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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
COMMISSION FILE NUMBERAUGUST 7, 1999
------------------------
Commission File No. 1-13099
THE MAXIM GROUP, INC.
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(Exact name of registrant as specified in its charter)A Delaware 58-2060334
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(State or other jurisdiction of (I.R.S.Corporation
(IRS Employer Identification No.)
incorporation or organization) 58-2060334)
210 Town ParkTownPark Drive
Kennesaw, Georgia 30144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (678) 355-4000
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N/A
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(Former name, former address, and former fiscal year, if changed since last
report)Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
Common Stock, $.001 par value New York Stock Exchange, Inc.
9 1/4% Senior Subordinated Notes Due 2007 New York Stock Exchange, Inc.
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(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE
ON WHICH REGISTERED)
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, $.001 par value
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 lastpast 90 days. Yes X_X_ No ----------- -----------____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock,Stock, as of the latest practicable date:
Common Stock, $.001 par value 18,880,018
--------------------------------- ----------------------------------
Class Outstanding at December 7, 1998
Common Stock, $.001 par value 19,072,532
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Class Outstanding at November 1, 1999
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2
PART I--FINANCIAL1 FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS1. FINANCIAL STATEMENTS.
THE MAXIM GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Information)
(Unaudited)(IN THOUSANDS, EXCEPT SHARE DATA)
OctoberAUGUST 7, JANUARY 31,
January 31,
Assets 1998 1998
- -------------------------------------------------------------------------------1999 1999
----------- -----------
(UNAUDITED)
Current assets:ASSETS
Cash and cash equivalents, including restricted cash of $8,881 at
October 31, 1998 and $22,786 at January 31, 1998equivalents................................... $ 34,15254,573 $ 28,88089,901
Current portion of franchise license fees receivable, net of allowance
for doubtful accounts of $417 at October 31, 1998 and $528 at
January 31, 1998 2,735 3,107
Trade accounts receivable, net of allowance for doubtful accounts of
$4,219 at October 31, 1998 and $1,917 at January 31, 1998 96,460 56,432
Accounts receivable from officers and employees 1,862 1,593receivable........ 1,708 2,013
Current portion of notes receivable from franchisees and related
parties, net of allowance for doubtful accounts of $132 at
October 31, 1998 and $261 at January 31, 1998 2,255 1,165
Inventories 112,450 54,693receivables........................ 2,318 3,405
Receivables................................................. 61,453 52,607
Inventories................................................. 62,232 58,744
Refundable income taxes 1,865 2,558taxes..................................... 4,726 --
Deferred income taxes 6,666 5,714taxes....................................... 7,361 7,361
Prepaid expenses 15,060 3,406expenses............................................ 9,176 6,316
-------- --------
Total current assets 273,505 157,548assets.................................... 203,547 220,347
Property, plant and equipment, net of accumulated depreciation and
amortization of $58,715 at October 31, 1998 and $48,039 at
January 31, 1998 188,446 137,207net.......................... 81,137 71,766
Franchise license fees receivable, less current portion, net of allowance
for doubtful accounts of $210 at October 31, 1998 and January 31, 1998 4,620 2,718portion..... 4,734 2,337
Notes receivable from franchisees, less current portion 4,251 3,506portion..... 6,966 8,228
Deferred income taxes....................................... 1,065 1,065
Intangible assets, net of accumulated amortization of $1,891 at
October 31, 1998 and $1,626 at January 31, 1998 51,606 13,640assets........................................... 85,527 71,341
Other assets 13,667 6,875assets................................................ 15,462 13,684
-------- --------
$536,095 $321,494Total assets................................................ $398,438 $388,768
======== ========
========
See accompanying notes to condensed consolidated financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(In Thousands, Except Per Share Information)
(Unaudited)
October 31, January 31,
Liabilities And Stockholders' Equity 1998 1998
- ---------------------------------------------------------------------- ----------- -----------
Current liabilities:LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debtdebt........................... $ 110,90227,047 $ 38416,952
Senior subordinated notes................................... 95,445 99,387
Current portion of capital lease obligations 504 501obligations................ 6,588 6,635
Accounts payable............................................ 30,496 26,706
Rebates payable to franchisees 4,886 3,975
Accounts payable 61,892 23,376
Accrued expenses 53,034 14,333franchisees.............................. 7,873 749
Deposits.................................................... 17,752 14,769
Deferred revenue 2,561 1,750
Deposits 5,443 2,897
--------- ---------revenue............................................ 4,665 2,254
Income taxes payable........................................ -- 2,633
Other accrued liabilities................................... 42,821 55,827
-------- --------
Total current liabilities 239,222 47,216liabilities............................... 232,687 225,912
-------- --------
Long-term debt, less current portion 116,041 129,349portion........................ 6,403 4
-------- --------
Capital lease obligations, less current portion 1,050 1,429
Deferred taxes 9,007 9,725
--------- ---------portion............. 1,247 1,469
-------- --------
Other long-term liabilities................................. -- 516
-------- --------
Stockholders' equity:
Common stock-shares issued: 21,326,184 and 21,315,664 as
of August 7, 1999 and January 31, 1999.................. 21 21
Additional paid-in capital................................ 186,553 185,828
Retained earnings......................................... 6,345 9,836
Treasury stock--shares at cost: 2,365,900 as of August 7,
1999 and January 31, 1999, respectively................. (34,818) (34,818)
-------- --------
Total stockholders' equity.............................. 158,101 160,867
-------- --------
Total liabilities 365,320 187,719
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 1,000 shares authorized, no
shares issued or outstanding 0 0
Common stock, $.001 par value; 25,000 shares authorized,
21,143 shares issued at October 31, 1998 and 17,352
shares issued at January 31, 1998 21 17
Additional paid-in capital 184,401 119,264
Retained earnings 21,171 29,388
Treasury stock, 2,366 shares at October 31, 1998 and 1,221
shares at January 31, 1998 (34,818) (14,894)
--------- ---------
Total stockholders' equity 170,775 133,775
--------- ---------
$ 536,095 $ 321,494
========= =========equity.................. $398,438 $388,768
======== ========
SeeThe accompanying notes toare an integral part of these condensed consolidated
financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Information)
(Unaudited)(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
-----------------------------
OctoberTHREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
AUGUST 7, JULY 31, OctoberAUGUST 7, JULY 31,
1999 1998 1997
----------- -----------1999 1998
--------- -------- --------- --------
Revenues:
Sales of floorcovering productsfloor covering products.................. $191,201 $ 235,116 $ 81,01786,157 $371,769 $166,818
Fees from franchise services...................... 10,438 2,392 21,738 9,249
Fiber and PET sales 8,257 7,213
Fees from franchise services 13,698 8,695
Other 1,641 1,403
--------- ---------sales............................... -- 5,209 -- 12,174
Other............................................. 867 1,823 1,579 3,972
-------- -------- -------- --------
Total revenues 258,712 98,328revenues.................................. 202,506 95,581 395,086 192,213
Cost of sales 165,707 66,852
--------- ---------sales....................................... 126,251 72,821 245,157 142,385
-------- -------- -------- --------
Gross profit 93,005 31,476profit...................................... 76,255 22,760 149,929 49,828
Selling, general and administrative expenses 79,211 21,655expenses........ 77,970 23,405 150,655 45,795
Nonrecurring charges................................ -- 28,531 -- 28,531
-------- -------- -------- --------
Operating loss...................................... (1,715) (29,176) (726) (24,498)
Other income (expense):
Interest income (345) (212)income................................... 802 32 1,969 418
Interest expense 3,717 1,589expense.................................. (3,162) (2,926) (5,961) (5,385)
Other, 0 (208)
--------- ---------
Earningsnet........................................ 270 956 349 904
-------- -------- -------- --------
Loss before income tax expensetaxes and extraordinary
charge 10,422 8,652
Income tax expense 4,016 3,470
--------- ---------
Earningscharge.......................................... (3,805) (31,114) (4,369) (28,561)
Benefit for income taxes............................ 1,114 9,514 1,152 8,279
-------- -------- -------- --------
Loss before extraordinary charge.................. (2,691) (21,600) (3,217) (20,282)
Extraordinary charge 6,406 5,182
Extraordinary charge--earlyon early retirement of debt,
net of income tax benefit 377 785
--------- ---------benefit................................ -- -- (274) --
-------- -------- -------- --------
Net earningsloss............................................ $ 6,029(2,691) $(21,600) $ 4,397
========= =========
Earnings(3,491) $(20,282)
======== ======== ======== ========
Basic loss per common share:
Basic:
Earningsshare before extraordinary chargecharge.... $ 0.33(0.14) $ 0.32(1.32) $ (0.17) $ (1.24)
Extraordinary charge (0.02) (0.05)
--------- ---------per share...................... -- -- (0.01) --
-------- -------- -------- --------
Basic earningsloss per share................................ $ 0.31(0.14) $ 0.27
========= =========
Diluted:
Earnings(1.32) $ (0.18) $ (1.24)
======== ======== ======== ========
Diluted loss per share before extraordinary
chargecharge............................................ $ 0.32(0.14) $ 0.31(1.32) $ (0.17) $ (1.24)
Extraordinary charge (0.02) (0.05)
--------- ---------per share...................... -- -- (0.01) --
-------- -------- -------- --------
Diluted earningsloss per share.............................. $ 0.30(0.14) $ 0.26
========= =========(1.32) $ (0.18) $ (1.24)
======== ======== ======== ========
Weighted average number ofcommon shares...................... 19,156 16,305 19,156 16,364
======== ======== ======== ========
Weighted average common shares outstanding:
Basic 19,428 16,164
========= =========
Diluted 20,241 16,922
========= =========and equivalents...... 19,156 16,305 19,156 16,364
======== ======== ======== ========
SeeThe accompanying notes toare an integral part of these condensed consolidated
financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Information)
(Unaudited)
Nine Months Ended
-----------------------------
October 31, October 31,
1998 1997
----------- -----------
Revenues:
Sales of floorcovering products $ 403,101 $ 229,388
Fiber and PET sales 20,431 19,726
Fees from franchise services 34,980 23,268
Other 5,613 4,414
--------- ---------
Total revenues 464,125 276,796
Cost of sales 308,907 189,078
--------- ---------
Gross profit 155,218 87,718
Selling, general, and administrative expenses 123,510 62,818
Interest income (763) (437)
Interest expense 8,917 4,252
Other (307) (292)
Nonrecurring charges 33,000 0
--------- ---------
(Loss) earnings before income tax (benefit) expense and extraordinary
charge (9,139) 21,377
Income tax (benefit) expense (1,299) 8,359
--------- ---------
(Loss) earnings before extraordinary charge (7,840) 13,018
Extraordinary charge--early retirement of debt, net of income tax benefit 377 785
--------- ---------
Net (loss) earnings $ (8,217) $ 12,233
========= =========
(Loss) earnings per common share:
Basic:
(Loss) earnings before extraordinary charge $ (0.45) $ 0.81
Extraordinary charge (0.02) (0.05)
--------- ---------
Basic (loss) earnings $ (0.47) $ 0.76
========= =========
Diluted:
(Loss) earnings before extraordinary charge $ (0.45) $ 0.78
Extraordinary charge (0.02) (0.05)
--------- ---------
Diluted (loss) earnings $ (0.47) $ 0.73
========= =========
Weighted average number of common shares outstanding:
Basic 17,385 16,189
========= =========
Diluted 17,385 16,723
========= =========
See accompanying notes to condensed consolidated financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Per Share Information)
(Unaudited)(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
---------------------------
OctoberSIX MONTHS ENDED
--------------------
AUGUST 7, JULY 31,
October 31,1999 1998
1997
----------- -------------------- --------
Cash flows from operating activities:CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earningsloss.................................................. $ (8,217) $ 12,233
----------- -----------(3,491) $(20,282)
Adjustments to reconcile net (loss) earningsloss to net cash provided byused in
operating activities:
Nonrecurring charges...................................... -- 7,540
Depreciation and amortization............................. 6,022 7,447
Deferred income taxes..................................... (45) (9,103)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Receivables............................................. (4,162) (6,170)
Inventories............................................. (827) (10,515)
Refundable income taxes................................. (4,726) 572
Prepaid expenses and other assets....................... (5,107) (2,808)
Accounts payable and other liabilities.................. (1,377) 23,357
-------- --------
Net cash (used in) operating activities:
Nonrecurring charges 33,000 0
Depreciation and amortization 12,082 8,722
Deferred income taxes (1,670) (479)
Changes in assets and liabilities:
Increase in receivables (31,525) (18,934)
Increase in inventories (19,294) (2,975)
Decrease in refundable income taxes 693 784
Increase in prepaid expenses and other assets (14,247) (5,766)
Increase in rebates and accounts payable, accrued expenses, deferred
revenue, and deposits 37,361 2,903
----------- -----------
Total adjustments 16,400 (15,745)
----------- -----------
Net cash provided by (used in) operating activities 8,183 (3,512)
----------- -----------
Cash flows from investing activities:activities..................... (13,713) (9,962)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (46,015) (26,769)expenditures...................................... (11,377) (28,878)
Acquisitions, net of cash acquired (25,354) (1,738)
----------- -----------acquired........................ (14,511) (2,289)
-------- --------
Net cash used in investing activities (71,369) (28,507)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 0 47,240activities....................... (25,888) (31,167)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options, net 3,737 1,000stock options................... 325 2,174
Purchase of treasury stock (19,924) (14,043)
Borrowings under revolving credit agreement 128,481 33,199
Repayments of revolving credit agreement (43,461) 0stock................................ -- (4,084)
Long-term debt proceeds................................... 8,500 39,442
Principal payments on capital lease obligations (375) (590)
----------- -----------obligations........... (269) (253)
Early extinguishment of debt.............................. (4,283) --
-------- --------
Net cash provided by financing activities 68,458 66,806
----------- -----------activities................... 4,273 37,279
-------- --------
Net increasedecrease in cash 5,272 34,787and cash equivalents................... (35,328) (3,850)
Cash and cash equivalents at beginning of periodperiod............ 89,901 28,880
6,439
----------- ------------------- --------
Cash and cash equivalents at end of periodperiod.................. $ 34,15254,573 $ 41,226
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 11,601 $ 4,283
=========== ===========
Income taxes $ 242 $ 3,312
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Common stock issued in connection with acquisitions $ 61,400 $ 3,000
=========== ===========
Note payable issued in connection with acquisition $ 11,000 $ 0
=========== ===========25,030
======== ========
SeeThe accompanying notes toare an integral part of these condensed consolidated
financial statements.
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THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Information)
(Unaudited)NOTE 1. Consolidated Financial StatementsDESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)adjustments)
considered necessary for a fair presentation have been included. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1998 Annual Report on
Form 10-K for the fiscal year ended January 31, 1999, as filed with the
Securities and Exchange Commission.
Comprehensive loss, as defined by Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", was the same as
net loss for the three and six months ended August 7, 1999 and July 31, 1998.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the year.
DESCRIPTION OF BUSINESS
The Maxim Group, Inc. and subsidiaries (the "Company" or "Maxim") are
engaged in retail and commercial sales of floor covering products throughout
North America through a network of Company-owned retail stores and a network of
franchisees. The Company is also engaged in the sale of franchises for the
retail floor covering industry and other related products and services to its
franchises. Substantially all of the assets of Image Industries, Inc. ("Image"),
a wholly owned manufacturing subsidiary of Maxim, were sold on January 29, 1999.
Image was engaged in the manufacturing of residential carpet and plastics
recycling.
RISK FACTORS
The Company relies on several large floor covering manufacturers for the
supply of its floor covering products. While the Company believes there are a
number of alternative manufacturers capable of supplying and distributing its
products, delays in obtaining alternative sources, if necessary, could have a
significant adverse effect on the Company's results of operations.
The Company also has certain other risk factors, which include, but are not
limited to, risks associated with integration of acquisitions and new computer
systems, litigation, competition, possible economic downturns and changes in
laws and regulations.
GOING CONCERN
The accompanying condensed consolidated financial statements of the Company
have been presented on a going concern basis which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As of August 7, 1999 and January 31, 1999, the Company was not in compliance
with a certain restricted payment covenant contained in the Indenture which
references the Company's $100 million 9 1/4% senior subordinated notes (the
"Senior Notes").
During the three month period ended October 31, 1998, the Company's
restricted payments exceeded that allowed under the Indenture. As of August 7,
1999 and January 31, 1999, the Company was not in compliance with the terms of
the Indenture and as a result, the trustee or the holders of not
5
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(CONTINUED)
less than 25% of the Senior Notes may declare all unpaid principal plus any
accrued interest of all of the Senior Notes due and payable. Accordingly, the
Senior Notes are classified as a current liability in the accompanying
consolidated balance sheets as of August 7, 1999 and January 31, 1999.
As of November 1, 1999, the Company's available borrowings under its Senior
Credit Facility plus cash on hand were not sufficient to repay the Senior Notes
if such Senior Notes were declared due and payable.
The Company is currently negotiating with the holders of the Senior Notes to
obtain the requisite consent to waive the default. Any such consent may include,
among other things, the redemption of a portion of the Senior Notes, the payment
of a consent fee by Maxim and a higher interest rate on the Senior Notes which
remain outstanding. There can be no assurance that any such waiver will be
granted. If a waiver is not obtained by Maxim, repayment of the Senior Notes may
be accelerated, as discussed above.
Additionally, the Company is currently in negotiations with its senior
lenders to amend its Senior Credit Facility to allow for enhanced availability,
an extended maturity date, and improved advance ratios on existing collateral.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS.
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement established accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows derivative
gains and losses to offset related results on the hedged item in the statements
of operations and requires that a company formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000, although
earlier adoption is permitted. SFAS No. 133 cannot be applied retroactively. The
Company does not believe this Statement will have a material impact on the
financial statements.
NOTE 3. ACQUISITIONS.
During the six months ended August 7, 1999, the Company acquired 15 retail
locations for aggregate consideration of approximately $20,700,000. The related
purchase agreements, also provide for additional consideration to be expected forpaid based
on certain locations future financial performance.
Effective August 9, 1998, the full year.
2. Inventories
Inventories consistedCompany acquired substantially all of the
residential retail store assets of Shaw Industries, Inc. and its wholly owned
subsidiary, Shaw Carpet Showplace, Inc. (collectively, "Shaw"). The acquisition
has been recorded using the purchase method of accounting. On January 29, 1999,
the Company sold substantially all of the assets of its Image subsidiary. The
operating results of the retail stores acquired from Shaw are included in the
Company's consolidated statements of operations from the date of acquisition.
The following (in thousands):unaudited pro forma summary presents the consolidated results of
operations of the Company as if the acquisition of the retail store assets of
Shaw and the disposition of all the assets of Image had occurred on February 1,
1998. The pro forma
6
NOTE 3. ACQUISITIONS. (CONTINUED)
expenses include the recurring costs that are directly attributable to the
acquisition, such as interest expense and amortization of goodwill, and their
related tax effects.
October 31, JanuaryTHREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- -------------------------------
(IN THOUSANDS) AUGUST 7, 1999 JULY 31, 1998 AUGUST 7, 1999 JULY 31, 1998
-------------------------- --------------- -------------- --------------
Net revenue..................... $202,506 $182,794 $395,086 $368,642
Net loss........................ (2,691) (24,714) (3,491) (26,760)
Basic loss per share............ $ (0.14) $ (1.27) $ (0.18) $ (1.37)
Diluted loss per share.......... (0.14) (1.27) (0.18) (1.37)
NOTE 4. INVENTORIES.
Inventories consist of the following:
AUGUST 7, JANUARY 31,
(IN THOUSANDS) 1999 1999
--------- -----------
Raw materialsmaterials.......................................... $ 21,289309 $ 14,809
Work in process 3,755 3,363309
Finished goods 87,406 36,521goods......................................... 61,923 58,435
------- -------
Total.................................................. $62,232 $58,744
======= =======
On a segment basis, the Company's inventories consist of the following:
AUGUST 7, JANUARY 31,
(IN THOUSANDS) 1999 1999
--------- -----------
Retail................................................. $60,415 $56,927
Image.................................................. 1,817 1,817
------- -------
Total.................................................. $62,232 $58,744
======= =======
NOTE 5. NONRECURRING CHARGES.
During the three month period ended July 31, 1998, the Company reevaluated
its business strategy and determined to expand its focus on its retail
operations. As a result of the revised retail strategy, the Company amended the
franchise agreement for one of its franchised line of retail stores, closed
certain Company-owned stores, and wrote down to fair value certain retail
assets, including goodwill. The Company estimated that the changes to the
franchise agreement would result in franchisee claims brought against the
Company. The Company recorded a $28,531,000 charge for these nonrecurring items
during the three-month period ended July 31, 1998. The initial charge was
subsequently reduced by $4,818,000, as revised estimates for franchisee claim
reserves and store closure costs were less than initially expected. The revised
estimates were offset in part by a ten store net increase in the number of
stores to be closed. As of August 7, 1999, $20,835,000 of the nonrecurring
charges were incurred, with $2,878,000 remaining in the reserve, which is
included in accrued liabilities on the accompanying balance sheet.
7
NOTE 5. NONRECURRING CHARGES. (CONTINUED)
The major components of the nonrecurring charge balance, the remainder of
which is included in other accrued liabilities on the balance sheet at
August 7, 1999 and January 31, 1999, are as follows:
JANUARY 31, AUGUST 7,
(IN THOUSANDS) 1999 AMOUNT 1999
BALANCE INCURRED BALANCE
----------- --------- ---------
Claim reserves.............................................. $3,195 $ (490) $2,705
Store closure & carrying costs.............................. 2,822 (2,649) 173
------ ------- ------
$6,017 $(3,139) $2,878
====== ======= ======
NOTE 6. DEBT
In March 1999, the Company purchased the principal amount of $4,000,000 of
its Senior Notes in the open market. The amount paid approximated the face
amount of the Senior Notes.
CREDIT FACILITY
On May 18, 1999, the Company entered into an amended and restated credit
facility, which provides for aggregate commitments of $75.0 million (the "Senior
Credit Facility"). The Senior Credit Facility consists of a revolving facility
that matures May 18, 2002. Borrowings under the Senior Credit Facility are
secured by accounts receivable, inventories, certain real and personal property,
and certain intangible assets of Maxim and its subsidiaries, as well as the
capital stock of all of its subsidiaries. As additional collateral security for
the Senior Credit Facility, the Company has established a cash collateral
account with the lenders. As of November 10, 1999 the cash collateral account
balance was $42,600,000 million. As of November 10, 1999, the Company had
$5,800,000 available under the revolver. Amounts outstanding under the Senior
Credit Facility bear interest at various variable rates. The Senior Credit
Facility contains a number of covenants customary for credit transactions of
this type and requires the Company to meet certain financial ratios. Because of
the Company's violation of various covenants (principally related to failures to
provide required financial information and other documentation), certain events
of default exist under the Senior Credit Facility. The Company and its Senior
Credit Facility lenders have entered into a forebearance agreement with respect
to such events of default, which forebearance currently extends to November 15,
1999. The Company is currently in discussions with its Senior Credit Facility
lenders to amend or replace the Senior Credit Facility. The negotiations involve
enhanced credit availability, a new maturity date and improved advance ratios on
existing collateral.
Amounts outstanding under the Senior Credit Facility bear interest at a
variable rate equal to, at the Company's option, (i) the base rate (defined as
the greater of the prime rate or the federal funds rate plus one-half of one
percent) or (ii) the adjusted LIBOR rate, in each case plus the applicable
margin. The applicable margin ranges from 1.25% to 2.50% for loans that bear
interest at the adjusted LIBOR rate. The Company is required to pay the lenders
under the Senior Credit Facility, on a quarterly basis, a commitment fee ranging
from 0.25% to 0.50% of the unused portion of the Senior Credit Facility. The
Company is required to pay administration fees quarterly. The Senior Credit
Facility contains a number of covenants, including, among others, covenants
restricting the Company and certain of its subsidiaries with respect to the
incurrence of indebtedness (including contingent obligations); the creation of
liens; the sale, lease, assignment, transfer, or other disposition of assets;
the making of certain investments, loans, advances, and acquisitions; the
consummation of certain transactions, such as mergers or consolidations.
Further, the Senior Credit Facility contains cross default provisions related to
the Company's other indebtedness. The Senior Credit Facility requires the
Company to meet certain financial ratios and covenants, including debt to
equity, debt to capital, minimum tangible net worth, minimum EBITDAR and fixed
charges.
8
NOTE 7. SEGMENT INFORMATION.
SFAS No. 131--"Disclosures about Segments of an Enterprise and Related
Information"--became effective for fiscal year 1999 and for all succeeding
interim reporting periods. In accordance with the requirements of SFAS No. 131,
the Company has identified three reportable segments through which it conducts
its operating activities: retail, manufacturing and franchise services. These
three segments reflect an aggregation of the operating segments used by Company
management for making decisions and assessing performance. Management determines
operating segments based primarily upon the operations' line of business and
geographic location. Operating segments were aggregated into reportable segments
based upon characteristics such as products and services, operating methods,
customers, and distribution methods. The retail segment is comprised of retail
floor covering stores and distribution support centers. The manufacturing
segment is comprised of the operations of Image. With the sale of substantially
all the assets of Image on January 29, 1999, Maxim no longer engages in
manufacturing operations. The franchise services segment includes store
development, marketing, advertising, production, consumer credit, training and
product sourcing activities as well as interest expense and corporate
non-operating items not directly relating to the manufacturing or retail
segments.
Intersegment sales and transfers occured as carpet was transferred from
Image to the Company's retail segment. The retail segment purchases advertising,
training or product sourcing services from the franchise services segment.
Intersegment transactions are accounted for on the same basis as transactions
with third parties.
Identifiable assets consist of cash, property, plant and equipment used in
the operations of the segment, as well as inventory, receivables and other
assets directly related to the segment. The Company has no assets located
outside the United States.
FRANCHISE INTERSEGMENT
MANUFACTURING RETAIL SERVICES ELIMINATIONS TOTAL
(IN THOUSANDS) ------------- -------- --------- ------------ --------
Three Months Ended August 7, 1999:
Revenues............................ $ -- $188,965 $ 20,274 $ (6,733) $202,506
Operating (loss) income............. 165 (2,899) 1,019 -- (1,715)
Interest expense.................... -- 559 3,092 (489) 3,162
Income tax (provision) benefit...... -- (68) 1,182 -- 1,114
Net (loss) income................... 179 (3,300) 430 -- (2,691)
Total assets........................ 2,038 230,894 165,506 -- 398,438
------- -------- -------- $112,450-------- --------
Three Months Ended July 31, 1998:
Revenues............................ $49,140 $ 54,693
======== ========43,464 $ 10,443 $ (7,466) $ 95,581
Nonrecurring charges................ -- -- 28,531 -- 28,531
Operating income (loss)............. 3,951 1,804 (32,763) (2,168) (29,176)
Interest expense.................... 1,408 919 2,767 (2,168) 2,926
Income tax (provision) benefit...... (923) (137) 10,574 -- 9,514
Net (loss) income................... 1,504 7 (23,111) -- (21,600)
------- -------- -------- -------- --------
Six Months Ended August 7, 1999:
Revenues............................ $ -- $365,734 $ 41,901 $(12,549) $395,086
Operating income (loss)............. 165 (6,560) 5,669 -- (726)
Interest expense.................... -- 1,460 5,990 (1,489) 5,961
Income tax benefit.................. -- 54 1,098 -- 1,152
Extraordinary charge................ -- -- 274 -- 274
Net (loss) income................... 179 (7,643) 3,973 -- (3,491)
------- -------- -------- -------- --------
3.9
NOTE 7. SEGMENT INFORMATION. (CONTINUED)
FRANCHISE INTERSEGMENT
MANUFACTURING RETAIL SERVICES ELIMINATIONS TOTAL
(IN THOUSANDS) ------------- -------- --------- ------------ --------
Six Months Ended July 31, 1998:
Revenues............................ $97,724 $ 83,263 $ 22,523 $(11,297) $192,213
Nonrecurring charges................ -- -- 28,531 -- 28,531
Operating income (loss)............. 8,382 1,144 (31,804) (2,220) (24,498)
Interest expense.................... 2,837 1,773 5,018 (4,243) 5,385
Income tax benefit (provision)...... (2,139) 719 9,699 -- 8,279
Net (loss) income................... 3,574 (1,435) (22,421) -- (20,282)
------- -------- -------- -------- --------
ITEM 8. SUBSEQUENT EVENT
In an effort to resolve the pending default of the Senior Notes, Maxim has
reached an agreement in principle with an ad hoc committee consisting of
Noteholders who own a majority of the principal amount of the outstanding Senior
Notes. Pursuant to the agreement in principle, Maxim has commenced an offer to
purchase not less than $40.0 million of Senior Notes at a purchase price of
102%, plus accrued and unpaid interest and other fees and charges. Maxim is
required to pay a cash consent fee of $50 per $1,000 principal amount of Senior
Notes to those Noteholders who consent to the default waiver and whose Senior
Notes are not purchased by Maxim.
The following additional terms would apply to Senior Notes which are not
purchased by Maxim:
- The interest rate will increase from 9 1/4% per annum to 12 3/4% per annum
and will increase by 25 basis points on October 15, 2000 and further
increase every six months thereafter (increasing instead by 50 basis
points if the bond rating assigned to the Senior Notes by Standard &
Poor's is less than "B-");
- The Senior Notes will be secured by a second lien on certain assets;
- Maxim will, on an annual basis beginning on February 7, 2001, be required
to consummate an offer to purchase not less than $10.0 million of
outstanding Senior Notes at a purchase price of 102%, plus accrued and
unpaid interest and other fees and charges (increasing to 103% if the bond
rating assigned to the Senior Notes by Standard & Poor's is less than
"B");
- Maxim will be required to consummate an offer to purchase any Senior Notes
which remain outstanding on October 15, 2002 at a price of 106.375%, plus
accrued and unpaid interest and other fees and charges, and
- Maxim will be required to maintain a fixed charge coverage ratio to be
determined.
Consummation of the transactions contemplated by the agreement in principle
is subject to, among other things, negotiation of an amended or replacement
senior credit facility acceptable to Maxim and the Noteholders, receipt of
consents from Noteholders representing at least a majority in aggregate
principal amount of outstanding Senior Notes, and certain other customary
conditions. Maxim expects to complete the transactions contemplated by the
agreement in principle during the fourth quarter of fiscal 2000. There can be no
assurance that such a waiver will ultimately be granted. If a waiver is not
obtained by Maxim, repayment of the Senior Notes may be accelerated.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF MAXIM, INCLUDING THE NOTES THERETO
CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q.
GENERAL
During the year ended January 31, 1999, Maxim acquired the retail store
assets of Shaw Industries, Inc. for consideration of 3,150,000 shares of Maxim's
common stock valued at $55.2 million, an $18.0 million promissory note, adjusted
to $11.5 million after the effect of purchase price adjustments, and
$25.0 million in cash. These assets were purchased effective August 9, 1998, and
included 266 retail floor covering centers. The acquisition of these assets
resulted in a substantial increase in the number of Company-owned stores. As
reflected in the following discussion, the acquisition of these assets
materially impacted Maxim's financial condition and results of operations.
The acquired retail stores are currently being integrated into Maxim. Maxim
is evaluating the strengths of the acquired brands and is currently making
merchandise shifts to maximize the stores' potential. Changes will include
rebranding of these stores to the newly established Flooring America brand,
adjusting merchandising fixtures and displays, closing certain stores and
reviewing current operational practices at each store.
The Shaw retail stores incurred significant losses in periods prior to their
acquisition by Maxim. These stores historically operated at a lower profit level
than those typical in the retail flooring industry. To the extent such
conditions continue before and after Maxim's integration of these stores, such
conditions may affect not only the operation of the acquired stores, but also
the consolidated results of operations of Maxim. Moreover, the acquired stores'
geographic areas and product lines overlapped with the Company's existing stores
in certain areas causing the need to close or remodel certain stores.
In order to focus its full efforts and resources on the growth and
efficiency of the retail operations, Maxim sold the carpet manufacturing
operations of its Image subsidiary in January 1999 for total consideration of
$210.7 million which included the assumption of $48.1 million in debt and
short-term liabilities. With this sale of Maxim's manufacturing assets,
management believes that Maxim is positioned as one of the leading retailers of
flooring products on an exclusive basis. As of November 1, 1999, Maxim's retail
network consisted of 323 Company-owned stores and 1,035 franchise centers/
locations.
During the three and six months ended August 7, 1999, Maxim operated two
reportable segments: retail and franchise services. During the three and six
months ended July 31, 1998, Maxim operated a third reportable segment,
manufacturing. The retail segment is a chain of stores and support centers. The
franchise services segment includes franchise fees and related activities,
general corporate charges, interest expense and corporate non-operating items
not directly relating to the manufacturing or retail segments. See Note 7 to
Maxim's Consolidated Financial Statements for certain financial information
relating to these three segments.
On February 1, 1999, Maxim changed its fiscal year end from January 31 to
the first Saturday following January 31. Accordingly, the second quarter of the
fiscal year ending February 5, 2000 consists of the 13-week period ended
August 7, 1999. Financial results for the three and six month ended July 31,
1998 have not been restated to reflect the effects of the change in fiscal year.
11
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 7, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
TOTAL REVENUES. Total revenues increased 111.9% to $202.5 million for the
three months ended August 7, 1999 from $95.6 million for the three months ended
July 31, 1998. The components of total revenues, exclusive of the effect of
intercompany eliminations, are discussed below. Intersegment eliminations, which
totaled $6.7 million for the three months ended August 7, 1999 and $7.5 for the
three months ended July 31, 1998, include certain intercompany allocations.
RETAIL REVENUE. Retail revenue consists of sales of floor covering
products by Maxim's retail stores. Retail revenues increased 334.8% to
$189.0 million for the three months ended August 7, 1999 from $43.5 million
for the three months ended July 31, 1998. The growth in retail sales of
floor covering products was primarily due to the impact of the acquisition
of the retail store assets of Shaw and, to a lesser extent, real same store
sales growth.
FRANCHISE SERVICES REVENUE. Franchise services revenue is generated
from three primary sources: (i) one-time franchise fees from new franchisees
(revenue recognized at time of franchise agreement signing), (ii) brokerage
fees and/or royalties on certain floor covering products purchased by the
franchisee; and (iii) franchise service fees for services and products such
as advertising, which are offered to franchisees. Franchise services revenue
increased 94.1% to $20.3 million for the three months ended August 7, 1999
from $10.4 million for the three months ended July 31, 1998. The increase in
franchise services revenue is due to, among other things, increases in
national accounts revenue, rebates from floor covering vendors and growth in
the demand for franchise services, particularly the MAXCare franchise.
MANUFACTURING REVENUE. Manufacturing revenue included the sale of
manufactured carpet and polyethylene tereptalate ("PET"), fiber and flake.
Manufacturing revenue for the three months ended July 31, 1998 was
$49.1 million. With the sale of substantially all the assets of Image in
January 1999, Maxim no longer engages in manufacturing operations.
GROSS PROFIT. Gross profit increased 235.0% to $76.3 million for the three
months ended August 7, 1999 from $22.8 million for the three months ended
July 31, 1998. As a percentage of total revenue, gross profit was 37.7% for the
three months ended August 7, 1999 compared to 23.8% for the three months ended
July 31, 1998 as a result of the sale of the manufacturing segment in January
1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 233.1% to $78.0 million for the three months
ended August 7, 1999 from $23.4 million for the three months ended July 31,
1998. The increase in selling and administrative expenses reflects an overall
growth in the size of Maxim's retail base, including the retail store assets
acquired from Shaw. These stores incurred higher levels of advertising costs
than other Maxim stores. These acquired stores also incurred selling, general
and administrative expense relating to the integration of these stores into
Maxim. As a percentage of total revenue, selling, general and administrative
expenses increased to 38.5% for the three months ended August 7, 1999 from 24.5%
for the three months ended July 31, 1998. The increase in selling, general and
administrative expenses, both as a percentage of revenues and operating expenses
reflected Maxim's changing revenue mix. Selling, general and administrative
expenses of Maxim's retail segment, which operates on a higher cost basis than
the manufacturing segment, increased as a percentage of revenue due to the
purchase of Shaw's retail store assets in August 1998. With the sale of Maxim's
manufacturing operations in January 1999, the retail segment comprises a
substantial portion of Maxim's operations in future periods. Also contributing
to the increase in selling, general and administrative expenses were increases
in advertising, bad debts and compensation expenses.
12
OPERATING INCOME/LOSS. Operating loss decreased to $1.7 million for the
three months August 7, 1999 from $29.2 million for the three months ended
July 31, 1998. The components of operating income/loss, exclusive of the effect
of intersegment eliminations, are discussed below. Intersegment eliminations
totaled $2.2 million for the three months ended July 31, 1998.
RETAIL OPERATING INCOME/LOSS. Retail operating income/loss decreased to
a loss of $2.9 million for the three months ended August 7, 1999 from income
of $1.8 million for the three months ended July 31, 1998. This decrease was
primarily due to the impact of the acquisition of the retail store assets of
Shaw. These stores have higher selling, general and administrative expense
related to the advertising, as well as, higher costs related to the
remodeling and rebranding of these stores.
FRANCHISE SERVICES OPERATING INCOME/LOSS. Franchise services operating
income/loss increased to income of $1.0 million for the three months ended
August 7, 1999 from a loss of $32.8 million for the three months ended
July 31, 1998. The loss in the prior period was primarily due to a
$28.5 million nonrecurring charge related to the re-evaluation of the
Company's business strategy.
MANUFACTURING OPERATING INCOME/LOSS. Manufacturing operating income was
$4.0 million for the three months ended July 31, 1998. With the sale of
substantially all the assets of Image in January 1999, Maxim no longer
engages in manufacturing operations.
INTEREST EXPENSE. Interest expense increased 8.1% to $3.2 million for the
three months ended August 7, 1999 from $2.9 million for the three months ended
July 31, 1998, due principally to a higher interest rate during the three months
ended August 7, 1999. See "Liquidity and Capital Resources."
INCOME TAX BENEFIT. Maxim recorded an income tax benefit of $1.1 million
for the three months ended August 7, 1999 compared to a $9.5 million benefit for
the three months ended July 31, 1998. The decrease in income tax benefit is due
to Maxim recording less of a loss for the three month period ended August 7,
1999 as compared to the three month period ended July 31, 1998.
SIX MONTHS ENDED AUGUST 7, 1999 COMPARED TO SIX MONTHS ENDED JULY 31, 1998
TOTAL REVENUES. Total revenues increased 105.5% to $395.1 million for the
six months ended August 7, 1999, from $192.2 million for the six months ended
July 31, 1998. The components of total revenues, exclusive of the effect of
intercompany eliminations, are discussed below. Intersegment eliminations, which
totaled $12.5 million for the six months ended August 7, 1999 and $11.3 million
for the six months ended July 31, 1998, include certain intercompany
allocations.
RETAIL REVENUE. Retail revenues increased 339.3% to $365.7 million for
the six months ended August 7, 1999 from $83.3 million for the six months
ended July 31, 1998. The growth in retail sales of floor covering products
was primarily due to the impact of the acquisition of the retail store
assets of Shaw and, to a lesser extent, real same store sales growth.
FRANCHISE SERVICES REVENUE. Franchise services revenue increased 86.0%
to $41.9 million for the six months ended August 7, 1999 from $22.5 million
for the six months ended July 31, 1998. The increase in franchise services
revenue is due to, among other things, increases in national accounts
revenue, rebates from floor covering vendors and growth in the demand for
franchise services, particularly the MAXCare franchise.
MANUFACTURING REVENUE. Manufacturing revenue for the six months ended
July 31, 1998 was $97.7 million. With the sale of substantially all the
assets of Image in January 1999, Maxim no longer engages in manufacturing
operations.
GROSS PROFIT. Gross profit increased 200.9% to $149.9 million for the six
months ended August 7, 1999 from $49.8 million for the six months ended
July 31, 1998. As a percentage of total revenue, gross profit was 37.9% for the
six months ended August 7, 1999 compared to 25.9% for the six months ended
July 31, 1998 as a result of the sale of the manufacturing segment in January
1999.
13
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 229.0% to $150.7 million for the six months
ended August 7, 1999 from $45.8 million for the six months ended July 31, 1998.
The increase in selling, general and administrative expenses reflects an overall
growth in the size of Maxim's retail base, including the retail store assets
acquired from Shaw. These stores incurred higher levels of advertising costs
than other Maxim Brands. These acquired stores also incurred selling, general
and administrative expense relating to the integration of these stores into
Maxim. As a percentage of total revenue, selling, general and administrative
expenses increased to 38.1% for the six months ended August 7, 1999 from 23.8%
for the six months ended July 31, 1998. The increase in selling, general and
administrative expenses, both as a percentage of revenues and operating expenses
reflect Maxim's changing revenue mix. Selling, general and administrative
expenses of Maxim's retail segment, which operates on a higher cost basis than
the manufacturing segment, increased as a percentage of revenue due to the
purchase of Shaw's retail store assets in August 1998. With the sale of Maxim's
manufacturing operations in January 1999, the retail segment comprises a
substantial portion of Maxim's operations in future periods. Increases in
advertising, bad debt and compensation expenses also contributed to the increase
in total selling, general and administrative expenses.
OPERATING INCOME/LOSS. Operating income/loss increased to a loss of
$726,000 for the six months ended August 7, 1999 from a loss of $24.5 million
for the six months ended July 31, 1998. The components of operating income/loss,
exclusive of the effect of intersegment eliminations, are discussed below.
Intersegment eliminations totaled $2.2 million for the six months ended
July 31, 1998.
RETAIL OPERATING INCOME/LOSS. Retail operating income/loss decreased to
a loss of $6.6 million for the six months ended August 7, 1999 from income
of $1.1 million for the six months ended July 31, 1998. This decrease was
primarily due to the impact of the acquisition of the retail store assets of
Shaw. These stores have higher selling, general and administrative expense
related to advertising, as well as, higher costs related to the remodeling
of these stores.
FRANCHISE SERVICES OPERATING INCOME/LOSS. Franchise services operating
income/loss increased to income of $5.7 million for the six months ended
August 7, 1999 from a loss of $31.8 million for the six months ended
July 31, 1998. The loss incurred in 1998 was primarily due to $28.5 million
of nonrecurring charges related to the re-evaluation of the Company's
business strategy.
MANUFACTURING OPERATING INCOME/LOSS. Manufacturing operating income was
$8.4 million for the six months ended July 31, 1999. With the sale of
substantially all the assets of Image in January 1999, Maxim no longer
engages in manufacturing operations.
INTEREST EXPENSE. Interest expense increased 10.7% to $6.0 million for the
six months ended August 7, 1999 from $5.4 million for the six months ended
July 31, 1998 due principally to a higher interest rate during fiscal 1999. See
"Liquidity and Capital Resources."
INCOME TAX BENEFIT. Maxim recorded an income tax benefit of $1.2 million
for the six months ended August 7, 1999 compared to a $8.3 million benefit for
the six months ended July 31, 1998. The decrease in income tax benefit is due to
Maxim recording less of a loss for the six months ended August 7, 1999.
EXTRAORDINARY CHARGE. The extraordinary charge recorded in the six months
ended August 7, 1999 resulted from the repurchase of $4.0 million principal
amount Senior Notes and the write-off of unamortized financing fees and
discounts associated with the purchase of the Senior Notes. The total charge
amounted to $295,000, which was tax effected by $21,000 for the six months ended
August 7, 1999.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Maxim's primary capital requirements are for new store openings
and working capital. Maxim historically has met its capital requirements through
a combination of cash flow provided by
14
operations, net proceeds from the sale of equity and debt securities, bank lines
of credit, disposition of assets, and standard payment terms from suppliers.
STOCK REPURCHASE PROGRAM. In March 1997, the Board of Directors of Maxim
authorized a stock repurchase program pursuant to which Maxim has periodically
repurchased shares of its common stock in the open market. As of November 1,
1999, Maxim had repurchased an aggregate of 2.4 million shares of common stock
in the open market for $34.8 million. These purchases were financed from
borrowings under Maxim's revolving credit facility and cash balances. As
discussed below, the ability of Maxim to repurchase its common shares is limited
by certain restrictions contained in the Indenture relating to Maxim's senior
subordinated notes. See "--Senior Subordinated NotesNotes."
CREDIT FACILITY. On May 18, 1999, Maxim entered into an amended and
restated credit facility, which provides for aggregate commitments of
$75 million (the "Senior Credit Facility"). The Senior Credit Facility consists
of a revolving facility that matures May 18, 2002. Borrowings under the Senior
Credit Facility are secured by accounts receivable, inventories, certain real
and personal property, and certain intangible assets of Maxim and its
subsidiaries, as well as the capital stock of all of its subsidiaries. As
additional collateral security for its obligations under the Senior Credit
Facility, Maxim established a cash collateral account with the lenders. As of
November 10, 1999, the cash collateral account balance was $42.6 million. As of
November 10, 1999, the Company had $5.8 million available under the Senior
Credit Facility. Amounts outstanding under the Senior Credit Facility bear
interest at various variable rates. The Senior Credit Facility contains a number
of covenants customary for credit transactions of this type and requires Maxim
to meet certain financial ratios. Because of Maxim's violation of various
covenants (principally related to failures to provide required financial
information and other documentation), certain events of default exist under the
Senior Credit Facility. Maxim and its Senior Credit Facility lenders have
entered into a forbearance agreement with respect to such events of default,
which forbearance currently extends to November 15, 1999. Maxim is currently in
discussions with its Senior Credit Facility lenders to amend or replace such
facility. The negotiations involve enhanced credit availability, a new maturity
date and improved advance ratios on existing collateral.
SENIOR SUBORDINATED NOTES. On October 16, 1997, the Company completed the sale ofMaxim issued $100 million
of 9-1/9 1/4% Senior Subordinated Notes ("Notes") due 2007 to institutional
buyers in a private offering under Rule 144A promulgated under the
Securities Act of 1933.(the "Senior Notes"). The net proceeds
to the CompanyMaxim from the offering of the Senior Notes were approximately $96 million
net of an initial issue discount, and fees and related costs. The CompanyMaxim used the net
proceeds from the offering of the Senior Notes to repay all borrowings then
outstanding under its revolving credit agreementsfacility of approximately $82.7 million
and for general corporate purposes, including capital expenditures.
-7-
8
Each of the Company'sMaxim's operating subsidiaries has fully and unconditionally
guaranteed the Senior Notes on a joint and several basis. The guarantor
subsidiaries comprise all of the direct and indirect operating subsidiaries of
the Company. The CompanyMaxim. Maxim has not presented separate financial statements and other
disclosures concerning the guarantor subsidiaries because management has
determined that such information is not material to investors. There are no
significant restrictions on the ability of the guarantor subsidiaries to make
distributions to the Company.
The CompanyMaxim.
Maxim is currently in default of the restricted payment covenant contained
in the Indenture (the "Indenture") pursuant to which the Senior Notes were
issued. The default occurred on September 3, 1998 when the
CompanyMaxim repurchased shares
of its common stock in the open market pursuant to its ongoing stock repurchase
program.
At the time of this
stock repurchase, the Company believed that it had sufficient funds
available under the restricted payments provision of the Indenture to
make the repurchase. The Company, however, excluded from the
calculation of its restricted payment availability, nonrecurring
charges totaling $33 million taken in the quarter ended July 31, 1998,
believing such charges to be excluded from consolidated net income of
the Company, as defined in the Indenture, and thus not effecting a
reduction in the Company's restricted payments availability thereunder.
By the time the Company realized that its treatment of this
nonrecurring charge was impermissible under the Indenture, it had
purchased additional shares of common stock in the open market in
violation of the terms of the Indenture.
On November 12, 1998, the CompanyMaxim notified the Trustee under the Indenture of its
default of the restricted payment covenant in the Indenture. In accordance with
the terms of the Indenture, the Trustee on November 17, 1998 notified the CompanyMaxim that
such default shallwould become an event of default on December 17, 1998 (30 days
after the date of the Trustee's notice to the Company). If this default isMaxim) if not cured by the Companyor waived prior to
December 17, 1998,that date. To date, Maxim has not been able to obtain the consent of the
Noteholders for a waiver of this covenant violation. Accordingly, the Trustee or
the holders of not less than 25% in
15
aggregate principal amount of Notes outstanding
may declare all unpaid principal of, premium, if any, and accrued
interest of all Notes to be due and payable. The Company will seek the
consent of the Note holders for a waiver of these inadvertent
violations of the restricted payment convenant of the Indenture. In
order to be effective, holders of a majority in aggregate principal
amount of all outstanding Notes must consent to the waiver.
Because either the Trustee or the holders of not less than 25% in
aggregate principal amount of Notes outstanding may accelerate payment
of the Notes beginning on December 17, 1998, the Notes are classified
as current liabilities of the Company on the accompanying October 31,
1998 balance sheet. Once the Company receives the requisite consent to
the waiver from the holders of Notes, however, the Notes will again be
classified as long-term debt of the Company.
4. Nonrecurring Charges
During the period ended July 31, 1998, the Company reevaluated its
retail strategy. As a result of the assessment, the Company made the
determination that it would amend its franchise agreement, close
certain Company-owned stores, and write down the value of certain
retail assets including goodwill.
-8-
9
The Company recorded a $33 million charge for certain nonrecurring
items during the period ended July 31,1998. On June 1, 1998 the Company
amended its franchise agreement with the majority of its members,
whereby the Company established certain requirements for more
uniformity in the appearance and merchandising of the franchise stores.
As part of the amended franchise agreement, the number of vendors
available to franchise members through the Company, to buy from and
earn rebates, has been reduced. The Company has recorded allowances for
receivables due from vendors replaced in the amended franchise
agreement and has also established a reserve to settle claims from
certain parties. In addition, the Company has written down to fair
value certain assets made obsolete by the new franchise agreement. The
Company also accrued for the costs of closing 14 Company-owned retail
stores. The Company anticipates all stores will be closed within nine
months.
As part of the Company's reevaluation of its retail strategy, the
acquisition of the retail store assets of Shaw Industries, Inc. was
considered and consummated.
In connection with the reevaluation of the Company's retail strategy
described above, the Company analyzed the performance of its Company
owned retail regions. This analysis indicated that significant
strategic and operational changes would be necessary in some stores,
including changes in the customer mix, location, store design, and
merchandising. These factors also caused management to assess the
realizability of the goodwill recorded for these regions.
The determination of goodwill impairment was made by comparing the
unamortized goodwill balance for each region to the estimate of the
related region's undiscounted future cash flows. The assumptions used
reflected earnings, market and industry conditions, as well as current
operating plans. The assessment indicated a permanent impairment of
goodwill related to certain of the regions, therefore such goodwill was
written down to fair market value which resulted in a write-off
totaling $4.2 million.
The major components of the nonrecurring charges are as follows:
CHARGED
TO
INITIAL RELATED REMAINING
CHARGE ACCOUNTS BALANCE
------- -------- ---------
Vendors' receivable allowances $ 5,300 $ 5,300 $ 0
Claims reserves 10,700 0 10,700
Write-down of equipment 2,200 2,200 0
Store closure and carrying costs 10,600 933 9,667
Write-down of goodwill 4,200 4,200 0
------- ------- -------
$33,000 $12,633 $20,367
======= ======= =======
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10
5. Earnings Per Share
Effective January 31, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for
earnings per share. Basic earnings per share is computed by dividing
net earnings by the weighted average number of common shares
outstanding during each period. Diluted earnings per common share
assumes exercise of outstanding stock options and the conversion into
common stock during the periods outstanding.
A reconciliation of net earnings (loss) and the weighted average number
of common shares outstanding used to calculate basic and diluted
earnings (loss) per common share for the three and nine months ended
October 31, 1998 and 1997 is as follows:
Three Months Ended Nine Months Ended
October 31 October 31
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
Basic earnings (loss) per common
share:
Earnings (loss) before
extraordinary charge $ 6,406 $ 5,182 $ (7,840) $ 13,018
Extraordinary charge 377 785 377 785
-------- -------- -------- --------
Net earnings (loss) $ 6,029 $ 4,397 $ (8,217) $ 12,233
======== ======== ======== ========
Weighted average number of
common shares outstanding 19,428 16,164 17,385 16,189
======== ======== ======== ========
Basic earnings (loss) per common
share:
Earnings (loss) before
extraordinary charge $ 0.33 $ 0.32 $ (0.45) $ 0.81
Extraordinary charge (0.02) (0.05) (0.02) (0.05)
-------- -------- -------- --------
Basic earnings (loss) $ 0.31 $ 0.27 $ (0.47) $ 0.76
======== ======== ======== ========
Diluted earnings (loss) per
common share:
Earnings (loss) before
extraordinary charge $ 6,406 $ 5,182 $ (7,840) $ 13,018
Extraordinary charge 377 785 377 785
-------- -------- -------- --------
Net earnings (loss) $ 6,029 $ 4,397 $ (8,217) $ 12,233
======== ======== ======== ========
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Three Months Ended Nine Months Ended
October 31 October 31
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
Weighted average number of
common shares outstanding 19,428 16,164 17,385 16,189
Shares issuable from assumed
exercise of outstanding stock
options 813 758 N/A(a) 534
-------- -------- -------- --------
Weighted average number of
common and common
equivalent shares 20,241 16,922 17,385 16,723
======== ======== ======== ========
Diluted earnings (loss) per
common share:
Earnings (loss) before
extraordinary charge $ 0.32 $ 0.31 $ (0.45) $ 0.78
Extraordinary charge (0.02) (0.05) (0.02) (0.05)
-------- -------- -------- --------
Diluted earnings (loss) $ 0.30 $ 0.26 $ (0.47) $ 0.73
======== ======== ======== ========
(a) Common equivalent shares are antidilutive for the
nine months ended October 31, 1998.
6. Acquisitions
Effective August 9, 1998, the Company acquired substantially all of the
residential retail store assets of Shaw Industries, Inc. and its wholly
owned subsidiary, Shaw Carpet Showplace, Inc. (collectively, "Shaw"),
pursuant to an Agreement and Plan of Merger dated as of June 23, 1998.
These assets include 266 retail stores with annual revenues of
approximately $584 million and are being operated through the Company's
newly organized Maxim Retail Stores, Inc. subsidiary. The Company
intends to continue operating the residential retail stores acquired
from Shaw as retail floorcovering stores. Under the terms of the Merger
Agreement, the Company issued to Shaw 3,150,000 shares of common stock
of the Company and a one-year note in the principal amount of $18
million (adjusted to $11 million after giving effect to purchase price
adjustments) and paid Shaw $25 million in cash. The acquisition has
been reflected on a purchase basis of accounting. The purchase price
has been allocated to the assets acquired and liabilities assumed based
upon estimates of the fair values at the date of acquisition. The
allocation has been based on preliminary estimates and studies which
may be revised at a later date.
The operating results of the retail stores acquired from Shaw are
included in the Company's consolidated statement of operations from the
date of acquisition. The following unaudited pro forma summary presents
the consolidated results of operations as if the acquisition of the
retail store assets of Shaw (which occurred on August 8, 1998) had
occurred on February 1, 1997. The pro forma expenses include the
recurring costs which are directly attributable to the acquisition,
such as interest expense and amortization of goodwill and their related
tax effects.
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12
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------ ------------------------
1998 1997 1998 1997
-------- ---------- -------- --------
Net revenues $258,712 $ 229,956 $737,081 $656,024
======== ========== ======== ========
Net earnings (loss) $ 6,029 $ 573 $(12,343) $ 8,862
======== ========== ======== ========
Basic earnings (loss) per common share $ .31 $ .05 $ (.63) $ .46
======== ========== ======== ========
Diluted earnings (loss) per common share $ .30 $ .05 $ (.63) $ .45
======== ========== ======== ========
Effective September 25, 1998, the Company acquired CarpetsPlus of
America, LLC, a floorcovering buying group with approximately 200
member stores. The acquisition has been reflected on a purchase basis
of accounting at a price of approximately $9.2 million, consisting of a
cash payment of $2.3 million, and the issuance of $6.9 million in
stock. In addition to the consideration received at closing, the
shareholders of CarpetsPlus of America may receive up to $2.3 million
of shares of common stock of the Company based on the profitability of
the acquired company during the two-year period ending January 31,
2001.
7. Subsequent Event
On November 12, 1998, the Company executed a definitive agreement to
sell substantially all of the assets of its Image Industries, Inc.
subsidiary to a subsidiary of Mohawk Industries, Inc. Under the terms
of the agreement, total consideration is $232 million, which includes
the assumption of approximately $52 million in related debt and
short-term liabilities. The transaction is expected to close on or
about January 22, 1999.
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13
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During the three months ended October 31, 1998, the Company acquired
the retail store assets of Shaw Industries, Inc. ("Shaw"). These assets
include 266 retail floorcovering stores which, effective on August 9,
1998, were owned and operated by the Company. The acquisition of these
assets resulted in a 254.7% increase in the number of Company-owned
stores. As reflected in the following discussion, the acquisition of
these assets materially impacted the Company's financial condition and
results of operations as of and for the three- and nine-month periods
ended October 31, 1998.
Total Revenues. Total revenues increased 163.1% to $258.7 million for
the three months ended October 31, 1998 from $98.3 million for the
three months ended October 31, 1997. Total revenues increased 67.7% to
$464.1 million for the nine months ended October 31, 1998 from $276.8
million reported in the prior year period. The components of total
revenues are discussed below:
Sales of Floorcovering Products. Sales of floorcovering
products increased 190.3% to $235.1 million for the three
months ended October 31, 1998 from $81.0 million for the three
months ended October 31, 1997, and increased 75.7% to $403.1
million for the nine months ended October 31, 1998 from $229.4
million in the prior year period. Sales of floorcovering
products in Company-owned stores increased 414.6% to $186.8
million for the three months ended October 31, 1998 from $36.3
million for the three months ended October 31, 1997, and
increased 154.9% to $263.1 million for the nine months ended
October 31, 1998 from $103.2 million in the prior year period.
The growth in retail sales of floorcovering products was
primarily due to the impact of the acquisition of the retail
store assets of Shaw and, to a lesser extent, to internal
growth. Sales of manufactured carpet increased 6.9% to $43.3
million for the three months ended October 31, 1998 from $40.5
million for the three months ended October 31, 1997, and
increased 8.6% to $125.8 million for the nine-months ended
October 31, 1998 from $115.8 million in the prior year period.
Unit sales of manufactured carpet remained constant at 7.2
million square yards for the three months ended October 31,
1998 and October 31, 1997, and increased 6.0% to 21.2 million
square yards for the nine months ended October 31, 1998 from
20.0 million square yards in the prior year period. Sales from
the Company's two retail distribution centers amounted to $4.6
million for the three months ended October 31, 1998 compared
to $4.2 million for the three months ended October 31, 1997,
and $13.7 million for the nine months ended October 31, 1998
compared to $10.7 million in the prior year period, largely
representing sales to the Company's franchisees.
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14
Fees From Franchise Services. Fees from franchise services,
which include franchise license fees and royalties, brokering
of floorcovering products, and advertising, increased 57.5% to
$13.7 million for the three months ended October 31, 1998 from
$8.7 million for the three months ended October 31, 1997, and
increased 50.2% to $35.0 million for the nine months ended
October 31, 1998 from $23.3 million in the prior year period.
This increase was attributable to increases in brokering
activity generated from new CarpetMAX and GCO franchisees,
growth in demand for franchise services from existing
CarpetMAX and GCO franchisees, greater utilization of
advertising and other services offered to franchisees, and an
expansion of advertising services offered by the Company.
Fiber and PET Sales. Sales of fiber and polyethylene
terephthalate ("PET") increased 15.3% to $8.3 million for the
three months ended October 31, 1998 from $7.2 million for the
three months ended October 31, 1997, and increased 4.1% to
$20.4 million for the nine months ended October 31, 1998 from
$19.7 million in the prior year period. Unit sales increased
1.8% to 17.2 million pounds for the three months ended October
31, 1998 from 16.9 million pounds for the three months ended
October 31, 1997, and decreased 7.7% to 45.7 million pounds
for the nine months ended October 31, 1998 from 49.5 million
pounds in the prior year period. The unit sales decrease was
the result of increased demand from the Company's carpet
operations. The average selling price per pound of fiber and
PET for the nine months ended October 31, 1998 increased by
11% compared to the prior year period.
Gross Profit. Gross profit increased 195.2% to $93.0 million for the
three months ended October 31, 1998 from $31.5 million for the three
months ended October 31, 1997, and increased 77.0% to $155.2 million
for the nine months ended October 31, 1998 from $87.7 million in the
prior year period. As a percentage of revenues, gross profit was 36.0%
for the three months ended October 31, 1998 compared to 32.0% for the
three months ended October 31, 1997 and 33.4% for the nine months ended
October 31, 1998 compared to 31.7% in the prior year period.
Contributing to the increase in gross profit as a percentage of
revenues was the continuing change in the business mix of the Company
to a revenue base consisting principally of the net sales of
floorcovering products, which change was accelerated by the acquisition
of the retail store assets of Shaw in August 1998.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased 265.0% to $79.2 million for the three
months ended October 31, 1998 from $21.7 million for the three months
ended October 31, 1997, and increased 96.7% to $123.5 million for the
nine months ended October 31, 1998 from $62.8 million in the prior year
period. Increases in operating expenses on an absolute basis reflects
an overall growth in the size of the Company's operations required to
serve a growing retail base, including the retail store assets acquired
from Shaw, as well as increased selling costs at Image related to newly
created territories. As a percentage of revenues, selling, general, and
administrative expenses increased to 30.6% for the three months ended
October 31, 1998 from 22.0% for the three months ended October 31, 1997
and increased to 26.6% from 22.7% for the nine months ended October 31,
1998 as compared to the prior year period.
Interest Expense. Interest expense increased 131.3% to $3.7 million for
the three months ended October 31, 1998 from $1.6 million for the three
months ended October 31, 1997, and
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15
increased 107.0% to $8.9 million for the nine months ended October 31,
1998 from $4.3 million in the prior year period, due principally to the
Company having a higher debt balance and a higher interest rate during
the nine months ended October 31, 1998 as compared to the prior year
period. In October 1997, the Company issued $100 million of 9-1/4%
senior subordinated notes. See "Liquidity and Capital Resources."
Nonrecurring Charges. During the three months ended July 31, 1998, the
Company reevaluated its retail strategy. As a result of the assessment,
the Company made the determination that it would amend its franchise
agreement, close certain Company-owned stores, and write down the value
of certain retail assets including goodwill. The Company recorded a $33
million charge for certain nonrecurring items during the period ended
July 31, 1998. On June 1, 1998, the Company amended its franchise
agreement with the majority of its members, whereby the Company
established certain requirements for more uniformity in the appearance
and merchandising of the franchise stores. As part of the amended
franchise agreement, the number of vendors available to franchise
members through the Company, to buy from and earn rebates, has been
reduced. The Company has recorded allowances for receivables due from
vendors replaced in the amended franchise agreement and has also
established a reserve to settle claims from certain parties.
In addition, the Company has written down to fair value certain assets
made obsolete by the amended franchise agreement. The Company also
accrued for the costs of closing 14 Company-owned retail stores. The
Company anticipates all stores will be closed within nine months.
In connection with the reevaluation of the Company's retail strategy
described above, the Company analyzed the performance of its
Company-owned retail regions. This analysis indicated that significant
strategic and operational changes would be necessary in some stores,
including changes in the customer mix, location, store design, and
merchandising. These factors also caused management to assess the
realizability of the goodwill recorded for these regions.
The determination of goodwill impairment was made by comparing the
unamortized goodwill balance for each region to the estimate of the
related region's undiscounted future cash flows. The assumptions used
reflected the earnings, market, and industry conditions, as well as
current operating plans. The assessment indicated a permanent
impairment of goodwill related to certain of the regions, therefore
such goodwill was written down to fair market value which resulted in a
write-off totaling $4.2 million.
Income Tax Expense. The Company recorded income tax expense of $4.0
million for the three months ended October 31, 1998 compared to a $3.5
million expense for the three months ended October 31, 1997, and a $1.3
million tax benefit for the nine months ended October 31, 1998 compared
to $8.4 million expense in the prior year period. The decrease in
income tax expense is due to the Company recording a loss from a
nonrecurring charge for the nine months ended October 31, 1998, as
compared to the prior year period.
Extraordinary Charges. The extraordinary charges recorded in the three
months ended October 31, 1998 and 1997 resulted from the write-off of
unamortized financing fees associated with former revolving credit
facilities. The resultant charges amounted to
-15-
16
$377,000, net of an income tax benefit of $236,000 for the three months
ended October 31, 1998 and amounted to $785,000, net of an income tax
benefit of $523,000, for the three months ended October 31, 1997.
Net Earnings. As a result of the foregoing factors, the Company
recorded net earnings of $6.0 million for the three months ended
October 31, 1998 compared to net earnings of $4.4 million for the three
months ended October 31, 1997, and a net loss of $8.2 million for the
nine months ended October 31, 1998 compared to net earnings of $12.2
million in the prior year period.
Liquidity and Capital Resources
General. The Company's primary capital requirements are for new store
openings, investments in the manufacturing operations, working capital
and acquisitions. The Company historically has met its capital
requirements through a combination of cash flow from operations, net
proceeds from the sale of equity and debt securities, bank lines of
credit, and standard payment terms.
In March 1997, the Board of Directors of the Company authorized a stock
repurchase program pursuant to which the Company has periodically
repurchased shares of its common stock in the open market. As of
December 7, 1998, the Company had repurchased an aggregate of 2,365,900
shares of its common stock in the open market for a total of $34.8
million. These purchases were, and any future purchases will be,
financed from borrowings under the Company's revolving credit facility
and cash balances. As discussed below, the ability of the Company to
repurchase its common shares is limited by certain restrictions
contained in the Indenture relating to the Company's Senior Notes.
See "Senior Notes."
On November 12, 1998, the Company entered into an agreement to sell
substantially all the assets of its Image Industries, Inc. subsidiary
("Image") to Aladdin Manufacturing Corporation ("Aladdin"), a wholly
owned subsidiary of Mohawk Industries, Inc. ("Mohawk"). The transaction
is valued at approximately $232 million, including the assumption by
Aladdin of approximately $52 million of Image liabilities. The Company
expects to apply the cash proceeds from this transaction, which is
expected to close on or about January 22, 1999, to repay debt.
Credit Facility. On November 25, 1998, the Company established credit
facilities providing for aggregate commitments of $141 million (the
"Credit Facility"). The Credit Facility consists of (i) $110 million of
revolving credit, of which $19.3 million was available for borrowings
on December 7, 1998 and (ii) a special-purpose letter of credit in the
amount of up to $31 million for use as credit support for the
Summerville Loan (defined below) to be used to finance the expansion of
Image's fiber extrusion capabilities at its plant in Summerville,
Georgia. As of December 7, 1998, the Company had $84.9 million
outstanding under the revolving portion of the Credit Facility and had
$1.5 million outstanding on the letter of credit. The Company's
obligations under the letter of credit will be assumed by Mohawk in
connection with Aladdin's purchase of Image and the Company will be
released from all obligations thereunder. Amounts outstanding under the
Credit Facility bear interest at a variable rate based on LIBOR or the
prime rate, at the Company's option. The Credit Facility contains
customary covenants. As of December 7, 1998, the Company was in
compliance with all covenants under the Credit Facility.
-16-
17
Summerville Loan. Effective September 1, 1997, the Development
Authority of the city of Summerville, Georgia (the "Authority"), issued
Exempt Facility Revenue Bonds in an aggregate principal amount of $30
million (the "Facility Revenue Bonds"). On September 17, 1997, the
Authority loaned (the "Summerville Loan") the proceeds from the sale of
the Facility Revenue Bonds to Image to finance, in whole or in part,
the expansion of Image's fiber extrusion capabilities at its plant in
Summerville, Georgia. The Facility Revenue Bonds and the interest
thereon are special, limited obligations of the Authority, payable
solely from the revenues and income derived from a loan agreement
between Image and the Authority, which payment thereof and funds which
may be drawn under the special-purpose letter of credit described
above. The Facility Revenue Bonds and the Summerville Loan will mature
on September 1, 2017, and the interest rate of the Facility Revenue
Bonds is to be determined from time to time based on the minimum rate
of interest that would be necessary to sell the Facility Revenue Bonds
in a secondary market at the principal amount thereof. The interest
rate on the Summerville Loan equals the interest rate on the Facility
Revenue Bonds. Image's obligations under the Summerville Loan will be
assumed by Aladdin in connection with Aladdin's purchase of Image and
Image will be released from all obligations thereunder.
Senior Notes. On October 16, 1997, the Company completed the sale of
$100 million of 9-1/4% senior subordinated notes ("Senior Notes") due
2007. Each of the Company's subsidiaries has fully and unconditionally
guaranteed the Senior Notes on a joint and several basis. The guarantor
subsidiaries comprise all of the direct and indirect subsidiaries of
the Company. The Company has not presented separate financial
statements and other disclosures concerning the guarantor subsidiaries
because management has determined that such information is not material
to investors. There are no significant restrictions on the ability of
the guarantor subsidiaries to make distributions to the Company.
The Company is currently in default of the restricted payment covenant
contained in the Indenture (the "Indenture") pursuant to which the
Senior Notes were issued. The default occurred on September 3, 1998
when the Company repurchased shares of its common stock in the open
market pursuant to its ongoing stock repurchase program. At the time of
this stock repurchase, the Company believed that it had sufficient
funds available under the restricted payments provision of the
Indenture to make the repurchase. The Company, however, excluded from
the calculation of its restricted payment availability, nonrecurring
charges totaling $33 million taken in the quarter ended July 31, 1998,
believing such charges to be excluded from consolidated net income of
the Company, as defined in the Indenture, and thus not effecting a
reduction in the Company's restricted payments availability thereunder.
By the time the Company realized that its treatment of this
nonrecurring charge was impermissible under the Indenture, it had
purchased additional shares of common stock in the open market in
violation of the terms of the Indenture.
On November 12, 1998, the Company notified the Trustee under the
Indenture of its default of the restricted payment covenant in the
Indenture. In accordance with the terms of the Indenture, the Trustee
on November 17, 1998 notified the Company that such default shall
become an event of default on December 17, 1998 (30 days after the date
of the Trustee's notice to the Company). If this default is not cured
by the Company prior to December 17, 1998, the Trustee or the holders
of not less than 25% in aggregate principal
-17-
18 amount of Senior Notes outstanding may declare all unpaid
principal of, premium, if any, and accrued and unpaid interest ofon all such
Senior Notes to be due and payable. The Company will seek the consent of the Senior Note holders
for a waiver of these inadvertent violations of the restricted payment
convenant of the Indenture. In order to be effective, holders of a
majority in aggregate principal amount of all outstanding Senior Notes
must consent to the waiver.
Because either the Trustee or the holders of not less than 25% in aggregate
principal amount of Senior Notes outstanding may accelerate payment of the
Senior Notes, beginning on December 17, 1998, the Senior Notes are classified as a current liabilities of the Companyliability on the
accompanying October 31, 1998Maxim's
August 7, 1999 balance sheet. Once the Companysheets. If Maxim receives the requisite consent to the
waiver from the holders of Senior Notes,Noteholders, however, the Senior Notes will again be
classified as long-term debt of Maxim.
In an effort to resolve the Company.
Althoughpending default of the Senior Notes, Maxim has
reached an agreement in principle with an ad hoc committee consisting of
Noteholders who own a majority of the principal amount of the outstanding Senior
Notes. Pursuant to the agreement in principle, Maxim has commenced an offer to
purchase not less than $40.0 million of Senior Notes at a purchase price of
102%, plus accrued and unpaid interest and other fees and charges. Maxim is
required to pay a cash consent fee of $50 per $1,000 principal amount of Senior
Notes to those Noteholders who consent to the default waiver and whose Senior
Notes are not purchased by Maxim.
The following additional terms would apply to Senior Notes which are not
purchased by Maxim:
- The interest rate will increase from 9 1/4% per annum to 12 3/4% per annum
and will increase by 25 basis points on October 15, 2000 and further
increase every six months thereafter (increasing instead by 50 basis
points if the bond rating assigned to the Senior Notes by Standard &
Poor's is less than "B-");
- The Senior Notes will be secured by a second lien on certain assets;
- Maxim will, on an annual basis beginning on February 7, 2001, be required
to consummate an offer to purchase not less than $10.0 million of
outstanding Senior Notes at a purchase price of 102%, plus accrued and
unpaid interest and other fees and charges (increasing to 103% if the bond
rating assigned to the Senior Notes by Standard & Poor's is less than
"B");
- Maxim will be required to consummate an offer to purchase any Senior Notes
which remain outstanding on October 15, 2002 at a price of 106.375%, plus
accrued and unpaid interest and other fees and charges, and
- Maxim will be required to maintain a fixed charge coverage ratio to be
determined.
Consummation of the transactions contemplated by the agreement in principle
is subject to, among other things, negotiation of an amended or replacement
senior credit facility acceptable to Maxim and the Noteholders, receipt of
consents from Noteholders representing at least a majority in aggregate
principal amount of outstanding Senior Notes, and certain other customary
conditions. Maxim expects to complete the transactions contemplated by the
agreement in principle during the fourth quarter of fiscal 2000. There can be no
assurance that such a waiver will ultimately be granted. If a waiver is not
obtained by Maxim, repayment of the Senior Notes may be accelerated, as
discussed above.
SYNTHETIC LEASE FINANCING. Maxim has established a $10.0 million synthetic
lease facility with a lending group with amounts outstanding of approximately
$5.0 million as of November 1, 1999. Under the synthetic lease facility, which
is scheduled to mature no later than November 2003, Maxim has the ability to
direct the lender group to make loans to First Security Bank, National
Association, in its capacity as the co-owner-trustee under the facility. These
loans may be used for acquisition, development or expansion of Maxim's flooring
center locations, which financed locations are then leased back by the
co-owner-trustee to Maxim or a designated subsidiary. Maxim has guaranteed
repayment of the amounts outstanding under the facility. The facility contains
various financial and nonfinancial covenants. As of January 31, 1999, Maxim was
not in compliance with certain of these covenants and Maxim obtained a waiver
from the lenders under the synthetic lease facility. These lenders have waived
such noncompliance and any right to accelerate payment of amounts outstanding
under the facility because of such noncompliance.
16
GOING CONCERN The accompanying condensed consolidated financial statements
of the Company believeshave been presented on a going concern basis which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business.
As of August 7, 1999 and January 31, 1999, the Company was not in compliance
with a certain restricted payment covenant contained in the Indenture which
references the Senior Notes.
During the three month period ended October 31, 1998, the Company's
restricted payments exceeded that it will be ableallowed under the Indenture. As of August 7,
1999 and January 31, 1999, the Company was not in compliance with the terms of
the Indenture and as a result, the trustee or the holders of not less than 25%
of the Senior Notes may declare all unpaid principal plus any accrued interest
of all of the Senior Notes due and payable. Accordingly, the Senior Notes are
classified as a current liability in the accompanying consolidated balance
sheets as of August 7, 1999 and January 31, 1999.
As of November 1, 1999, the Company's available borrowings under its Senior
Credit Facility plus cash on hand were not sufficient to obtain a default
waiver fromrepay the Senior Notes
if declared due and payable.
As described above, the Company is currently negotiating with the holders of
the Senior Notes thereto obtain the requisite consent to waive the default. Any such
consent may include, among other things, the redemption of a portion of the
Senior Notes, the payment of a consent fee by Maxim and a higher interest rate
on the Senior Notes which remain outstanding. There can be no assurance that
such waiver will be granted. If a waiver is not obtained by the
Company,Maxim, repayment of
the Senior Notes may be accelerated, as discussed above.
Any such acceleration, as well asAdditionally, the failureCompany is currently in negotiations with its senior
lenders to amend its Senior Credit Facility to allow for enhanced availability,
an extended maturity date, and improved advance ratios on existing collateral.
CONTINGENCIES. Since the May 18, 1999 announcement that Maxim would be
restating financial results for fiscal 1999 and certain of the Companyquarters therein,
eleven lawsuits claiming to obtain a default waiver frombe class actions have been filed against Maxim and
certain of its current and former executive officers and directors. In addition,
the Senior Note holders by January 31,
1999, will constituteSecurities and Exchange Commission has commenced an eventinformal inquiry in
connection with the matters relating to the restatement.
Management does not believe that it is feasible to predict or determine the
final outcome of default under the Credit Facility.
There can be no assurance that the Company will be able to obtain
alternative sources of financing if repayment of either the Senior
Notesclass action lawsuits or the Credit FacilitySEC inquiry or their effect on
Maxim's financial results, its business or its management. In addition,
management does not believe it is accelerated.
Cash Flows.feasible to estimate the amounts or potential
range of loss with respect thereto. The potential outcomes or resolutions of the
class action lawsuits could include a judgement against Maxim or settlements
that could require substantial payments by Maxim. Potential outcomes of the SEC
inquiry could include administrative or other sanctions being imposed on Maxim
and/or certain of its officers. In addition, the timing of the final resolution
of these matters is uncertain. Material adverse outcomes with respect to the
class action lawsuits or the SEC inquiry could have a material adverse effect on
Maxim's financial condition, results of operations and cash flows.
CASH FLOWS. During the ninesix months ended October 31, 1998,August 7, 1999, operating
activities provided $8.2used $13.7 million of cash compared to $3.5$10.0 million of
cash used in the ninesix months
ended OctoberJuly 31, 1997.1998. The increase in cash provided byused in operating activities resulted
primarily from an increase in trade liabilities.accounts receivable. The increase in trade liabilities,
partially offset by an increase in inventories and accounts
receivable was mainly due to increased product purchases and higher sales of floorcoveringfloor covering products to
franchisees and other carpet retailers.
During the ninesix months ended October 31, 1998,August 7, 1999, investing activities used
cash of $71.4$25.9 million compared to $28.5using $31.2 million for the ninesix months ended OctoberJuly 31,
1997.1998. The increasedecrease in cash used is primarily due to an
increase inthe reduced level of capital
expenditures relatingoffset by increased cash used to manufacturing operations
and the acquisition of thepurchase additional retail
store assets of Shaw.locations.
17
During the ninesix months ended October 31, 1998,August 7, 1999, financing activities provided
cash of $68.5$4.3 million compared to $66.8$37.3 million inprovided for the ninesix months ended
OctoberJuly 31, 1997.1998. This increasedecrease is primarily due to the early extinguishment of
$4.0 million principal amount of the senior subordinated notes and reduced
borrowings under the Company's revolving credit agreement.
Capital Expenditures. The Companyline of credit.
CAPITAL EXPENDITURES. Maxim anticipates that it will require approximately
$10$30.0 million for the remainderfiscal 2000, of fiscalwhich approximately $20.0 million has been
spent through November 1, 1999, to (i) open
approximately two new Gallery stores (assuming approximately 50% of
such stores will be located on Company-owned propertyrebrand its various retail formats under
the singular Flooring America name, including signage and the remainder
on leased property),interior store
changes, (ii) reconfigure eight existing CarpetMAX stores including certain of the stores
acquired from Shaw, and (iii) upgrade its management information systems.
The actual costs
thatSEASONALITY
Historically, Maxim's retail floor covering sales are subject to some
seasonal fluctuation typical to the Company will incurfloor covering industry. Higher sales occur
in opening new Gallery stores cannot be
predicted with precision because the opening costs will vary based upon
geographic location,summer and fall months during Maxim's second and third quarters, and
lower sales occur during the size offourth quarter holiday season. Increases occur in
the store,second quarter as construction schedules increase during the amount of supplier
contributionssummer, and the
extentlargest increase occurs in the third quarter due to a combination of ongoing
construction and pre-Christmas home remodeling.
YEAR 2000
Maxim has conducted an assessment of its computer systems to identify the
buildout required at the selected
site. The Company anticipatessystems that it will require approximately $3
million during the remainder of fiscal 1999 for capital expenditures at
Image, including the expansion of Image's polyester fiber production
capacity.
The Company believes that borrowings under the Credit Facility,
proceeds from the sale of Image, and cash flows from operating
activities will be adequate to meet the Company's working capital
needs, planned capital expenditures, and debt service obligations
through fiscal 2000. As the Company's debt matures, or is accelerated,
as described above, the Company may need to refinance such debt. There
can be no assurance that such debt can be refinanced or, if so, whether
it can be refinanced on terms acceptable to the Company. If the Company
is unable to service its indebtedness, it will be required to adopt
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19
alternative strategies, which may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring, or
refinancing its indebtedness or seeking additional equity capital.
There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all.
Recent Accounting Pronouncements. Effective withaffected by the three months ended
April 30, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS
130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. SFAS 130 did not
have an impact on the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures About Segments of an
Enterprise and Related Information","Year 2000" issue, which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes reporting
standards for public companies concerning operating segments and
related disclosures about products and services, geographic areas and
major customers. SFAS 131 will be adopted with the Company's Annual
Report for the fiscal year ending January 31, 1999.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments
and Hedging Activities", which is effective for fiscal years beginning
after June 15, 1999. Early adoption is encouraged. SFAS 133 establishes
accounting and reporting standards for derivative instruments and
transactions involving hedge accounting. The Company does not
anticipate this statement will have an impact on its financial
statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs
of Start-Up Activities", which is effective for fiscal years beginning
after December 15, 1998. SOP 98-5 requires entities to expense certain
start-up costs and organization costs as they are incurred. The Company
does not anticipate that this statement will have an impact on its
financial statements.
Year 2000. The year 2000 issue is the result ofresults from
computer programs being written using two digits rather than four to define the
applicable year.
AnyMaxim's Year 2000 readiness efforts are being undertaken on a project team
basis with centralized oversight from an external project management firm. Each
project team has developed and is implementing a plan to minimize the risk of a
significant negative impact on its operations. The teams are performing an
inventory of Year 2000 components (software, hardware and other equipment),
assessing which components may expose Maxim to business interruptions,
reprogramming or replacing components as necessary, testing each component, and
returning each component to production. Maxim is utilizing predominantly
internal resources to reprogram, replace, or test Maxim's software for Year 2000
compliance. Maxim believes the readiness effort related to critical systems will
be completed by the end of the Company's computer programs that have time-sensitive
software may recognize a date using "00" asthird fiscal quarter ending November 6, 1999,
which is prior to any anticipated impact on its operating systems. Maxim
believes its other systems will be Year 2000 compliant by December 31, 1999.
Maxim has initiated formal communications with all of its significant
suppliers to determine the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations
causingextent to which Maxim's operations and systems are
vulnerable to third parties' failure. Key vendor initiative documentation has
been received from vendors addressing all Year 2000 compliance issues. No
significant business disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on the assessment of the Company's information technology
systems, managementare expected. Maxim presently believes that
with the planned conversion to new software and hardware and the planned
modifications to existing software and hardware, the effects of the yearYear 2000
issue will be timely resolved. All other equipment, machinery and systems have
been identified, replaced or upgraded as needed.
Maxim's contingency plans at the retail store level include the temporary
use of manual processes, which Maxim occasionally utilizes during system
maintenance. The Company is inmanual processes have been documented and tested with no
significant revenue loss anticipated. A business contingency plan has been
developed utilizing five professional project managers to implement the processplan.
The plan includes a business systems implementation schedule listing all issues
related to the Year 2000. The issues include identification of conducting an
inventorychanges needed,
costs, completion dates and business risk assessment at its noninformation technology
systems. These noninformation technology systems include items suchstaffing.
Maxim currently believes the costs to remediate Year 2000 issues are
approximately $2.8 million, of which approximately $1.5 million remains to be
spent as embedded technology, including microcontrollers used in the Company's
manufacturing processes. The Company will develop remediation plans for
such noninformation technology systems if its business risk assessment
indicates such is warranted.of November 1, 1999. All costs associated with -19-
20
analyzing the yearYear 2000
issue or making conversions to existing systemssoftware are being expensed as
18
incurred.
The Company is planning formal communications with all of its
significant suppliers of goods and services to determine the extent to
which the Company's operations and systems are vulnerable to those
third parties' failure to remediate their own year 2000 issues. There
can be no guarantee that the systems of other companies on which the
Company's operations and systems rely will be timely converted and will
not have an adverse effect on the Company's results of operations. The
Company will utilize predominately internal resources to reprogram, or
replace, and test the Company's software for year 2000 compliance by
June 1999, which is prior to any anticipated impact on its operating
systems. Management has not estimated a total cost of the year 2000
issues; however, such costs are not expected to have a material effect
on the results of operations during any quarterly or annual reporting
period. The costs to the CompanyMaxim of yearYear 2000 compliance and the date on which the CompanyMaxim
believes it will complete the yearYear 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third-partythird party
modification plans and other factors. However, thereThere can be no assurance that these
estimates will be achieved and actual results could differ materially from those
anticipated.
Specific factors that might cause such material
differencesRisks include but are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant hardware, software, computer
codes and similar uncertainties. Forward-Looking Statements.Such risks could result in a system failure of
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. Also, there is the risk that the systems
of other companies upon which Maxim's operations and systems rely will not be
converted timely and will have an adverse effect on Maxim's results of
operations.
19
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. ThoseThese
statements appear in a number of places in this Report and include statements
regarding the intent, belief or current expectations of the Company,Maxim, its directors or
its officers with respect to, among other things:
(i)- trends affecting Maxim's financial condition or results of operations,
- potential acquisitions by Maxim,
- Maxim's business and growth strategies,
- Maxim's ability to successfully integrate acquired businesses,
- the timing, magnitude and costs of the roll-out of the Gallery Stores; (ii) potential acquisitions by the
Company; (iii) the Company'snew flooring centers,
and
- Maxim's financing plans; (iv) trends affecting the
Company's financial condition or results of operations; (v) the
Company's business and growth strategies; and (vi) the declaration and
payment of dividends. Anyplans.
You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements as a result of various factors. Among others, factors that could
adversely affect actual results and performance include:
- local and regional economic conditions in the areas served by Maxim,
- the level of customer spending for floor covering products,
- competition among floor covering retailers and carpet manufacturers,
- changes in merchandise mixes, site selection and related traffic and
demographic patterns,
- availability of financing,
- inventory management and turnover levels,
- realization of cost savings,
- Maxim's success in integrating recent and potential future acquisitions,
and
- the resolution or outcome of the pending litigation and government inquiry
relating to the restatement of previously announced financial results for
fiscal 1999 and for each of the quarters therein.
The accompanying information contained in this Report, including without
limitation the information set forth under the headings "Management's
Discussion and Analysis of Financial Condition and Results of
Operations,"Form 10-Q, as well as in
Maxim's other 1934 Act filings, identifies important additional factors that
could causeadversely affect actual results and performance. See "Item 1.
Business-Risk Factors" in Maxim's Annual Report on Form 10-K for the year ended
January 31, 1999. You are urged to carefully consider such differences.
-20-
21factors.
ITEM 3--QUANTITATIVE3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
-21-INTEREST RATE SENSITIVITY. Maxim has limited exposure to market volatility
in interest rates. As of August 7, 1999, exposure from interest rates was not
material to Maxim's financial position, results of operations, or cash flows, as
$95.4 million of Maxim's $128.9 million of debt has been fixed at a rate of
9 1/4% until 2007. In the event that the 9 1/4% notes are called by the
noteholders or the Company elects to purchase the Senior Notes, the Company will
be subject to interest rate volatility based on the market's forward curve. The
Company also had two interest rate swap agreements for a total notional amount
of less than $2.5 million. These swap agreements were terminated in May 1999.
Based on
20
22Maxim's low overall floating interest rate exposure at August 7, 1999, a
near-term 100 basis point change in interest rates would not materially effect
Maxim's financial statements.
COMMODITY PRICE AND FOREIGN CURRENCY SENSITIVITY. Increases or decreases in
the market price of carpet, hardwood and vinyl flooring may affect the valuation
of Maxim's inventories and purchases and, accordingly, Maxim's earnings. Maxim
does not use futures or options contracts to manage volatility with respect to
this exposure. The potential increase in cost of inventories and purchases based
on commodity activity is generally also reflected as a corresponding increase in
Maxim's prices, and therefore, is not material to Maxim's financial position and
results of operations.
The majority of Maxim's sales and purchases are denominated in U.S. dollars
and it is Maxim's policy to eliminate short-term exchange rate volatility in the
event foreign currency transactions occur. As of August 7, 1999, there was no
exposure to foreign currency exchange rate volatility.
21
PART II--OTHERII. OTHER INFORMATION
ITEM 3--DEFALTS3. DEFAULTS UPON SENIOR SECURITIES.
The CompanySECURITIES
Maxim is currently in default of the restricted payment covenant contained
in the Indenture (the "Indenture")indenture pursuant to which theits 9 1/4% Senior Subordinated Notes due October 15, 2007 (the "Notes") of the Company were
issued. The default occurred on September 3, 1998 when the Company repurchased
sharesSee "Part I. Item 2. Management's Discussion and Analysis of its common stock in the open market pursuant to its ongoing stock
repurchase program. At the timeFinancial
Condition and Results of Operations--Liquidity and Capital Resources--Senior
Subordinated Notes" included elsewhere herein for additional information
concerning this stock repurchase, the Company believed
that it had sufficient funds available under the restricted payments provision
of the Indenture to make the repurchase. The Company, however, excluded from the
calculation of its restricted payment availability nonrecurring charges totaling
$33.0 million taken in the quarter ended July 31, 1998, believing such charges
to be excluded from Consolidated Net Income of the Company, as defined in the
Indenture, and thus not effecting a reduction in the Company's restricted
payments availability thereunder. By the time the Company realized that its
treatment of this nonrecurring charge was impermissible under the Indenture, it
had purchased additional shares of common stock in the open market in violation
of the terms of the Indenture.
On November 12, 1998, the Company notified the Trustee under the
Indenture of its default of the restricted payment covenant in the
Indenture. In accordance with the terms of the Indenture, the Trustee
on November 17, 1998 notified the Company that such default shall
become an Event of Default on December 17, 1998 (30 days after the date
of the Trustee's notice to the Company). If this default is not cured
by the Company prior to December 17, 1998, the Trustee or the holders
of not less than 25% in aggregate principal amount of Notes outstanding
may declare all unpaid principal of, premium, if any, and accrued
interest on all Notes to be due and payable. The Company will seek the
consent of the Note holders for a waiver of these inadvertent
violations of the restricted payment covenant of the Indenture. In
order to be effective, holders of a majority in aggregate principal
amount of all outstanding Notes must consent to the waiver.default.
ITEM 6--EXHIBITS6. EXHIBITS AND REPORTSREPOTS ON FORM 8-K
(A) Exhibits
10.23 Credit Agreement among the Company, the Domestic Subsidiaries
of the Company, as Guarantors, the Lenders identified therein,
NationsBank, N.A., as Administrative Agent, SunTrust Bank,
Atlanta, as Documentation Agent, and Fleet National Bank, as
Co-Agent, dated as of November 25, 1998, in the aggregate
principal amount of $126 million.
10.24 364-Day Credit Agreement among Maxim Retail Stores, Inc., as
Borrower, the Domestic Subsidiaries of the Borrower, as
Guarantors, the Lenders identified therein and NationsBank,
N.A., as Agent, dated as of November 25,1998, in the
aggregate principal amount of $15 million.
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23
11 Statements Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
27.2 Restated Financial Data Schedule (for(For SEC use only)
(B) Reports on Form 8-K
The following report on Form 8-K was filed during the quarterthree months ended
October 31, 1998: Current ReportAugust 7, 1999: current report on Form 8-K dated August 9, 1998
(reporting that the Company had acquired substantially all the
residential retail store assets of Shaw Industries, Inc. and its wholly
owned subsidiary, Shaw Carpet Showplace, Inc., pursuant to an Agreement
and Plan of Merger dated June 23, 1998).
-23-February 1, 1999, regarding
change in fiscal year.
22
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MAXIM GROUP, INC.
Dated: December 7, 1998 By: /s/ A. J. Nassar
----------------------------------------
A. J. Nassar, President and Chief
Executive Officer
Dated: December 7, 1998 By: /s/ Gary Brugliera
----------------------------------------
Gary Brugliera, Chief Financial Officer
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THE MAXIM GROUP, INC.
By: /s/ A. J. NASSAR
-----------------------------------------
A. J. Nassar,
President and Chief Executive Officer
Dated: November 12, 1999
By: /s/ STEPHEN P. COBURN
-----------------------------------------
Stephen P. Coburn,
Principal Accounting Officer
Dated: November 12, 1999