vice President
6
<PAGE>
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
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
7
<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
8
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION,
in its capacity as Revolving Lender
By: /s/
------------------------------
Name:
Title:
GMAC BUSINESS CREDIT L.L.C.
By: /s/
------------------------------
Name:
Title:
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
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,545
<SECURITIES> 0
<RECEIVABLES> 20,116
<ALLOWANCES> 0
<INVENTORY> 87,002
<CURRENT-ASSETS> 139,238
<PP&E> 38,355
<DEPRECIATION> 0
<TOTAL-ASSETS> 250,278
<CURRENT-LIABILITIES> 197,306
<BONDS> 0
0
0
<COMMON> 303
<OTHER-SE> (289,579)
<TOTAL-LIABILITY-AND-EQUITY> 250,278
<SALES> 119,988
<TOTAL-REVENUES> 119,988
<CGS> 68,101
<TOTAL-COSTS> 68,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,223
<INCOME-PRETAX> (9,056)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,056)
<EPS-BASIC> (0.30)
<EPS-DILUTED> 0
</TABLE>
