1<ins> Prepared by MERRILL CORPORATION www.edgaradvantage.com </ins> SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549FORM
10-Q/A QUARTERLY REPORT PURSUANT TO SECTION10-QQuarterly Report Pursuant to Section 13
ORor 15(d)OF THE SECURITIES EXCHANGE ACT OFof the Securities
Exchange Act of 1934FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998 COMMISSION FILE NUMBER
For the Quarterly Period Ended November 6, 1999Commission File No. 1-13099
THE MAXIM GROUP, INC.
- -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter)
A Delaware58-2060334 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S.Corporation
(IRS Employer Identification No.) incorporation or organization)58-2060334)
210 TownPark Drive
Kennesaw, Georgia 30144- ---------------------------------------- --------------------- (Address
(678) 355-4000Securities Registered Pursuant to Section 12(b)
ofprincipal executive offices) (Zip Code) Registrant's telephone number, including area code (678) 355-4000 --------------------- N/A - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report)the Securities Exchange Act of 1934:
Common Stock, $.001 par value
91/4% Senior Subordinated Notes Due 2007New York Stock Exchange, Inc.
New York Stock Exchange, Inc.(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 valueIndicate 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/ NoX --------- ---------/ /Indicate the number of shares outstanding of
each ofthe registrant's classes of commonstock,Stock, as of the latest practicable date:
Common Stock, $.001 par value
Class19,038,347 - ----------------------------------- ---------------------------------Class
Outstanding atOctober 1,December 17, 1999Explanatory Note: During the course of the fiscal 1999 year-end financial audit process, The Maxim Group, Inc. ("Maxim" or the "Company") recorded certain adjustments to its previously reported interim results. The most significant of the adjustments affecting the quarterly period ended April 30, 1998 related to certain vendor support funds and the gain on the sale of equipment recognized in the Company's operating results during the quarter. It was determined that certain revenue related to vendor support funds was incorrectly recorded and that the gain on the sale of certain equipment should be recognized in the quarter ended July 31, 1998. As a result of the adjustments recorded by the Company, the Company has revised its reported results of operations downward for the quarter ended April 30, 1998. This Form 10-Q/A reflects the effects of these adjustments. The following Items are amended hereby: PART I -- FINANCIAL INFORMATION:
Part 1 Financial Information
Item 1. Financial Statements.Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.2 PART I--FINANCIAL INFORMATION ITEM 1--FINANCIAL STATEMENTSTHE MAXIM GROUP, INC.
AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Information)(In thousands, except share data)
April 30, 1998 (As RestatedNovember 6,
1999January 31, Assets See Note 2) 1998 - -------------------------------------------------------------------- ------------ -----------
1999(Unaudited) Current assets:ASSETS Cash and cash equivalents including restricted cash of $17,960 at April 30, 1998 and $22,786 at January 31, 1998$ 21,24864,899 $ 28,88089,901 Current portion of franchise license fees receivable net of allowance for doubtful accounts of $430 at April 30, 1998 and $528 at January 31, 1998 2,365 3,107 Trade accounts receivable, net of allowance for doubtful accounts of $2,341 at April 30, 1998 and $1,917 at January 31, 1998 61,896 56,432 Accounts receivable from officers and employees 1,651 1,5932,548 2,013 Current portion of notes receivable from franchisees and related parties, net of allowance for doubtful accounts of $252 at April 30, 1998 and $261 at January 31, 1998 1,276 1,1652,444 3,405 Receivables 63,479 52,607 Inventories 58,958 54,69362,831 58,744 Refundable income taxes 1,986 2,5584,766 — Deferred income taxes 4,731 5,7147,361 7,361 Prepaid expenses 5,903 3,406 -------- --------8,148 6,316 Total current assets 160,014 157,548216,476 220,347 Property, plant and equipment, net of accumulated depreciation and amortization of $51,291 at April 30, 1998 and $48,039 at January 31, 1998 148,127 137,20782,829 71,766 Franchise license fees receivable, less current portion net of allowance for doubtful accounts of $210 at April 30, 1998 and January 31, 1998 3,808 2,7184,373 2,337 Notes receivable from franchisees, less current portion 3,753 3,5066,825 8,228 Deferred income taxes 1,465 1,065 Intangible assets net of accumulated amortization of $1,764 at April 30, 1998 and $1,626 at January 31, 1998 13,520 13,64083,103 71,341 Other assets 8,888 6,875 -------- -------- $338,110 $321,494 ======== ======== Liabilities And Stockholders' Equity - -------------------------------------------------------------------- Current liabilities:15,180 13,684 Total assets $ 410,251 $ 388,768
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 15442,227 $ 38416,952 Senior subordinated notes 95,462 99,387 Current portion of capital lease obligations 512 5015,245 6,635 Accounts payable 37,101 26,706 Rebates payable to franchisees 2,921 3,975 Accounts payable 22,056 23,376 Accrued expenses 13,609 14,3336,905 749 Deposits 17,688 14,769 Deferred revenue 3,072 1,750 Deposits 3,686 2,897 --------- ---------4,170 2,254 Income taxes payable — 2,633 Other accrued liabilities 43,369 55,827 Total current liabilities 46,010 47,216252,167 225,912 Long-term debt, less current portion 146,693 129,3496,410 4 Capital lease obligations, less current portion 1,289 1,429 Deferred taxes 9,437 9,725 --------- --------- Total1,092 1,469 Other long-term liabilities 203,429 187,719 --------- --------- Commitments and contingencies— 516 Stockholders' equity: Preferred stock, $.001 par value; 1,000 shares authorized, no shares issued or outstanding -- --Common stock, $.001 par value; 25,000 shares authorized, 17,526 shares issued at April 30, 1998stock-shares issued: 21,404,247 and17,352 shares issued at21,315,664 as of November 6, 1999 and January 31,1998 18 171999, respectively21 21 Additional paid-in capital 120,611 119,264186,553 185,828 Retained earnings 30,706 29,388(deficit)(778 ) 9,836 Unrealized holding loss on investments (396 ) — Treasury stock, 1,319 sharesstock-shares atApril 30, 1998cost: 2,365,900 as of November 6, 1999 and1,221 shares atJanuary 31,1998 (16,654) (14,894) --------- ---------1999(34,818 ) (34,818 ) Total stockholders' equity 134,681 133,775 --------- ---------150,582 160,867 Total liabilities and stockholders' equity $ 338,110410,251 $ 321,494 ========= =========388,768 SeeThe accompanying notes
toare an integral part of these condensed consolidated financial statements.-2-3
THE MAXIM GROUP, INC.
AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Information)(In thousands, except per share data)
(Unaudited)
Three Months Ended ------------------------- April 30,Nine Months Ended November 6,
1999October 31,
1998(As Restated April 30, See Note 2) 1997 ------------ ---------November 6,
1999October 31,
1998Revenues: Sales of floor covering products $ 80,661187,278 $ 71,490235,116 $ 559,047 $ 401,934 Fees from franchise services 10,485 4,558 32,223 13,807 Fiber and PET sales 6,965 5,772 Fees from franchise services 6,857 7,281— 8,257 — 20,431 Other 2,149 1,682 -------- --------1,080 1,641 2,659 5,613 Total revenues 96,632 86,225198,843 249,572 593,929 441,785 Cost of sales 69,564 59,155 -------- --------120,358 163,599 365,515 305,984 Gross profit 27,068 27,07078,485 85,973 228,414 135,801 Selling, general and administrative expenses 22,390 20,43883,201 77,352 233,856 123,147 Nonrecurring charges — — — 28,531 Operating (loss) income (4,716 ) 8,621 (5,442 ) (15,877 ) Other income (expense): Interest income (386) (94)468 345 2,437 763 Interest expense 2,459 1,401(3,179 ) (4,296 ) (9,140 ) (9,681 ) Other, 52 (35) -------- -------- Earningsnet304 — 653 904 (Loss) income before income taxes 2,553 5,360 Incomeand extraordinary charge(7,123 ) 4,670 (11,492 ) (23,891 ) Benefit (provision) for income taxes — (2,039 ) 1,152 6,240 (Loss) income before extraordinary charge (7,123 ) 2,631 (10,340 ) (17,651 ) Extraordinary charge on early retirement of debt, net of tax expense 1,235 2,109 -------- --------benefit— (377 ) (274 ) (377 ) Net (loss) income (7,123 ) 2,254 (10,614 ) (18,028 )
Unrealized holding loss on investments
(396
)
—
(396
)
—
Comprehensive (loss) income $ (7,519 ) $ 2,254 $ (11,010 ) $ (18,028 ) Basic (loss) earnings $ 1,318 $ 3,251 ======== ======== Earningspercommon share:share before extraordinary charge$ (0.37 ) $ 0.14 $ (0.54 ) $ (1.02 ) Extraordinary charge per share — (0.02 ) (0.01 ) (0.02 ) Basic (loss) earnings per share $ 0.08(0.37 ) $ 0.20 ======== ========0.12 $ (0.55 ) $ (1.04 ) Diluted (loss) earnings per share before extraordinary charge $ 0.08(0.37 ) $ 0.20 ======== ========0.13 $ (0.54 ) $ (1.02 ) Extraordinary charge per share — (0.02 ) (0.01 ) (0.02 ) Diluted (loss) earnings per share $ (0.37 ) $ 0.11 $ (0.55 ) $ (1.04 )
Weighted averagenumber ofcommon shares
19,234
19,428
19,234
17,385
Weighted average common shares outstanding: Basic 16,424 16,110 ======== ======== Diluted 17,247 16,630 ======== ========and equivalents19,234 20,241 19,234 17,385 SeeThe accompanying notes
toare an integral part of these condensed consolidated financial statements.-3-4
THE MAXIM GROUP, INC.
AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)(In thousands)
(Unaudited)
ThreeNine Months Ended -------------------------- April 30,November 6,
1999October 31,
1998(As Restated April 30, See Note 2) 1997 ------------ ---------Cash flows from operating activities:CASH FLOWS FROM OPERATING ACTIVITIES: Net earningsloss$ 1,318(10,614 ) $ 3,251 --------- ---------(18,028 ) Adjustments to reconcile net earningsloss to net cashused(used in) provided by operating activities:Nonrecurring charges — 7,540 Depreciation and amortization 9,739 13,154 Deferred income taxes (445 ) (6,611 ) Changes in operating activities: Depreciation and amortization 3,372 2,729 Deferred income taxes 695 1,401 Changes inassets andliabilities: Increase in receivables (6,229) (7,125) Increase in inventories (4,264) (1,853) Decrease in refundableliabilities, net of effects of acquisitions:Receivables (6,652 ) (12,800 ) Inventories (1,426 ) (20,023 ) Refundable income taxes 572 49 Increase in prepaid(4,766 ) 693 Prepaid expenses and other assets (4,510) (1,292) Decrease in rebates(4,878 ) (13,180 ) Accounts payable and accounts payable, accrued expenses, deferred revenue, and deposits (987) (470) --------- --------- Total adjustments (11,351) (6,561) --------- ---------other liabilities4,045 57,689 Net cash (used in) provided by operating activities (14,997 ) 8,434 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (14,952 ) (46,382 ) Acquisitions, net of cash acquired (14,582 ) (25,354 ) Net cash used in operatinginvesting activities(10,033) (3,310) --------- --------- Cash flows from investing activities: Capital expenditures (14,172) (3,878) --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock, net -- 47,248(29,534 ) (71,736 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options net 1,348 463325 3,960 Purchase of treasury stock (1,760) (8,944) Borrowings under revolving credit agreement 17,114 -- Repayment of revolving credit agreement -- (33,428)— (19,924 ) Long-term debt proceeds 25,254 128,482 Long-term debt payments (4,283 ) (43,461 ) Principal payments on capital lease obligations (129) (190) --------- ---------(1,767 ) (376 ) Net cash provided by financing activities 16,573 5,149 --------- ---------19,529 68,681 Net decrease(decrease) increase in cash(7,632) (2,039)and cash equivalents(25,002 ) 5,379 Cash and cash equivalents at beginning of period 89,901 28,880 6,439 --------- ---------Cash and cash equivalents at end of period $ 21,24864,899 $ 4,400 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 4,711 $ 1,332 ========= ========= Income taxes $ 54 $ 1,122 ========= =========34,259 SeeThe accompanying notes
toare an integral part of these condensed consolidated financial statements.-4-5
THE MAXIM GROUP, INC.
AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Information) (Unaudited)Note 1. Description 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. The interim results for the three and nine month periods ended November 6, 1999 are not necessarily indicative of the results to be expected for the fiscal year ending February 5, 2000. These statements should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Company's1998Annual Report on Form 10-K for the fiscal year ended January 31, 1999, as filed with the Securities and Exchange Commission.Comprehensive loss/income, as defined by Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" is presented in the Condensed Consolidated Statements of Operations.
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 November 6, 1999 and January 31, 1999, the Company was not in compliance with a certain restricted payment covenant contained in the Indenture pursuant to which the Company's $100,000,000 91/4% senior subordinated notes (the "Senior Notes") were issued.
During the three month period ended October 31, 1998, the Company's restricted payments exceeded that allowed under the Indenture. As of November 6, 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 aggregate outstanding principal amount 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 condensed consolidated balance sheets as of November 6, 1999 and January 31, 1999.
As of December 17, 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 or replace 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 nine months ended November 6, 1999, the Company acquired 15 retail locations for aggregate consideration of approximately $20,700,000. The related purchase agreements provide for additional consideration to be paid based on the future financial performance of certain of the acquired locations.
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"). 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 condensed consolidated statements of operations from the date of acquisition. The following unaudited pro forma summary presents the consolidated results of operations
for the periods presented are not necessarily indicativeof theoperating results forCompany as if thefull year. 2. Restatementacquisition 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 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.
Three Months Ended Nine Months Ended November 6, 1999 October 31, 1998 November 6, 1999 October 31, 1998 (In thousands) Net revenue $ 198,843 $ 195,148 $ 593,929 $ 563,790 Net loss (7,123 ) (211 ) (10,614 ) (26,937 ) Basic loss per share $ (0.37 ) $ (0.01 ) $ (0.55 ) $ (1.38 ) Diluted loss per share (0.37 ) (0.01 ) (0.55 ) (1.38 ) Note 4. Inventories.
Inventories consist of the following:
November 6,
1999January 31,
1999(In thousands) Raw materials $ 309 $ 309 Finished goods 62,522 58,435 Total $ 62,831 $ 58,744 On a segment basis, the Company's inventories consist of the following:
November 6,
1999January 31,
1999(In thousands) Retail $ 62,522 $ 56,927 Image 309 1,817 Total $ 62,831 $ 58,744 Note 5. Nonrecurring Charges.
During the
course of the fiscal 1999 year-end financial audit process, the Company recorded certain adjustments to its previously reported interim results. The most significant of the adjustments affecting the quarterlythree month periodended April 30, 1998 related to certain vendor support funds and the gain on the sale of equipment recognized in the Company's operating results during the quarter. It was determined that certain revenue related to vendor support funds was incorrectly recorded and that the gain on the sale of certain equipment should be recognized in the quarterended July 31,1998.1998, the Company reevaluated its business strategy and determined to expand its focus on its retail operations. As a result of theadjustmentsrevised 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 to be closed. As of November 6, 1999, $21,633,000 nonrecurring charges were incurred, with $2,080,000 remaining in the reserve, which is included in accrued liabilities on the accompanying condensed consolidated balance sheet.The major components of the nonrecurring charge balance are as follows:
January 31,
1999Amount
IncurredNovember 6,
1999(In thousands) Claim reserves $ 3,195 $ (1,115 ) $ 2,080 Store closure and carrying costs 2,822 (2,822 ) — $ 6,017 $ (3,937 ) $ 2,080 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.
In an effort to resolve the default under its 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 $40,000,000 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.
Under the terms of the pending offer to purchase and consent solicitation, the following additional terms would apply to Senior Notes which are not purchased by Maxim:
The interest rate would increase from 91/4% per annum to 123/4% per annum and would 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 would be secured by a second lien on certain assets;
Maxim would, on an annual basis beginning on February 7, 2001, be required to consummate an offer to purchase not less than $10,000,000 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 would 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 would 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 offer to purchase and consent solicitation 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 could be accelerated by the trustee or the holders of not less than 25% of the aggregate outstanding principal 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 $75,000,000 (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
revisedestablished a cash collateral account with the lenders. As of December 17, 1999 the cash collateral account balance was approximately $42,600,000. As of December 17, 1999, the Company had approximately $1,200,000 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 itsreportedSenior Credit Facility lenders have entered into a forebearance agreement with respect to such events of default, which forebearance currently extends to January 31, 2000. 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.
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.
Note 8. Contingencies.
Since the May 18, 1999 announcement that Maxim would be restating financial results for fiscal 1999 and certain of the quarters therein, eleven lawsuits claiming to be class actions have been filed against Maxim and certain of its current and former executive officers and directors. In addition, the Securities and Exchange Commission ("SEC") has commenced an informal 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 the class action lawsuits or the SEC inquiry or their effect on Maxim's financial results, its business or its management. In addition, management does not believe it is 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
downwardand cash flows.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.
Manufacturing Retail Franchise
ServicesIntersegment
EliminationsTotal (In thousands) Three Months Ended November 6, 1999: Revenues $ — $ 185,388 $ 19,539 $ (6,084 ) $ 198,843 Operating (loss) income — (1,296 ) (3,420 ) — (4,716 ) Interest expense — 142 3,037 — 3,179 Income tax (provision) benefit — — — — — Net (loss) income — (1,153 ) (5,970 ) — (7,123 ) Total assets 530 239,853 169,868 — 410,251 Three Months Ended October 31, 1998: Revenues $ 54,424 $ 190,625 $ 15,217 $ (10,694 ) $ 249,572 Operating income (loss) 4,994 2,995 (76 ) 708 8,621 Interest expense 1,543 999 4,134 (2,380 ) 4,296 Income tax (provision) benefit (1,117 ) (569 ) (353 ) — (2,039 ) Extraordinary charge — — 377 — 377 Net (loss) income 2,465 703 (914 ) — 2,254 Nine Months Ended November 6, 1999: Revenues $ — $ 551,122 $ 61,440 $ (18,633 ) $ 593,929 Operating income (loss) — (7,856 ) 2,414 — (5,442 ) Interest expense — 1,602 9,027 (1,489 ) 9,140 Income tax benefit — 54 1,098 — 1,152 Extraordinary charge — — 274 — 274 Net (loss) income — (8,796 ) (1,818 ) — (10,614 ) Nine Months Ended October 31, 1998: Revenues $ 152,148 $ 273,888 $ 37,740 $ (21,991 ) $ 441,785 Nonrecurring charges — — 28,531 — 28,531 Operating income (loss) 13,376 4,139 (31,880 ) (1,512 ) (15,877 ) Interest expense 4,380 2,772 9,152 (6,623 ) 9,681 Income tax (provision) benefit (3,256 ) 150 9,346 — 6,240 Extraordinary charge — — 377 — 377 Net (loss) income 6,039 (732 ) (23,335 ) — (18,028 )
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 $10.0 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 or selling 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 speciality retailers of flooring products. 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 nine months ended November 6, 1999, Maxim operated two reportable segments: retail and franchise services. During the three and nine months ended October 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 Condensed 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 third quarter of the fiscal year ending February 5, 2000 consists of the 13-week period ended November 6, 1999. Financial results for the
quarterthree and nine month endedApril 30, 1998. This Form 10-Q/A reflectsOctober 31, 1998 have not been restated to reflect the effects ofthese adjustments.
Three Months Ended April 30, 1998 --------------------------------- As Previously Reported Restated ---------- -----------Sales of floor covering products $81,136 $80,661 Fees from franchise services 9,287 6,857 Total revenues 99,537 96,632 Cost of sales 69,775 69,564 Gross profit 29,762 27,068 Selling, general, and administrative expenses 22,202 22,390 Interest expense 2,364 2,459 Other (income) expense (187) 52 Earnings before income tax expense 5,769 2,553 Income tax expense 2,225 1,235 Net earnings 3,544 1,318 Earnings per common share: Basic $ 0.22 $ 0.08 Diluted $ 0.21 $ 0.08
April 30, 1998 -------------------------- As Previously Reported Restated ---------- ----------Trade accounts receivable, net $ 64,326 $ 61,896 Property and equipment, net 148,913 148,127 Deferred taxes, long-term liability 10,427 9,437 Retained earnings 32,932 30,706the change in fiscal year. Results of Operations
Three Months Ended November 6,
3. Inventories Inventories consisted1999 Compared to Three Months Ended October 31, 1998Total Revenues. Total revenues decreased 20.3% to $198.8 million for the three months ended November 6, 1999 from $249.6 million for the three months ended October 31, 1998. The components of total revenues, exclusive of the
following:
April 30, January 31, 1998 1998 --------- -----------Raw materials $16,338 $14,809 Work in process 4,139 3,363 Finished goods 38,481 36,521 ------- ------- $58,958 $54,693 ======= =======4.effect of intercompany eliminations, are discussed below. Intersegment eliminations, which totaled $6.1 million for the three months ended November 6, 1999 and $10.7 million for the three months ended October 31, 1998, include certain intercompany allocations.
Retail Revenue. Retail revenue consists of sales of floor covering products by Maxim's retail stores. Retail revenues decreased 2.7% to $185.4 million for the three months ended November 6, 1999 from $190.6 million for the three months ended October 31, 1998. The decrease in retail sales of floor covering products was primarily due to less demand in the commercial and builder sectors in certain markets.
Franchise Services Revenue. Franchise services revenue is generated from three primary sources: (i) one-time franchise fees from new franchisees; (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 28.4% to $19.5 million for the three months ended November 6, 1999 from $15.2 million for the three months ended October 31, 1998. The increase in franchise services revenue is due to, among other things, increases in rebates from floor covering vendors and growth in the demand for franchise services.
Manufacturing Revenue. Manufacturing revenue of $54.4 million for the three months ended October 31, 1998 included the sale of manufactured carpet and polyethylene tereptalate ("PET"), fiber and flake. With the sale of substantially all the assets of Image in January 1999, Maxim no longer engages in manufacturing operations.
Gross Profit. Gross profit decreased 8.7% to $78.5 million for the three months ended November 6, 1999 from $86.0 million for the three months ended October 31, 1998. As a percentage of total revenue, gross profit was 39.5% for the three months ended November 6, 1999 compared to 34.4% for the three months ended October 31, 1998 as a result of the sale of the manufacturing segment in January 1999. The manufacturing segment experienced a lower gross margin percentage than Maxim's retail and franchise services segments.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 7.6% to $83.2 million for the three months ended November 6, 1999 from $77.4 million for the three months ended October 31, 1998. As a percentage of total revenue, selling, general and administrative expenses increased to 41.8% for the three months ended November 6, 1999 from 31.0% for the three months ended October 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, increased advertising cost and certain one-time professional fees. 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. 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 one-time charges for professional and legal fees of approximately $3.7 million, along with increases in consulting fees of $1.2 million for costs associated with Year 2000 remediation. The one-time charges for professional and legal fees are related to the restatement of fiscal 1999 financial results.
Operating Income/Loss. Operating income/loss decreased to a loss of $4.7 million for the three months ended November 6, 1999 from income of $8.6 million for the three months ended October 31, 1998. The components of operating income/loss, exclusive of the effect of intersegment eliminations, are discussed below. Intersegment eliminations totaled $708,000 for the three months ended October 31, 1998.
Retail Operating Income/Loss. Retail operating income/loss decreased to a loss of $1.3 million for the three months ended November 6, 1999 from income of $3.0 million for the three months ended October 31, 1998. This decrease was primarily due to a decrease in revenue, as well as, higher selling, general and administrative expense related to advertising.
Franchise Services Operating Income/Loss. Franchise services operating loss increased to $3.7 million for the three months ended November 6, 1999 from a loss of $76,000 for the three months ended October 31, 1998. This increased loss was due to higher selling, general and administrative expenses, including professional and legal fees, incurred during the three months ended November 6, 1999.
Manufacturing Operating Income/Loss. Manufacturing operating income was $5.0 million for the three months ended October 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 decreased 26.0% to $3.2 million for the three months ended November 6, 1999 from $4.3 million for the three months ended October 31, 1998, due principally to a reduction in debt levels. See "Liquidity and Capital Resources."
Income Tax Benefit. Maxim recorded no income taxes for the three months ended November 6, 1999 compared to a $2.0 million benefit for the three months ended October 31, 1998. An income tax benefit was not recorded for the three months ended November 6, 1999 due to fully utilizing the carry back potential of the deferred tax assets on Maxim's condensed consolidated balance sheet in prior quarters. Maxim has also not reflected a benefit for the potential loss carry forward for future periods.
Nine Months Ended November 6, 1999 Compared to Nine Months Ended October 31, 1998
Total Revenues. Total revenues increased 34.4% to $593.9 million for the nine months ended November 6, 1999, from $441.8 million for the nine months ended October 31, 1998. The components of total revenues, exclusive of the effect of intercompany eliminations, are discussed below. Intersegment eliminations, which totaled $18.6 million for the nine months ended November 6, 1999 and $22.0 million for the nine months ended October 31, 1998, include certain intercompany allocations.
Retail Revenue. Retail revenues increased 101.2% to $551.0 million for the nine months ended November 6, 1999 from $273.9 million for the nine months ended October 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.
Franchise Services Revenue. Franchise services revenue increased 62.8% to $61.4 million for the nine months ended November 6, 1999 from $37.7 million for the nine months ended October 31, 1998. The increase in franchise services revenue is due to, among other things, increases in rebates from floor covering vendors, advertizing, distribution and growth in the demand for franchise services.
Manufacturing Revenue. Manufacturing revenue for the nine months ended October 31, 1998 was $152.1 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 68.2% to $228.4 million for the nine months ended November 6, 1999 from $135.8 million for the nine months ended October 31, 1998. As a percentage of total revenue, gross profit was 38.5% for the nine months ended November 6, 1999 compared to 30.7% for the nine months ended October 31, 1998 as a result of the sale in January 1999 of the manufacturing segment which had lower gross margins.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 89.9% to $233.9 million for the nine months ended November 6, 1999 from $123.1 million for the nine months ended October 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 39.4% for the nine months ended November 6, 1999 from 27.9% for the nine months ended October 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 and increased consulting and professional fees. 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 and certain one-time professional fees also contributed to the increase in total selling, general and administrative expenses.
Operating Income/Loss. Operating loss decreased to $5.4 million for the nine months ended November 6, 1999 from a loss of $15.9 million for the nine months ended October 31, 1998. The components of operating income/loss, exclusive of the effect of intersegment eliminations, are discussed below. Intersegment eliminations totaled $1.5 million for the nine months ended October 31, 1998.
Retail Operating Income/Loss. Retail operating income/loss decreased to a loss of $7.9 million for the nine months ended November 6, 1999 from income of $4.1 million for the nine months ended October 31, 1998. This decrease was primarily due to the impact of the acquisition of the retail store assets of Shaw, as well as a decrease in revenue of these retail stores for the three months ended November 6, 1999. 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 $2.0 million for the nine months ended November 6, 1999 from a loss of $31.9 million for the nine months ended October 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 $13.4 million for the nine months ended October 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 decreased 5.6% to $9.1 million for the nine months ended November 6, 1999 from $9.7 million for the nine months ended October 31, 1998 due to lower debt levels during fiscal 1999. See "Liquidity and Capital Resources."
Income Tax Benefit. Maxim recorded an income tax benefit of $1.2 million for the nine months ended November 6, 1999 compared to a $6.2 million benefit for the nine months ended October 31, 1998. The decrease in income tax benefit is due to Maxim recording less of a loss for the nine months ended November 6, 1999.
Extraordinary Charge. The extraordinary charge recorded in the nine months ended November 6, 1999 resulted from the repurchase of $4.0 million principal amount Senior Notes and the write-off of unamortized financing fees and discounts. The total charge amounted to $295,000, which was tax effected by $21,000 for the nine months ended November 6, 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 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 December 17, 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 Notes."
Credit Facility. On May 18, 1999, Maxim 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 its obligations under the Senior Credit Facility, Maxim established a cash collateral account with the lenders. As of December 17, 1999, the cash collateral account balance was $42.6 million. As of December 17, 1999, the Company had $1.2 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 January 31, 2000. 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
NotesNotes. On October 16, 1997,the Company completed the saleMaxim issued $100 million of$100,000 of 9-1/4%91/4% Senior Subordinated Notes("Notes")due 2007to institutional buyers in a private offering under Rule 144A promulgated under the Securities Act of 1933.(the "Senior Notes"). Thenetproceeds tothe CompanyMaxim from the offering of the Senior Notes wereapproximately $96,000,$96.0 million net of an initial issue discount,andfees 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 creditagreementsfacility of approximately$82,700$82.7 million and for general corporate purposes, including capital expenditures.-5-7Each 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 ofthe 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 Maxim.Maxim is currently in default of the
Company. 5. Subsequent Events Subsequent to April 30, 1998, the Company has amended its senior credit facility, consummated significant acquisitions and dispositions, defaulted a certainrestricted payment covenant contained in theindentureIndenture (the "Indenture") pursuant to whichreferencestheCompany's $100 millionSeniorSubordinatedNotesdue October 2007 and other debt instruments including its senior credit facility and certain leases, and has been named as a party to legal and regulatory proceedings. Accordingly, the financial statements in this Quarterly Reportwere issued. The default occurred onForm 10-Q/A should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1999 as filed with the Securities and Exchange Commission. -6-8 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Total Revenues. Total revenues increased 12.1% to $96.6 million for the three months ended April 30,September 3, 1998from $86.2 million for the three months ended April 30, 1997. The components of total revenues are discussed below: Sales of Floor Covering Products. Sales of floor covering products increased 12.8% to $80.7 million for the three months ended April 30, 1998 from $71.5 million for the three months ended April 30, 1997. Sales of floor covering products in Company-owned stores increased 18.4% to $36.1 million for the three months ended April 30, 1998 from $30.5 million for the three months ended April 30, 1997. The growth in retail sales of floor covering products was primarily due to internal growth. Sales of manufactured carpet increased 6.1% to $40.2 million for the three months ended April 30, 1998 from $37.9 million for the three months ended April 30, 1997. Unit sales of manufactured carpet were constant at 6.9 million square yards for the three months ended April 30, 1998 and April 30, 1997. Sales from the Company's two distribution centers amounted to $4.4 million for the three months ended April 30, 1998 and $3.1 million for the three months ended April 30, 1997, largely representing sales to the Company's franchisees. Fees From Franchise Services. Fees from franchise services, which include franchise license fees and royalties, brokering of floor covering products, and advertising, decreased 5.8% to $6.9 million for the three months ended April 30, 1998 from $7.3 million for the three months ended April 30, 1997. Fiber and PET Sales. Sales of fiber and polyethylene terephthalate ("PET") increased 20.7% to $7 million for the three months ended April 30, 1998 from $5.8 million for the three months ended April 30, 1997. Unit sales increased 5.8% to 16.3 million pounds for the three months ended April 30, 1998 from 15.4 million pounds for the three months ended April 30, 1997. The increase in dollar and unit sales was the result of continued demand for PET fiber and flake products. The Company has continued to expand the customer base for such products. Gross Profit. Gross profit remained the same at $27.1 million for the three months ended April 30, 1998 and $27.1 million for the three months ended April 30, 1997. As a percentage of revenues, gross profit was 28.0% for the three months ended April 30, 1998 compared to 31.4% for the three months ended April 30, 1997. The decrease in gross profit -7-9 as a percentage of revenues is primarily a result of the recognition of higher raw material costs associated with manufacturing operations. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses increased 9.6% to $22.4 million for the three months ended April 30, 1998 from $20.4 million for the three months ended April 30, 1997. Increases in operating expenses on an absolute basis reflect an overall growth in the size of the Company's operations required to serve the growing retail base as well as increased selling costs at Image related to newly created territories. As a percentage of revenues, selling, general, and administrative expenses decreased to 23.2% for the three months ended April 30, 1998 from 23.7% for the three months ended April 30, 1997. Interest Expense. Interest expense increased 75.5% to $2.5 million for the three months ended April 30, 1998 from $1.4 million for the three months ended April 30, 1997 due principally to the Company having a larger debt balance and a higher interest rate during the three months ended April 30, 1998 as compared to the prior year period. In October 1997, the Company sold $100 million of 9-1/4% senior subordinated notes. Income Tax Expense. The Company recorded income tax expense of $1.2 million for the three months ended April 30, 1998 compared to $2.1 million for the three months ended April 30, 1997. The effective tax rate for the three months ended April 30, 1998 was 48.4%. Net Earnings. As a result of the foregoing factors, the Company recorded net earnings of $1.3 million for the three months ended April 30, 1998 compared to net earnings of $3.3 million for the three months ended April 30, 1997. 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 flows from operations, net proceeds from the sale of equity and debt securities, bank lines of credit, and standard payment terms from suppliers. In March 1997, the Board of Directors of the Company authorized management to repurchase up to 1 million shares of common stock of the Company. In October 1997, the Board of Directors of the Company authorized management to repurchase up to an additional 1 million shares of the common stock of the Company. As of June 8, 1998, the Company hadwhen Maxim repurchased1,359,000shares of its common stock in the open market pursuant to its ongoing stock repurchase program.On November 12, 1998, Maxim 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 Maxim that such default would become an event of default on December 17, 1998 (30 days after the date of the Trustee's notice to Maxim) if not cured or waived prior to that date. To date, Maxim has not been able to obtain the consent of the Noteholders for a
totalwaiver of$17.3 million. These purchases were, and any future purchases will be, financed from borrowings underthis covenant violation. Accordingly, theCompany's revolving credit facility. Credit Facility. On August 26, 1997 and as amended on September 24, 1997, the Company established a credit facility providing for aggregate commitments of $110 million (the "Credit Facility"). The Credit Facility consists of (i) a $50 million revolving credit facility, of which $22 million was available for borrowings on June 8, 1998 and which matures in August 2000, (ii) a $29 million term loan which has been repaid, and (iii) a special-purpose letter of credit in the amount of up to $31 million for use as credit support for the -8-10 Summerville Loan to be used to finance the expansion of Image's fiber extrusion capabilities at its plant in Summerville, Georgia, that matures in September 2017. As of June 8, 1998, the Company had $28 million outstanding under the revolving credit facility and no borrowings outstanding under the term loan. No amounts have been drawn on the letter of credit. Amounts outstanding under the Credit Facility bear interest at a variable rate based on LIBORTrustee or theprime rate, at the Company's option. The Credit Facility contains customary covenants. Asholders ofthe date hereof, the Company wasnot less than 25% incompliance with, or obtained waivers of all violations of, all covenants under the Credit Facility. Summerville Loan. Effective September 1, 1997, the Development Authority of the City of Summerville, Georgia (the "Authority"), issued Exempt Facility Revenue Bonds in anaggregate principal amount of$30 million (the "Facility Revenue Bonds"). On September 17, 1997,Senior Notes outstanding may declare all unpaid principal of, premium, if any, and accrued and unpaid interest on all such Senior Notes to be due and payable.Because either the
Authority loaned (the "Summerville Loan")Trustee or theproceedsholders of not less than 25% in aggregate principal amount of Senior Notes outstanding may accelerate payment of the Senior Notes, the Senior Notes are classified as a current liability on Maxim's November 6, 1999 balance sheets. If Maxim receives the requisite consent to the waiver from thesaleSenior Noteholders, however, the Senior Notes will again be classified as long-term debt of Maxim.In an effort to resolve the
Facility Revenue Bonds to Image to finance,default under its Senior Notes, Maxim has reached an agreement inwhole or in part, the expansionprinciple with an ad hoc committee consisting ofImage's fiber extrusion capabilities at its plant in Summerville, Georgia. The Facility Revenue Bonds and the interest thereon are special, limited obligationsNoteholders who own a majority ofthe Authority, payable solely from the revenues and income derived from a loan agreement between Image and the Authority, which revenues and income have been pledged and assigned by Image to secure 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 atthe principal amountthereof.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.Under the terms of the pending offer to purchase and consent solicitation, the following additional terms would apply to Senior Notes which are not purchased by Maxim:
The interest rate would increase from 91/4% per annum to 123/4% per annum and would increase by 25 basis points on October 15, 2000 and further increase every six months thereafter (increasing instead by 50 basis points if the
Summerville Loan equals the interest rate on the Facility Revenue Bonds. 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 operating subsidiaries has fully and unconditionally guaranteedbond rating assigned to the Senior Notes by Standard & Poor's is less than "B-");The Senior Notes would be secured by a second lien on certain assets;
Maxim would, 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
jointpurchase price of 102%, plus accrued andseveral basis. The guarantor subsidiaries comprise allunpaid 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 would 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 would be required to maintain a fixed charge coverage ratio to be determined.
Consummation of the
directtransactions contemplated by the agreement in principle is subject to, among other things, negotiation of an amended or replacement senior credit facility acceptable to Maxim andindirect subsidiariesthe 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 offer to purchase and consent solicitation 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 theCompany. The Company hasSenior Notes could be accelerated by the trustee or the holders of notpresented 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 abilityless than 25% of theguarantor subsidiaries to make distributions toaggregate outstanding principal amount of theCompany.Senior Notes.Synthetic Lease Financing.
On April 9, 1998, the Company and its subsidiariesMaxim has established a$13$10.0 millionshort-term end-loadedsynthetic lease facility(the "Bridge Facility"), also referred towith a lending group with amounts outstanding of approximately $5.0 million asaof December 17, 1999. Under the synthetic leasefacility. Under the Bridge Facility, the Companyfacility, which is scheduled to mature no later than November 2003, Maxim has the ability to directits lendersthe lender group to make loans to First Security Bank, National Association, in its capacity as theowner-trustee, principallyco-owner-trustee under the facility. These loans may be used for acquisition, development or expansion ofCarpetMAX storeMaxim's flooring center locations, which financed locations are then leased back by theowner trusteeco-owner-trustee tothe CompanyMaxim or a designated subsidiary.-9-11 Cash Flows.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.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 November 6, 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 allowed under the Indenture. As of November 6, 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 condensed consolidated balance sheets as of November 6, 1999 and January 31, 1999.
As of December 17, 1999, the Company's available borrowings under its Senior Credit Facility plus cash on hand were not sufficient to repay the Senior Notes if declared due and payable.
As described above, 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 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 or replace 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 quarters therein, eleven lawsuits claiming to be class actions have been filed against Maxim and certain of its current and former executive officers and directors. In addition, the Securities and Exchange Commission ("SEC") has commenced an informal 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 the class action lawsuits or the SEC inquiry or their effect on Maxim's financial results, its business or its management. In addition, management does not believe it is 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 nine months ended
April 30, 1998,November 6, 1999, operating activities used$10.0$15.0 million compared to$3.3providing $8.4 million for thethreenine months endedApril 30, 1997.October 31, 1998. The increase in cash used in operating activities resulted primarily from an increase inreceivables and inventories.accounts receivable. The increase inreceivables and inventoriesaccounts receivable was mainly due to higher sales of floor covering products to franchisees and other carpet retailers.During the
threenine months endedApril 30, 1998,November 6, 1999, investing activities used$14.2$29.5 million compared to$3.9using $71.7 million for thethree monthsnine endedApril 30, 1997.October 6, 1998. Theincrease is primarily due to an increasedecrease incapital expenditures related to manufacturing operations and the purchase of real estate for the expansion of retail stores. During the three months ended April 30, 1998, financing activities providedcashof $16.6 million compared to $5.1 million in the prior year period. This increaseused is primarily due to theproceeds received from borrowings underreduced level of capital expenditures and reduced level of acquisitions.During the
Company's revolving credit agreement.nine months ended November 6, 1999, financing activities provided $19.5 million compared to $68.7 million provided for the nine months ended October 31, 1998. This decrease is primarily due to a reduction in long-term debt proceeds.Capital Expenditures.
The CompanyMaxim anticipates that it will require approximately$15$20.0 million forthe remaindercapital expenditures during fiscal 2000, offiscalwhich approximately $15.0 million has been spent through November 6, 1999, to (i)open approximately 32 new Gallery stores (assuming approximately 50%rebrand certain ofsuch stores will be located on Company-owned propertyits various retail formats under the Flooring America name, including signage andthe remainder on leased property),interior store changes, (ii) reconfigurethreeexistingCarpetMAXstores 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, which Maxim believes is typical to the
Company will incurfloor covering industry. Higher sales occur inopening new Gallery stores cannot be predicted with precision becausetheopening costs will vary based upon geographic location,summer and fall months during Maxim's second and third quarters, and lower sales occur during thesize offourth quarter holiday season. Increases occur in thestore,second quarter due to historically greater home construction activity during theamount of supplier contributions,summer, and theextent of the buildout required at the selected site. The Company anticipates that it will require approximately $24 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 the net proceeds from the Notes Offering, borrowings under the Credit Facility, the Summerville Loan, and cash flows from the operating activities will be adequate to meet the Company's working capital needs, planned capital expenditures, and debt service obligations through fiscal 1999. As the Company's debt matures, 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 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 with 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", 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 March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires capitalization of certain costs of internal-use software. Maxim adopted this statementlargest increase occurs in thefirstthird quarter due to a combination offiscalongoing home construction and pre-Christmas home remodeling projects.Year 2000
and has determined that it will have no material impact on the financial statements. 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, 2000. 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. Subsequent Events. Subsequent to April 30, 1998, the Company has amended its senior credit facility, consummated significant acquisitions and dispositions, defaulted a certain restricted payment covenant contained in the indenture which references the Company's $100 million Senior Subordinated Notes due October 2007 and other debt instruments including its senior credit facility and certain leases, and has been named as a party to legal and regulatory proceedings. Accordingly, this Quarterly Report on Form 10-Q/A should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1999 as filed with the Securities and Exchange Commission. -10-12 Year 2000.Maxim has conducted an assessment of its computer systems to identify the systems that could be affected by the "Year 2000" issue, which results from computer programs being written using two digits rather than four to define the applicable year.
Maxim's Year 2000 readiness efforts
are beinghave been 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 teamsare performingperformed 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. Maximis utilizingutilized predominantly internal resources to reprogram, replace, or test Maxim's software for Year 2000 compliance. Maxim believes the readiness effort related to critical systemswill be completed bywas substantially complete at the end of the third 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
hasinitiated formal communications with all of its significant suppliers to determine the extent to which Maxim's operations and systems are vulnerable to third parties' failure. KeyVendor Initiativevendor initiative documentation has been received from vendors addressing all Year 2000 compliance issues. No significant business disruptions are 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 Year 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 manual 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 plan. The plan includes a business systems implementation schedule listing all issues related to the Year 2000. The issues include identification of changes needed, costs, completion dates and staffing.
Maxim currently believes the costs to remediate Year 2000 issues are approximately $2.8 million, of which
$189,000 had been expensed as of January 31, 1999, andapproximately$1.6 million$350,000 remains to be spent as ofOctober 1,December 17, 1999. All costs associated with analyzing the Year 2000 issue or making conversions to existing software are being expensed as incurred. The costs to Maxim of Year 2000 compliance and the date on which Maxim believes it will complete the Year 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 party modification plans and other factors.A Business Contingency Plan has been developed utilizing five professional project managers to implement the plan. A Business Systems Implementation schedule lists all issues related to the Year 2000. The issues include identification of changes needed, costs, completion datesThere can be no assurance that these estimates will be achieved andstaffing. The plan is in the final stages of completion and will result in minimal Year 2000 effect on the Company's operations.actual results could differ materially from those anticipated.Risks include 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. 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.
Forward-Looking
Statements.StatementsThis 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 ofthe 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, andMaxim'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 consumer 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 Form 10-Q, as well as in Maxim's other 1934 Act filings, identifies important additional factors that could adversely affect actual results and performance. See "Item 1. Business-Risk Factors" in Maxim's Annual Report
including without limitationon Form 10-K for theinformation set forth underyear ended January 31, 1999. You are urged to carefully consider such factors.Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity. Maxim has limited exposure to market volatility for interest rates. As of November 6, 1999, exposure from interest rates was not material to Maxim's financial position, results of operations, or cash flows, as $95.5 million of Maxim's $144.1 million of debt has been fixed at a rate of 91/4% until 2007. In the
headings "Management'sevent that the 91/4% 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 currently has no interest rate agreements. Based on Maxim's low overall floating interest rate exposure at November 6, 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 November 6, 1999, there was no exposure to foreign currency exchange rate volatility.
Part II. Other Information
Item 3. Defaults upon Senior Securities
Maxim is currently in default of the restricted payment covenant contained in the indenture pursuant to which its 91/4% Senior Subordinated Notes were issued. See "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
" identifies important factors that could cause such differences. -11-13 ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK N/A -12-14 PART II--OTHER INFORMATION ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K (A)—Liquidity and Capital Resources—Senior Subordinated Notes" included elsewhere herein for additional information concerning this default.Item 6. Exhibits
11 Statements Regarding Computation of Per Share Earnings 27.1 Financial Data Schedule for three month period ended April 30, 1998 (for SEC use only) 27.2 Restated Financial Data Schedule for three month period ended April 30, 1997 (for SEC use only)* _____________ * Previously filed (B)and Reports on Form 8-K
- (A)
- Exhibits
- 27.1
- Financial Data Schedule (For SEC use only)
- (B)
- Reports on Form 8-K
No reports on Form 8-K were filed during the
quarterthree months endedApril 30, 1998. -13-15November 6, 1999.
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: October 18, 1999 By: /s/ A. J. Nassar --------------------------------------------------- A. J. Nassar, President and Chief Executive Officer Dated: October 18, 1999 By: /s/ Stephen P. Coburn --------------------------------------------------- Stephen P. Coburn, Principal Accounting Officer -14-
THE MAXIM GROUP , INC.
Dated: December 21, 1999
By:
/s/ A. J. NASSAR
A. J. Nassar,
President and Chief Executive Officer
Dated: December 21, 1999
By:
/s/ LEONARD H. THILL
Leonard H. Thill,
Chief Financial Officer