<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1997
Commission File Number 1-13099
THE MAXIM GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-2060334
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
210 Town Park Drive, Kennesaw, Georgia 30144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 590-9369
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N/A
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(Former name, former address, and former fiscal year, if changed since last
report)
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 last 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Common Stock, $.001 par value 16,627,781
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Class Outstanding at December 8, 1997
<PAGE> 2
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
Assets 1997 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 41,226 $ 6,439
Current portion of franchise license fees receivable, net of allowance for
for doubtful accounts of $315 at October 31, 1997 and $328 at
January 31, 1997 2,701 2,070
Trade accounts receivable, net of allowance for doubtful accounts of
$1,848 at October 31, 1997 and $1,380 at January 31, 1997 56,890 43,487
Accounts receivable from officers and employees 1,348 1,195
Current portion of notes receivable from franchisees and related
parties, net of allowance for doubtful accounts of $337 at
October 31, 1997 and $351 at January 31, 1997 1,086 1,034
Inventories 48,050 42,148
Refundable income taxes 526 1,311
Deferred income taxes 3,470 3,859
Prepaid expenses 4,117 2,526
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Total current assets 159,414 104,069
Property and equipment, net 119,876 101,403
Franchise license fees receivable, less current portion, net of allowance
for doubtful accounts of $240 at October 31, 1997 and $210 at
January 31, 1997 1,217 1,349
Notes receivable from franchisees, less current portion 5,562 477
Intangible assets, net of accumulated amortization of $1,553 at
October 31, 1997 and $1,232 at January 31, 1997 14,215 10,204
Other assets 3,564 2,171
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$ 303,848 $ 219,673
=========== ============
</TABLE>
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)
<TABLE>
<CAPTION>
October 31, January 31,
Liabilities And Stockholders' Equity 1997 1997
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<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 675 $ 2,532
Current portion of capital lease obligations 482 537
Rebates payable to franchisees 3,231 3,471
Accounts payable 22,524 23,583
Accrued expenses 14,693 12,232
Deferred revenue 2,126 967
Deposits 3,142 2,460
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Total current liabilities 46,873 45,782
Long-term debt, less current portion (Notes 5 and 7) 126,156 91,100
Capital lease obligations, less current portion 1,586 2,120
Deferred taxes 3,649 4,517
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Total liabilities 178,264 143,519
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Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $.001 par value; 1,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $.001 par value; 25,000 shares authorized,
16,614 shares issued and outstanding at October 31, 1997
and 12,800 shares outstanding at January 31,
1997 17 13
Additional paid-in capital 113,360 62,124
Treasury stock, at cost; 1,162 shares (14,043) --
Retained earnings 26,250 14,017
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Total stockholders' equity 125,584 76,154
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$ 303,848 $ 219,673
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 4
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
October 31, October 31,
1996 1997
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<S> <C> <C>
Revenues:
Sales of floorcovering products $ 81,017 $ 68,108
Fiber and PET sales 7,213 6,829
Fees from franchise services 8,695 6,622
Other 1,403 580
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Total revenues 98,328 82,139
Cost of sales 66,852 58,303
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Gross profit 31,476 23,836
Selling, general, and administrative expenses (21,655) (17,845)
Interest income 212 141
Interest expense (1,589) (1,827)
Acquisition costs--Image pooling -- (4,700)
Other 208 167
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8,652 (228)
Earnings (loss) before income taxes and extraordinary
charge
Income tax expense 3,470 884
Extraordinary charge--early retirement of debt, net of income tax
benefit 785 --
------------- -----------
Net earnings (loss) $ 4,397 $ (1,112)
============= ===========
Per common and common equivalent share:
Earnings (loss) before extraordinary charge $ .31 $ (0.08)
Extraordinary charge (.05) --
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Net earnings (loss) $ .26 $ (0.08)
============= ===========
Weighted average number of common and common equivalent shares
outstanding 16,922 13,426
============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 5
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
October 31, October 31,
1997 1996
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<S> <C> <C>
Revenues:
Sales of floorcovering products $ 229,388 $ 185,735
Fiber and PET sales 19,726 24,504
Fees from franchise services 23,268 19,684
Other 4,414 1,539
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Total revenues 276,796 231,462
Cost of sales 189,078 166,934
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Gross profit 87,718 64,528
Selling, general, and administrative expenses (62,818) (54,103)
Interest income 437 452
Interest expense (4,252) (5,040)
Acquisition costs--Image pooling -- (4,700)
Other 292 425
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Earnings before income taxes and extraordinary charge 21,377 1,562
Income tax expense 8,359 1 ,514
Extraordinary charge--early retirement of debt, net of income tax benefit 785 --
----------- -----------
Net earnings $ 12,233 $ 48
=========== ===========
Per common and common equivalent share:
Earnings before extraordinary charge $ .78 $ 0.00
Extraordinary charge (.05) --
----------- -----------
Net earnings $ .73 $ 0.00
=========== ===========
Weighted average number of common and common equivalent shares
outstanding 16,723 13,791
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 6
THE MAXIM GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Per Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
October 31, October 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,233 $ 48
----------- -----------
Adjustments to reconcile net earnings to net cash (used in) provided by
operating activities:
Depreciation and amortization 8,722 7,974
Deferred income taxes (479) 195
Changes in assets and liabilities:
Increase in receivables (18,934) (10,683)
(Increase) decrease in inventories (2,975) 10,737
Decrease in refundable income taxes 784 422
Increase in prepaid expenses and other assets (5,766) (2,223)
Increase in rebates and accounts payable, accrued expenses, deferred
revenue, and deposits 2,903 6,756
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Total adjustments (15,745) 13,178
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Net cash (used in) provided by operating activities (3,512) 13,226
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Cash flows from investing activities:
Capital expenditures (26,769) (11,461)
Acquisitions, net of cash acquired (1,738) (946)
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Net cash used in investing activities (28,507) (12,407)
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Cash flows from financing activities:
Proceeds from issuance of common stock, net 47,240 --
Proceeds from exercise of options, net 1,000 922
Purchase of treasury stock (14,043) (336)
Net proceeds from issuance (repayments) of debt 33,199 (86)
Principal payments on capital lease obligations (590) (380)
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Net cash provided by financing activities 66,806 120
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Net increase in cash 34,787 939
Cash, beginning of period 6,439 4,207
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Cash, end of period $ 41,226 $ 5,146
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 4,283 $ 5,094
=========== ===========
Income taxes $ 3,312 $ 219
=========== ===========
Supplemental disclosure of noncash investing and financing activities:
Common stock issued in connection with acquisitions $ 3,000 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE> 7
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. 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) 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 1997 Form
10-K as filed with the Securities and Exchange Commission.
The condensed consolidated financial statements give retroactive effect to
the merger of the Company and Image Industries, Inc. ("Image") on August
30, 1996, which was accounted for as a pooling of interests.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," effective for fiscal years and interim periods
ending after December 15, 1997. The Company has not evaluated the impact
of this pronouncement on its results of operations.
2. Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
October 31, January 31,
1997 1997
----------- -----------
<S> <C> <C>
Raw materials $ 11,214 $ 9,097
Work in process 4,621 3,271
Finished goods 32,215 29,780
----------- -----------
$ 48,050 $ 42,148
=========== ===========
</TABLE>
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<PAGE> 8
3. Related-Party Transactions
Certain of the directors own franchises which utilize the services of the
Company. Trade accounts receivable at October 31, 1997 and January 31,
1997 include amounts due from these affiliated companies of $9 thousand
and $21 thousand, respectively. In addition, rebates payable to
franchisees at October 31, 1997 and January 31, 1997 include amounts due
to director-owned franchisees of $99 thousand and $81 thousand,
respectively.
Included in fees from brokering floorcovering products for the three-month
periods ended October 31, 1997 and 1996 is $68 thousand and $69 thousand,
respectively, and $227 thousand and $96 thousand for the nine-month
periods ended October 31, 1997 and 1996, respectively, earned from
services provided to these affiliated franchisees. Included in advertising
revenue for the three-month periods ended October 31, 1997 and 1996 is $8
thousand and $0, respectively, and $107 thousand and $75 thousand for the
nine-month periods ended October 31, 1997 and 1996, respectively, earned
from services purchased by affiliated franchisees. Sales to affiliated
franchisees of floorcovering products for the three-month periods ended
October 31, 1997 and 1996 was $0 and $98 thousand, respectively, and $200
thousand and $123 thousand for the nine-month periods ended October 31,
1997 and 1996, respectively.
In August 1995, the Company loaned $821 thousand to Kevodrew Realty, Inc.
("Kevodrew"), a company controlled by A. J. Nassar, the president and
chief executive officer of the Company, which loan bears interest at an
annual rate of prime. These funds were loaned to Kevodrew to provide
interim financing for the purchase by Kevodrew of a retail shopping center
in Louisville, Kentucky. This loan was repaid on May 22, 1996. A primary
tenant in the shopping center is a company-owned store, which has entered
into a five-year lease agreement with Kevodrew providing for annual lease
payments of $89 thousand.
As of October 31, 1997, Mr. Nassar had a note payable to the Company for
$1 million, accruing interest at 8%. The note will be repaid in five
annual installments of $200 thousand per year (plus accrued interest)
commencing March 1, 1998.
4. Acquisitions
Effective May 1, 1997, the Company acquired Tri-R of Orlando, Inc. (d.b.a.
The Flooring Center), which is engaged in the sale and installation of
floorcoverings and related items in Orlando, Florida. The acquisition has
been reflected on a purchase basis of accounting at a price of
approximately $4 million, consisting of a cash payment of $968 thousand,
and the issuance of up to $3 million in stock. In addition to the
consideration received at closing, the shareholders of The Flooring Center
may receive cash or additional shares of common stock of the Company based
upon the profitability of the acquired company during the three-year
period ending July 31, 2000. The purchase price has been allocated to the
assets acquired and liabilities assumed based on estimates of fair values
at the date of acquisition, resulting in goodwill of approximately $3.8
million which will be amortized over a 20-year period. The allocation has
been based on preliminary estimates and studies which may be revised at a
later date.
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<PAGE> 9
5. Credit Facility
On August 26, 1997, as amended on September 24, 1997, the Company closed
on a $130 million Credit Facility to replace the outstanding facility. The
new credit facility consists of (i) a $50 million revolving facility that
matures three years from the closing of the credit facility, (ii) a $29
million term facility that matures five years from the closing of the
credit facility, and (iii) a $31 million letter of credit to back the
issuance of a bond to finance the expansion of the Company's fiber
extrusion capabilities. There were no borrowings outstanding under the
Credit Facility as of October 31, 1997.
6. Extraordinary Charge
The extraordinary charge recorded for the three months ended October 31,
1997 resulted from the write-off of unamortized financing fees associated
with the former revolving credit facility, which was replaced with a new
credit facility on August 26, 1997. The resultant one-time charge amounted
to $.8 million, net of an income tax benefit of $.5 million.
7. Issuance of Senior Subordinated Notes
On October 16, 1997, the Company completed the sale of $100 million of 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 net proceeds to the Company from the offering of the Notes
were approximately $96 million, net of an issue discount and fees and
related costs. The Company used the net proceeds from the offering of the
Notes to repay all borrowings outstanding under its revolving credit
agreements of approximately $82.7 million and for general corporate
purposes, including capital expenditures. Pending application of the $13.3
million of net proceeds to be used for general corporate purposes, the
Company has invested such proceeds in an interest-bearing account.
Each of the Company's subsidiaries have fully and unconditionally
guaranteed the 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.
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<PAGE> 10
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total Revenues. Total revenues increased 19.7% to $98.3 million for the three
months ended October 31, 1997 from $82.1 million for the three months ended
October 31, 1996. Total revenues increased 19.6% to $276.8 million for the nine
months ended October 31, 1997 from $231.5 million reported in the prior year
period. The components of total revenues are discussed below:
Sales of Floorcovering Products. Sales of floorcovering products
increased 19.0% to $81.0 million for the three months ended October 31,
1997 from $68.1 million for the three months ended October 31, 1996 and
increased 23.9% to $229.4 for the nine-months ended October 31, 1997
from $185.7 million in the prior year period. Sales of floorcovering
products in company-owned stores increased 22.6% to $36.3 million for
the three months ended October 31, 1997 from $29.6 million for the
three months ended October 31, 1996 and increased 22.5% to
$103.2 million for the nine-months ended October 31, 1997 from
$84.3 million in the prior year period. The growth in retail sales of
floorcovering products was primarily due to the impact of the
acquisitions of floorcovering retailers and, to a lesser extent, to
increased same-store sales. The results of these acquired retailers are
not fully reflected in the prior year periods, as such acquisitions
were made at various times during the year. Sales of manufactured
carpet increased 8.7% to $40.5 million for the three months ended
October 31, 1997 from $37.2 million for the three months ended
October 31, 1996 and increased 17.1% to $115.8 million for the
nine-months ended October 31, 1997 from $98.8 million in the prior year
period. Unit sales of manufactured carpet increased 15.6% to
7.2 million square yards for the three months ended October 31, 1997
from 6.2 million square yards for the three months ended October 31,
1996 and increased 22.0% to 20.0 million square yards for the
nine-months ended October 31, 1997 from 16.4 million square yards in
the prior year period. Sales from the Company's two distribution
centers amounted to $4.2 million for the three months ended October 31,
1997 compared to $2.7 million for the three months ended October 31,
1996, and $10.7 million for the nine-months ended October 31, 1997
compared to $8.8 million in the prior year period, 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
floorcovering products, and advertising, increased 31.3% to
$8.7 million for the three months ended October 31, 1997 from
$6.6 million for the three months ended October 31, 1996 and increased
18.2% to $23.3 for the nine-months ended October 31, 1997 from
$19.7 million in the prior year period. This increase was attributable
to increases in brokering activity generated from new
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<PAGE> 11
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 5.9% to $7.2 million for the three months ended
October 31, 1997 from $6.8 million for the three months ended
October 31, 1996 and decreased 19.6% to $19.7 million for the nine
months ended October 31, 1997 from $24.5 million in the prior year
period. Unit sales increased 27.4% to 16.9 million pounds for the three
months ended October 31, 1997 from 13.2 million pounds for the three
months ended October 31, 1996 and increased 11.7% to 49.5 million
pounds for the nine months ended October 31, 1997 from 44.3 million
pounds in the prior year period. The unit sales increase was the net
result of an increase in PET sales, partially offset by a decline in
fiber sales, as additional pounds of fiber were allocated to carpet
manufacturing. The average selling price per pound of fiber and PET
over the nine months ended October 31, 1997 declined by 25.0% compared
to the prior year period, resulting in lower revenue despite higher
shipments during the period.
Gross Profit. Gross profit increased 32.1% to $31.5 million for the three months
ended October 31, 1997 from $23.8 million for the three months ended October 31,
1996 and increased 35.9% to $87.7 million for the nine month period from
$64.5 million in the prior year period. As a percentage of total revenue, gross
profit was 32.0% for the three months ended October 31, 1997 compared to 29.0%
for the three months ended October 31, 1996 and 31.7% for the nine-months ended
October 31, 1997 compared to 27.9% in the prior year period. Contributing to the
increase in gross profit as a percentage of total revenue was the continuing
change in the retail business mix of the Company to a revenue base consisting
principally of the net sales of floor covering products and a significantly
lower cost of raw materials at Image.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased 21.4% to $21.7 million for the three months
ended October 31, 1997 from $17.8 million for the three months ended October 31,
1996 and increased 16.1% to $62.8 million for the nine months ended October 31,
1997 from $54.1 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 the growing retail base as well as
increased selling costs at Image related to the addition of 12 new sales people
to service newly created territories. As a percentage of total revenue, selling,
general, and administrative expenses increased to 22.0% for the three months
ended October 31, 1997 from 21.7% for the three months ended October 31, 1996
and decreased to 22.7% from 23.4% for the nine-months ended October 31, 1997
from the prior year period as a result of spreading fixed costs over a larger
revenue base.
Interest Expense, Net. Net interest expense decreased 18.4% to $1.4 million for
the three months ended October 31, 1997 from $1.7 million for the three months
ended October 31, 1996 and decreased 16.7% to $3.8 million for the nine-months
ended October 31, 1997 from $4.6 million in the prior year period due
principally to a reduction in debt of approximately $48.0 million with the net
proceeds from a public offering in February 1997.
Income Tax Expense. The Company recorded income tax expense of $3.5 million for
the three months ended October 31, 1997 compared to $.9 million for the three
months ended October 31,
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<PAGE> 12
1996 and $8.4 million for the nine-months ended October 31, 1997 compared to
$1.5 million in the prior year period. The increase in income tax expense is due
to higher net income for the three and nine month periods ended October 31,
1997, as compared to the prior year periods. The effective tax rate for the nine
months ended October 31, 1997 was 39.1%.
Extraordinary Charge. The extraordinary charge recorded in the three months
ended October 31, 1997 resulted from the write-off of unamortized financing fees
associated with the former revolving credit facility which was replaced with a
new credit facility on August 26, 1997. The resultant one time charge amounted
to $.8 million, net of an income tax benefit of $.5 million.
Net Earnings. As a result of the foregoing factors, the Company recorded net
earnings of $4.4 million for the three months ended October 31, 1997 compared to
a net loss of $1.1 million for the three months ended October 31, 1996 and net
earnings of $12.2 million for the nine-months ended October 31, 1997 compared to
$48 thousand 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 the Company's common
stock, 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 and in October
1997 the Board authorized an increase to 2 million shares. As of December 8,
1997, the Company had repurchased 1,221,000 shares of its common stock in the
open market for a total of $14.9 million. These purchases were financed from
borrowings under the Company's revolving credit facility and the proceeds from
the senior subordinated notes offering.
Credit Facilities. On August 26, 1997, the Company established a credit facility
(the "Credit Facility") providing for aggregate commitments of $130.0 million.
The Credit Facility consists of (i) a $70.0 million revolving credit facility of
which $70.0 million was available for borrowings on December 8, 1997, and which
matures in August 2000, (ii) a $29.0 million term loan that matures in December
2002, and (iii) a $31.0 million special purpose letter of credit for use as a
credit support for the Summerville Loan (as defined below) to be used to finance
the expansion of Image's fiber extrusion capabilities at its plant in
Summerville, Georgia, that matures in September 2017. In October 1997, the
commitments under the revolving Credit Facility were permanently reduced to $50
million. As of December 8, 1997, the Company had no outstanding borrowings under
the revolving facility or the term loan. 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
the date hereof, the Company was in compliance 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 an aggregate principal amount of $30 million (the "Facility Revenue
Bonds"). On September 17, 1997, the
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<PAGE> 13
Authority loaned (the "Summerville Loan") the proceeds from the sale of the
Facility Revenue Bonds to Image to finance the expansion of Image's fiber
extrusion capabilities at its plant in Summerville, Georgia. The Summerville
Loan was made pursuant to a loan agreement, dated as of September 1, 1997 (the
"Loan Agreement"), under which Image delivered to the Authority its promissory
note in the principal amount of $30 million, dated as of September 1, 1997. The
Facility Revenue Bonds and the interest thereon are special, limited obligations
of the Authority payable solely from the revenues and income derived from the
Loan Agreement, 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 of 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.
Senior Subordinated Notes. On October 16, 1997, the Company completed the sale
of $100 million of 9 1/4% Senior Subordinated Notes due 2007 to institutional
buyers. The Company used the net proceeds to repay all borrowings outstanding
under its credit facility and for general corporate purposes, including working
capital to fund the Company's retail expansion and for potential acquisitions.
Cash Flows. During the nine months ended October 31, 1997, operating activities
used $3.5 million compared to $13.2 million provided by operating activities for
the nine months ended October 31, 1996. The decrease in cash provided by
operating activities resulted primarily from an increase in inventories and
accounts receivable. The increase in inventories and accounts receivable was
partially due to higher sales of floorcovering products to franchisees and other
carpet retailers.
During the nine months ended October 31, 1997, investing activities used
$28.5 million compared to $12.4 million for the nine months ended October 31,
1996. The increase is primarily due to an increase in capital expenditures
relating to manufacturing operations, the purchase of carpet retailers, and the
purchase of real estate for the expansion of retail stores.
During the nine months ended October 31, 1997, financing activities provided
cash of $66.8 million compared to cash provided of $.1 million in the nine
months ended October 31, 1996. This increase is primarily due to proceeds
received from the issuance of common stock in a public offering and the issuance
of Senior Subordinated Notes.
Capital Expenditures. The Company anticipates that it will require approximately
$85 million for the remainder of fiscal 1998 and in fiscal 1999 to (i) open 60
new CarpetMAX Flooring Idea Gallery(TM) stores ("Gallery Stores") (assuming 60%
of such stores will be located on company-owned property and the remainder on
leased property), (ii) reconfigure three existing CarpetMAX(TM) stores, (iii)
expand its manufacturing capacity, and (iv) upgrade its management information
systems. The Company estimates that capital expenditures to open a
-13-
<PAGE> 14
new Gallery store at a leased location will average approximately $100,000, net
of supplier participations and landlord allowances, which average approximately
$75,000 per store. The Company estimates that capital expenditures to open a
company-owned location will average approximately $1 million, net of supplier
participations. Preopening expenses will be approximately $50,000 per store. The
actual costs that the Company will incur in opening a new Gallery store cannot
be predicted with precision because the opening costs will vary based upon
geographic location, the size of the store, the amount of supplier contributions
and the extent of the build-out required at the selected site. The Company
anticipates that it will require approximately $36 million during the remainder
of fiscal 1998 and in fiscal 1999 for capital expenditures at Image, including
approximately $29 million associated with the expansion of Image's polyester
fiber production capacity. The total cost of this project is expected to be
approximately $30 million during the remainder of fiscal 1998 and fiscal 1999.
The Company believes that borrowings under the Credit Facility, the Summerville
Loan, 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 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.
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years and interim periods ending
after December 15, 1997. The Company has not evaluated the impact of this
pronouncement on its results of operations.
Forward-Looking Statements
This Report 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. Those statements appear in a number of
places in this Report and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the timing, magnitude and costs of the roll-out of
the Gallery Stores; (ii) potential acquisitions by the Company; (iii) the
Company'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. 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. 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,"
identifies important factors that could cause such differences.
14
<PAGE> 15
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 25, 1997, the Company held its 1997 Annual Meeting of Shareholders. At
the meeting, the following persons were elected to serve on the Company's board
of directors for a term of three years and until their successors are elected
and have qualified: J. Michael Nixon and Herb Wolk. The number of votes cast for
and against the election of each nominee for director was as follows:
<TABLE>
<CAPTION>
DIRECTOR FOR AGAINST
----------------- --------- ---------
<S> <C> <C>
J. Michael Nixon 9,764,276 420
Herb Wolk 9,764,276 420
</TABLE>
In addition, the Company's shareholders approved an amendment to the Company's
1993 Stock Option Plan, to increase the number of shares available for grant
thereunder from 2,000,000 shares to 3,000,000 shares. The number of votes cast
in favor of adoption of the amendment to the 1993 Stock Option Plan was
5,754,690 and the number of votes cast against adoption of the amendment was
109,827. There were 3,900,179 abstentions and broker non-votes.
-15-
<PAGE> 16
PART II--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
11 Statements Regarding Computation of Per Share Earnings
27 Financial Data Schedule (for SEC use only)
(B) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
October 31, 1997--(i) Current Report on Form 8-K dated September 25, 1997
(reporting the Company's intention to make a private offering of $100
million of Senior Subordinated Notes due 2007 to qualified institutional
buyers), (ii) Current Report on Form 8-K dated October 16, 1997 (reporting
the Company's completion of the sale of $100 million of 9 1/4% Senior
Subordinated Notes due 2007 to qualified institutional buyers).
-16-
<PAGE> 17
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.
<TABLE>
<S> <C>
Dated: December 15, 1997 By: /s/ A. J. Nassar
---------------------------------------------------
A. J. Nassar, President and Chief Executive Officer
Dated: December 15, 1997 By: /s/ Gene Harper
---------------------------------------------------
Gene Harper, Chief Financial Officer
</TABLE>
-17-
<PAGE> 1
EXHIBIT 11
THE MAXIM GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(In Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
October 31, October 31,
1997 1996
--------------- ----------------
<S> <C> <C>
Primary:
Net earnings (loss) applicable to common and common
equivalent shares $ 4,397 $ (1,112)
======== ========
Shares:
Weighted average number of common shares
outstanding 16,164 13,426
Shares issuable from assumed exercise of options 758 --
-------- --------
Weighted average number of common shares and
common share equivalents assuming average market
price for period 16,922 13,426
======== ========
Primary earnings (loss) per common and common
equivalent share $ .26 $ (0.08)
======== ========
Fully diluted:
Net earnings (loss) applicable to common and common
equivalent shares $ 4,397 $ (1,112)
======== ========
Shares:
Weighted average number of common shares
outstanding 16,164 13,426
Shares issuable from assumed exercise of options 758 --
-------- -------
Weighted average number of common shares and
common share equivalents at higher of ending or
average market price for period 16,922 13,426
======== =======
Fully diluted earnings per common and common
equivalent share $ .26 $ (0.08)
======== =======
</TABLE>
Common equivalent shares represent stock options
granted to key employees and directors
<PAGE> 2
EXHIBIT 11
THE MAXIM GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON AND COMMON EQUIVALENT SHARE
(In Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
October 31, October 31,
1997 1996
---------------- --------------
<S> <C> <C>
Primary:
Net earnings applicable to common and common
equivalent shares $ 12,233 $ 48
========= ========
Shares:
Weighted average number of common shares
outstanding 16,189 13,364
Shares issuable from assumed exercise of options 534 426
--------- --------
Weighted average number of common shares and
common share equivalents assuming average market
price for period 16,723 13,791
========= ========
Primary earnings per common and common equivalent
share $ .73 $ 0.00
========= =======
Fully diluted:
Net earnings applicable to common and common
equivalent shares $ 12,233 $ 48
========= ========
Shares:
Weighted average number of common shares
outstanding 16,189 13,364
Shares issuable from assumed exercise of options 646 426
--------- --------
Weighted average number of common shares and
common share equivalents at higher of ending or
average market price for period 16,835 13,791
========= ========
Fully diluted earnings per common and common
equivalent share $ .73 0.00
========= ========
</TABLE>
Common equivalent shares represent stock options
granted to key employees and directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF THE MAXIM GROUP, INC. AND SUBSIDIARIES AS OF
OCTOBER 31, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH
FLOWS FOR THE PERIOD ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 41,226
<SECURITIES> 0
<RECEIVABLES> 64,525
<ALLOWANCES> 2,500
<INVENTORY> 48,050
<CURRENT-ASSETS> 159,414
<PP&E> 168,233
<DEPRECIATION> 48,357
<TOTAL-ASSETS> 303,848
<CURRENT-LIABILITIES> 46,873
<BONDS> 126,156
0
0
<COMMON> 17
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 303,848
<SALES> 276,796
<TOTAL-REVENUES> 276,796
<CGS> 189,078
<TOTAL-COSTS> 62,818
<OTHER-EXPENSES> 292
<LOSS-PROVISION> 415
<INTEREST-EXPENSE> 4,252
<INCOME-PRETAX> 21,377
<INCOME-TAX> 8,359
<INCOME-CONTINUING> 13,018
<DISCONTINUED> 0
<EXTRAORDINARY> 785
<CHANGES> 0
<NET-INCOME> 12,233
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
