Maxco 10-Q 2001 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2000

Commission File Number 0-2762

MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)

Michigan	38-1792842
(State or other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
1118 Centennial Way Lansing, Michigan	48197
(Address of principal executive offices)	(Zip Code)

Registrant’s Telephone Number, including area code: (517) 321-3130

Indicate by check mark whether the registrant (1) has filed all annual, quarterly and other reports required to be filed by Section 12 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to the filing requirements for at least the past 90 days.

Yes      No  

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 31, 2000
Common Stock	3,101,195 shares

1

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	MATERIAL CHANGES IN FINANCIAL CONDITION
	MATERIAL CHANGES IN RESULTS OF OPERATIONS
	NEW FINANCIAL ACCOUNTING PRONOUNCEMENT
	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX
Financial Data Schedule

PART I

FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

Maxco, Inc. and Subsidiaries

			September 30,			March 31,
			2000			2000
			(Unaudited)
		(in thousands)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		$	1,017		$	542
	Marketable securities						185
	Accounts and notes receivable, less allowance of $634,000 ($513,000 at March 31, 2000)			34,208			22,098
	Advances to affiliate			3,008			3,008
	Inventories – Note 2			7,621			8,000
	Investment held for sale – Note 9						1,121
	Prepaid expenses and other			986			760
	TOTAL CURRENT ASSETS			46,840			35,714
MARKETABLE SECURITIES – LONG TERM – Note 3				1,745			4,240
PROPERTY AND EQUIPMENT
	Land			732			732
	Buildings			12,731			12,271
	Machinery, equipment, and fixtures			49,114			41,650
				62,577			54,653
	Allowances for depreciation			(17,466	)		(14,893	)
				45,111			39,760
OTHER ASSETS
	Investments			11,000			12,165
	Notes and contracts receivable and other			5,498			4,325
	Intangibles			3,970			4,216
				20,468			20,706
				$114,164			$100,420

2

				September 30,			March 31,
				2000			2000
				(Unaudited)
				(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
	Notes payable			$	22,286		$	23,667
	Accounts payable				23,138			12,989
	Employee compensation				2,935			3,247
	Taxes, interest, and other liabilities				1,449			381
	Current maturities of long-term obligations				3,718			3,117
			TOTAL CURRENT LIABILITIES		53,526			43,401
LONG-TERM OBLIGATIONS, less current maturities					25,235			22,390
DEFERRED INCOME TAXES					2,352			2,319
STOCKHOLDERS’ EQUITY
	Preferred stock:
		Series Three: 10% cumulative redeemable, $60 face value; 14,784 shares issued and outstanding			678			678
		Series Four: 10% cumulative redeemable, $51.50 face value; 46,414 shares issued and outstanding			2,390			2,390
		Series Five: 10% cumulative redeemable, $120 face value; 6,648 shares issued and outstanding			798			798
		Series Six: 10% cumulative callable, $160 face value; 20,000 shares authorized, issued – none
		Common stock, $1 par value; 10,000,000 shares authorized, 3,101,195 shares issued and outstanding			3,101			3,101
	Net unrealized loss on marketable securities				(987	)		(877	)
	Retained earnings				27,071			26,220
					33,051			32,310
				$	114,164		$	100,420

      See notes to consolidated financial statements

3

CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed)
Maxco, Inc. and Subsidiaries

			Three Months Ended September 30,
			2000			1999
			(Unaudited)			(Unaudited)
			(in thousands, except per share data)
Net sales			$	49,094		$	47,227
Costs and expenses:
	Cost of sales and operating expenses			38,008			36,569
	Selling, general and administrative			7,308			6,982
	Depreciation and amortization			1,584			1,199
				46,900			44,750
		Operating Earnings		2,194			2,477
Other income (expense) Investment and interest income				840			134
Interest expense				(1,274	)		(838	)
		Income Before Federal
		Income Taxes and Equity in Earnings of Affiliates		1,760			1,773
Federal income tax expense				610			626
		Income Before Equity in Earnings of Affiliates		1,150			1,147
Equity in earnings (loss) of affiliates, net of tax				(297	)		130
		Net Income		853			1,277
Less preferred stock dividends				(102	)		(102	)
		Net Income Applicable to Common Stock	$	751		$	1,175
Net Income Per Common Share – Basic			$	.24		$	.37
Net Income Per Common Share – Assuming Dilution			$	.24		$	.37

See notes to consolidated financial statements

4

CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed)
Maxco, Inc. and Subsidiaries

				Six Months Ended September 30,
				2000			1999
				(Unaudited)			(Unaudited)
				(in thousands, except per share data)
Net sales				$	97,548		$	91,203
Costs and expenses:
	Cost of sales and operating expenses				75,922			70,045
	Selling, general and administrative				14,655			13,459
	Depreciation and amortization				3,063			2,368
					93,640			85,872
			Operating Earnings		3,908			5,331
Other income (expense) Investment and interest income					1,002			289
Interest expense					(2,314	)		(1,583	)
			Income Before Federal Income Taxes and Equity in Earnings of Affiliates		2,596			4,037
Federal income tax expense					919			1,407
		Income Before Equity in Earnings of Affiliates			1,677			2,630
Equity in earnings (loss) of affiliates, net of tax					(622	)		555
			Net Income		1,055			3,185
Less preferred stock dividends					(204	)		(204	)
			Net Income Applicable to Common Stock	$	851		$	2,981
Net Income Per Common Share – Basic				$	.27		$	.94
Net Income Per Common Share – Assuming Dilution				$	.27		$	.94

See notes to consolidated financial statements

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
Maxco, Inc. and Subsidiaries

					Six Months Ended September 30,
					2000			1999
					(Unaudited)			(Unaudited)
					(in thousands)
Operating Activities
	Net Income				$	1,055		$	3,185
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and other non-cash items				3,344			2,014
		Changes in operating assets and liabilities				(975	)		(4,199	)
				Net Cash Provided By Operating Activities		3,424			1,000
Investing Activities
	Purchase of business								(3,103	)
	Sale of investment					1,143
	Payment received on note receivable								750
	Redemption of marketable securities					2,530			8
	Investment in affiliates					(272	)		(484	)
	Purchases of property and equipment					(7,942	)		(5,952	)
	Other					(268	)		(47	)
				Net Cash Used In Investing Activities		(4,809	)		(8,828	)
Financing Activities
	Proceeds from long-term obligations					4,994			10,689
	Repayments on long-term obligations and notes payable					(1,548	)		(1,944	)
	Repayments on short-term obligation					(1,382	)
	Changes in capital stock								(476	)
	Dividends paid on preferred stock					(204	)		(204	)
				Net Cash Provided by Financing Activities		1,860			8,065
				Increase in Cash and Cash Equivalents		475			237
			Cash and Cash Equivalents at Beginning of Period			542			1,122
				Cash and Cash Equivalents at End of Period	$	1,017		$	1,359

See notes to consolidated financial statements

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
September 30, 2000

(Unaudited)

NOTE 1 – Basis of Presentation and Significant Accounting Policies

The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes 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 of the results of the interim periods covered have been included. For further information, refer to the consolidated financial statements and notes thereto included in Maxco’s annual report on Form 10-K for the year ended March 31, 2000.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year. Maxco’s sales and operating results have varied substantially from quarter to quarter. Net sales are typically lower in the third and fourth quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company’s customers due to inclement weather and the reduced number of business days during the holiday season. In addition, the timing of acquisitions or the occasional sale of corporate investments may cause substantial fluctuations of operating results from quarter to quarter. Maxco expects its net sales and operating results to continue to fluctuate from quarter to quarter.

Certain other amounts in the consolidated financial statements have been reclassified to conform to the current presentation.

NOTE 2 – Inventories

The major classes of inventories, at the dates indicated were as follows:

	September 30,		March 31,
	2000		2000
	(unaudited)
	(in thousands)
Raw materials	$	699	$	589
Finished goods and work in progress		1,190		1,136
Purchased products for resale		5,732		6,275
	$	7,621	$	8,000

NOTE 3 – Marketable Securities

The Company classifies its marketable securities as securities available for sale under FASB 115, Accounting for Certain Investments in Debt and Equity Securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. Application of this method resulted in an unrealized loss, net of deferred tax, of approximately $987,000 being reported as part of stockholders’ equity at September 30, 2000.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maxco, Inc. and Subsidiaries

NOTE 4 – Investment in Integral Vision, Inc.

The following table summarizes the operating results of Integral Vision, Inc. (formerly Medar, Inc.), Maxco’s 25% owned affiliate:

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2000			1999		2000			1999
				(in thousands)
Net Sales	$	1,535		$	3,975	$	3,320		$	6,384
Gross Margin		(65	)		1,357		(197	)		1,192
Net Income (Loss)		(1,634	)		1,144		(3,488	)		4,694

On June 30, 1999, Integral Vision sold its welding division for cash and debt. The gain recognized through September 30, 1999 on this transaction was $6.6 million, of which $1.1 million was recognized by Maxco in the quarter ended September 30, 1999.

NOTE 5 – Other Investments

Condensed income statement information for the three and six months ended September 30, 2000 and 1999 for the equity investees where Maxco’s share of their net income (loss) exceeded 20% of consolidated pre-tax income for the year ended March 31, 2000 is as follows:

Foresight Solutions, Inc.

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2000			1999			2000			1999
				(in thousands)
Net Sales	$	191		$	447		$	445		$	918
Gross Margin		175			382			408			746
Net Loss		(545	)		(162	)		(843	)		(345	)

Midstate Industrial Services, Inc.

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2000		1999		2000		1999
			(in thousands)
Net Sales	$	3,879	$	2,714	$	6,363	$	6,161
Gross Margin		1,211		990		2,253		1,967
Net Income		295		237		524		463

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maxco, Inc. and Subsidiaries

NOTE 6 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended						Six Months Ended
		September 30,						September 30,
		2000			1999			2000			1999
					(in thousands, except per share data)
NUMERATOR:
	Net income	$	853		$	1,277		$	1,055		$	3,185
	Preferred stock dividends		(102	)		(102	)		(204	)		(204	)
Numerator for basic earning per share—income available to common stockholders			751			1,175			851			2,981
Effect of dilutive securities:
Numerator for diluted earnings per share—income to common stockholders after assumed conversions			751			1,175			851			2,981
DENOMINATOR:
	Denominator for basic earnings per share—
	Weighted-average shares		3,101			3,164			3,101			3,179
Effect of dilutive securities:
	Employee stock options		2			1			4			1
Dilutive potential common shares			2			1			4			1
Denominator for diluted earnings per share—adjusted weighted-average shares and assumed conversions			3,103			3,165			3,105			3,180
BASIC EARNINGS PER SHARE		$	.24		$	.37		$	.27		$	.94
DILUTED EARNINGS PER SHARE		$	.24		$	.37		$	.27		$	.94

NOTE 7 – Comprehensive Income

The components of comprehensive income for the three and six months ended September 30, 2000 and 1999 are as follows:

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2000		1999			2000			1999
			(in thousands)
Net earnings	$	853	$	1,277		$	1,055		$	3,185
Unrealized gains (losses) on marketable securities		245		(12	)		(110	)		(48	)
	$	1,098	$	1,265		$	945		$	3,137

The components of accumulated comprehensive income, net of related tax at September 30, 2000 and March 31, 2000 are as follows:

	September 30,			March 31,
	2000			2000
	(in thousands)
Unrealized losses on marketable securities	$	(987	)	$	(877	)

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maxco, Inc. and Subsidiaries

NOTE 8 – INDUSTRY SEGMENT INFORMATION

The following summarizes Maxco’s industry segment information:

			September 30,		March 31,
			2000		2000
			(in thousands)
Identifiable assets:
	Construction supplies		$	45,911	$	32,902
	Heat treating			33,934		30,367
	Packaging products			6,469		6,565
	Corporate and other			16,850		18,421
	Investments and advances			11,000		12,165
		Total Identifiable Assets	$	114,164	$	100,420

			Three Months Ended						Six Months Ended
			September 30,						September 30,
			2000			1999			2000			1999
Net sales:
	Construction supplies		$	34,773		$	33,240		$	68,664		$	62,653
	Heat treating			10,076			9,702			20,437			19,786
	Packaging products			4,162			4,203			8,282			8,599
	Corporate and other			83			82			165			165
		Total Net Sales	$	49,094		$	47,227		$	97,548		$	91,203
Operating earnings (loss):
	Construction supplies		$	1,881		$	2,421		$	3,512		$	4,480
	Heat treating			1,125			930			2,029			2,379
	Packaging products			20			(26	)		(85	)		(49	)
	Corporate and other			(832	)		(848	)		(1,548	)		(1,479	)
		Total Operating Earnings	$	2,194		$	2,477		$	3,908		$	5,331
Depreciation and amortization expense:
	Construction supplies		$	684		$	448		$	1,249		$	871
	Heat treating			604			481			1,209			963
	Packaging products			189			180			381			354
	Corporate and other			107			90			224			180
	Total Depreciation and Amortization Expense		$	1,584		$	1,199		$	3,063		$	2,368
Capital expenditures:
	Construction supplies		$	1,758		$	1,412		$	3,190		$	2,750
	Heat treating			2,100			1,671			4,646			2,696
	Packaging products			52			278			105			497
	Corporate and other			1			2			1			9
		Total Capital Expenditures	$	3,911		$	3,363		$	7,942		$	5,952

Accounting policies of the business segments are consistent with those described in the summary of significant accounting policies (see Note 1).

Identifiable assets are those assets that are used in Maxco’s operations in each industry segment. Corporate assets are principally cash, notes receivable, investments, and corporate office properties.

Maxco has no significant foreign operations, export sales, or inter-segment sales.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maxco, Inc. and Subsidiaries

NOTE 9 – INVESTMENT IN AXSON, S.A.

Maxco had a 7% investment in Axson, S.A. of France (Axson), a manufacturer of resins and composite materials for advanced applications, which was carried at cost value. In the fourth quarter of fiscal 2000, the majority shareholders of Axson began negotiations with Axson management for a management buyout of the existing shareholders interests. As such, Maxco adjusted its carrying amount to its estimated realizable value at March 31, 2000, which resulted in a $860,000 charge in the fourth quarter of last year, for other than temporary impairment on its investment. This transaction was completed in August 2000.

NOTE 10 – DEBT

The Company is currently in default on certain financial and other covenants as required by its $20 million line of credit with a bank. As such the outstanding balances on the line ($14.6 million at September 30, 2000) and a term note ($7.5 million at September 30, 2000) have been classified as current in the accompanying financial statements. These obligations carry interest rates of 1% over prime. There are ongoing negotiations with the bank to obtain waivers of default. Management anticipates that the negotiations will be completed by the end of the fiscal year.

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. The Company’s ability to meet its short term and long term debt service and other obligations (including compliance with financial covenants) will be dependent upon its future operating performance and the successful renegotiation of its credit facilities. These dependencies will be subject to financial, business and other factors, certain of which are beyond the Company’s control, such as prevailing economic conditions. There can be no assurance that, in the event the Company were to require additional financing, such additional financing would be available on satisfactory terms. The Company believes that funds generated by its operations and funds available under other credit facilities, will be sufficient to finance short term capital needs, as well as to fund existing operations for the foreseeable future. However, in the event that the Company is unable to successfully renegotiate its credit facilities, the Company has liquid long term equity investments that could be used to meet its short term and long term debt service requirements and fund operating cash flows.

NOTE 11 – FEDERAL INCOME TAXES

The Company’s effective tax rate varied from the statutory rate of 34% due to certain expenses that are not deductible for tax purposes.

NOTE 12 – SUBSEQUENT EVENT

On November 2, 2000, Maxco signed a letter of intent to sell Ersco Corporation, its construction supplies unit, to privately held Lofland Acquisitions, Inc., a Dallas based affiliate of the Lofland Company which supplies reinforcing steel and concrete construction supplies to contractors, for a combination of cash and Lofland Acquisitions’ stock. Approval will have to be obtained from the Federal Trade Commission and there is no assurance that the transaction will occur within the proposed time frame, or at all. The transaction, which is subject to due diligence, the completion of a definitive agreement, and FTC approval, is expected to close in the next 120 days.

11

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
September 30, 2000

MATERIAL CHANGES IN FINANCIAL CONDITION

Operating activities generated $3.4 million in cash for the six months. Individual working capital component levels increased over the March 31, 2000 level, primarily from the increased sales activity by the Company’s construction supplies unit (Ersco) over the traditionally slower fourth quarter of the prior year.

Cash was used in investing activities during the quarter to purchase additional equipment for Maxco’s heat-treating unit (Atmosphere Annealing), and its Construction Supplies unit (Ersco).

Cash used in investing activities was partially offset by cash generated from the sale of marketable securities and from the sale of the Company’s 7% interest in Axson, S.A. of France.

Net proceeds from additional long-term debt were used primarily to fund the purchase of equipment.

At September 30, 2000, the Company continued to classify one of its lines of credit and one of its term notes as short term due to the Company being in default on certain financial and other covenants under its $20 million line of credit with a bank. These obligations carry interest rates of 1% over prime. There are ongoing negotiations with the bank to obtain waivers of default. Management anticipates that these negotiations will be completed by the end of the fiscal year.

The Company’s ability to meet its short term and long term debt service and other obligations (including compliance with financial covenants) will be dependent upon its future operating performance and the successful renegotiation of its credit facilities. These dependencies will be subject to financial, business and other factors, certain of which are beyond the Company’s control, such as prevailing economic conditions. There can be no assurance that, in the event the Company were to require additional financing, such additional financing would be available on satisfactory terms. The Company believes that funds generated by its operations and funds available under other credit facilities will be sufficient to finance short term capital needs, as well as to fund existing operations for the foreseeable future. However, in the event that the Company is unable to successfully renegotiate its credit facilities, the Company has liquid long term equity investments that could be used to meet its short term and long term debt service requirements and fund operating cash flows.

At September 30, 2000, the 2,240,605 shares of Integral Vision (formerly Medar) common stock that Maxco owns had an aggregate market value of approximately $3.1 million ($2.2 million at November 3, 2000). Maxco’s investment in Integral Vision is reflected in Maxco’s financial statements under the equity method for all periods presented as the Company owns greater than 20% of Integral Vision’s outstanding stock.

At September 30, 2000, the 249,230 shares of Provant common stock that Maxco owns had an aggregate market value of approximately $1.7 million ($1.6 million at November 3, 2000). Maxco’s investment in Provant is reflected in Maxco’s financial statements under the cost method as an available-for-sale security as the Company owns less than 20% of Provant’s outstanding stock.

12

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Maxco, Inc. and Subsidiaries

On November 2, 2000, Maxco signed a letter of intent to sell Ersco Corporation, its construction supplies unit, to privately held Lofland Acquisitions, Inc., a Dallas based affiliate of the Lofland Company which supplies reinforcing steel and concrete construction supplies to contractors, for a combination of cash and Lofland Acquisitions’ stock. Approval will have to be obtained from the Federal Trade Commission and there is no assurance that the transaction will occur within the proposed time frame, or at all. The transaction, which is subject to due diligence, the completion of a definitive agreement, and FTC approval, is expected to close in the next 120 days.

MATERIAL CHANGES IN RESULTS OF OPERATIONS

Three Months Ended September 30, 2000 Compared to 1999

Net sales increased to $49.1 million compared to $47.2 million in last year’s second quarter. Second quarter results reflect operating earnings of $2.2 million compared to $2.5 million for the comparable period in 1999. Net income was $853,000 or $.24 per share assuming dilution compared to last year’s $1.3 million or $.37 per share assuming dilution.

Sales and operating earnings for the three months ended September 30, 2000 and 1999 by each of the company’s segments were as follows:

	Three Months Ended				Three Months Ended
	September 30, 2000				September 30, 1999
			Operating				Operating
			Earnings				Earnings
	Sales		(loss)		Sales		(loss)
			(in thousands)
Construction supplies	$	34,773	$	1,881	$	33,240	$	2,421
Heat treating		10,077		1,125		9,702		930
Packaging products		4,162		20		4,203		(26	)

Higher sales in the current period occurred at Maxco’s construction supplies unit (Ersco) over the comparable 1999 period as a result of a strong general construction market resulting from an overall stable and growing general economy, increased availability of federal highway repair dollars, as well as an increase in form rental revenues. Sales at Atmosphere Annealing increased primarily due to greater processing capabilities of equipment and facilities recently placed in service.

Consolidated gross profit (net sales less cost of sales and operating expenses) increased to $11.1 million or approximately 23% of sales from $10.7 million or 23% of sales. The Company’s heat treating unit generated additional gross profit as efficiency improvements resulting from the completion of certain major capital projects were realized. The construction supplies unit also generated additional gross profit in the current period over last year due to its increased sales level.

13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Maxco, Inc. and Subsidiaries

Selling, general, and administrative expenses increased to $7.3 million from $7.0 million. The increase primarily resulted at the construction supplies unit due to additional wages and other expenses incurred to support the planned growth of this unit.

Depreciation and amortization expense for the three months ended September 30, 2000 increased as a result of the additional depreciation resulting from the purchases of property and equipment by Atmosphere and Ersco in the 2000 fiscal year.

As a result of the above, operating earnings decreased to approximately $2.2 million from $2.5 million in last year’s comparable period.

Investment and interest income increased for the three month period ended September 30, 2000 primarily due to the recording of Maxco’s share of the minimum contingent consideration which, during the second quarter, was agreed to be paid in fiscal 2002 to former shareholders of Strategic Interactive (Maxco’s former 45% owned affiliate sold to Provant, Inc. in October, 1998). Interest expense increased from the prior year quarter due to additional long-term borrowings, the proceeds of which were used for investments in the Company’s affiliates and additional purchases of property and equipment.

Equity in earnings of affiliates decreased primarily because of lower net income at Integral Vision for the current three-month period. On June 30, 1999, Integral Vision sold its welding controls division for cash and debt. The gain recognized through September 30, 1999 on this transaction was $6.6 million, of which $1.1 million was recognized by Maxco in the quarter ended September 30, 1999. Integral Vision’s net loss for the three months ended September 30, 2000 was $1.6 million compared to a net income of $1.1 million for the three months ended September 30, 1999.

Six Months Ended September 30, 2000 Compared to 1999

Net sales increased to $97.5 million compared to $91.2 million in last year’s comparable six-month period. Results for this period include operating earnings of $3.9 million compared to $5.3 million for the comparable period in 1999. Net income was $1.1 million or $.27 per share assuming dilution compared to last year’s $3.2 million or $.94 per share assuming dilution.

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Maxco, Inc. and Subsidiaries

Sales and operating earnings for the six months ended September 30, 2000 and 1999 by each of the company’s segments were as follows:

	Six Months Ended					Six Months Ended
	September 30, 2000					September 30, 1999
			Operating					Operating
			Earnings					Earnings
	Sales		(loss)			Sales		(loss)
			(in thousands)
Construction supplies	$	68,664	$	3,512		$	62,653	$	4,480
Heat treating		20,437		2,029			19,786		2,379
Packaging products		8,282		(85	)		8,599		(49	)

Higher sales in the current period occurred at Maxco’s construction supplies unit (Ersco) over the comparable 1999 period as a result of a strong general construction market resulting from an overall stable and growing general economy, increased availability of federal highway repair dollars, as well as an increase in form rental revenues. Sales at Atmosphere Annealing increased in the current six-month period over the comparable six-month period last year primarily due to the greater processing capabilities of equipment and facilities recently placed in service.

Consolidated gross profit (net sales less cost of sales and operating expenses) increased to $21.6 million or approximately 22% of sales from $21.2 million or 23% of sales. The construction supplies unit generated additional gross profit in the current period over last year due to its increased sales level. Gross profit at Atmosphere was comparable to the prior year despite the increase in the price of natural gas that is used in the heat treating process.

Selling, general, and administrative expenses increased to $14.7 million from $13.5 million. The increase primarily resulted at the construction supplies unit due to additional wages and other expenses incurred to support the planned growth of this unit.

The increase in depreciation expense in 2000 was attributable to depreciation by Ersco on purchases of rental forms and shoring equipment. Additionally, depreciation by Atmosphere Annealing also increased as a result of new equipment including a new coating line, additional furnaces, and facility improvements placed in service since September of last year.

As a result of the above, operating earnings decreased to approximately $3.9 million from $5.3 million in last year’s comparable period.

Investment and interest income increased for the six month period ended September 30, 2000 primarily due to the recording of Maxco’s share of the minimum contingent consideration which, during the second quarter, was agreed to be paid in fiscal 2002 to former shareholders of Strategic Interactive (Maxco’s former 45% owned affiliate sold to Provant, Inc. in October, 1998). Interest expense increased from the prior year period due to additional long-term borrowings, the proceeds of which were used for investments in the Company’s affiliates and additional purchases of property and equipment.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Maxco, Inc. and Subsidiaries

On June 30, 1999, Integral Vision, Inc. (formerly Medar Inc.) sold its welding division for cash and debt. The gain recognized through September 30, 1999 on this transaction was $6.6 million. Integral Vision’s net loss for the six months ended September 30, 2000 was $3.5 million compared to a net income of $4.7 million for the six months ended September 30, 1999. The decrease in Integral Vision’s net income was the major reason that Maxco’s equity in affiliates, net of tax, decreased $1.2 million from the same period of the prior year.

NEW FINANCIAL ACCOUNTING PRONOUNCEMENT

In 1998, the Financial Accounting Standards Board issued Statement No. 133,Accounting for Derivative Instruments and Hedging Activities. Statement 133 is effective for fiscal years beginning after June 15, 2000. The Company expects to adopt the new statement effective April 1, 2001. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. The Company has not evaluated the potential effect the adoption of this statement will have on its results of operations or financial condition.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101),Revenue Recognition in Financial Statements. SAB 101 provides guidance for revenue recognition under certain circumstances. The accounting and disclosures prescribed by SAB 101 will be effective for the fourth quarter of fiscal year 2001. The Company believes there will be no material impact resulting from the application of SAB 101.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s variable interest expense is sensitive to changes in the general level of United States interest rates. Some of the Company’s interest expense is fixed through long-term borrowings to mitigate the impact of such potential exposure. Additionally, the Company entered into an interest rate swap agreement based on a notional amount of $5.0 million to manage its exposure to interest rate changes. The swap involves the exchange of fixed and variable interest payments without changing the notional principal amount. The Company had total outstanding variable rate long-term borrowings of $24.7 million at September 30, 2000. A 1% increase from the prevailing interest rates at September 30, 2000 on the unhedged variable rate portion of the Company’s short and long-term borrowings would increase interest expense on an annualized basis by $204,000 based on principal balances at September 30, 2000.

16

PART II

OTHER INFORMATION

Item 1.	Legal Proceedings
	None
Item 2.	Changes in Securities
	None
Item 3.	Defaults Upon Senior Securities
	The Company is currently in default on certain financial and other covenants as required by its $20 million line of credit with a bank.
Item 4.	Submission of Matters to a Vote of Security Holders
	The annual meeting of shareholders was held on August 29, 2000. The matters voted upon were the election of directors and other business which may come before the meeting (of which there was none). The results of votes were as follows:
	Election of directors:

	For		Withheld
Max A. Coon		2,968,774		27,408
Eric L. Cross		3,001,974		18,208
Charles J. Drake		2,971,729		24,453
Joel I Ferguson		2,972,429		23,753
Richard G. Johns		2,980,629		15,553
Vincent Shunsky		2,980,659		15,523
J. Michael Warren		2,979,674		16,508
Michael W. Wisti		2,979,674		16,508

Item 5.	Other Information
	None
Item 6(a)	Exhibits
3	Restated Articles of Incorporation are hereby incorporated from Form 10-Q dated February 13, 1998.
3.1	By-laws are hereby incorporated by reference from Form S-4 dated November 4, 1991 (File No. 33-43855).

17

PART II
OTHER INFORMATION (Continued)

4.2	Resolution establishing Series Three Preferred Shares is hereby incorporated by reference from Form S-4 dated November 4, 1991 (File No. 33-43855).
4.3	Resolution authorizing the redemption of Series Two Preferred Stock and establishing Series Four Preferred Stock and the terms of the subordinated notes is hereby incorporated by reference from Form 10-Q dated February 14, 1997.
4.4	Resolution establishing Series Five Preferred Shares is hereby incorporated by reference from Form 10-K dated June 5, 1997.
4.5	Resolution establishing Series Six Preferred Shares is hereby incorporated by reference from Form 10-K dated June 23, 1999.
10.1	Incentive stock option plan adopted August 15, 1983, including the amendment (approved by shareholders August 25, 1987) to increase the authorized shares on which options may be granted by two hundred fifty thousand (250,000), up to five hundred thousand (500,000) shares of the common stock of the company is hereby incorporated by reference from the registrant’s annual report on Form 10-K for the fiscal year ended March 31, 1988.
10.9	Asset purchase agreement — Wright Plastic Products, Inc. is hereby incorporated by reference from registrants Form 10-Q dated November 14, 1996.
10.10	Amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated September 30, 1996 is hereby incorporated by reference from Form 10-Q dated November 14, 1996.
10.11	Asset purchase agreement for the purchase of Atmosphere Annealing, Inc. is hereby incorporated by reference from Form 8-K dated January 17, 1997.
10.12	Asset purchase agreement — Axson North America, Inc. is hereby incorporated by reference from Form 10-Q dated February 14, 1997.
10.13	Loan agreement between Michigan Strategic Fund and Atmosphere Annealing, Inc. is hereby incorporated by reference from Form 10-Q dated February 13, 1998.
10.14	Loan agreement between LAM Funding, L.L.C. and borrower including Guaranty-Maxco, Inc. is hereby incorporated by reference from Form 10-Q dated February 13, 1998.
10.15	First Amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated August 1, 1997, is hereby incorporated by reference from Form 10-K dated June 24, 1998.
10.16	Second amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated June 24, 1998 is hereby incorporated by reference from Form 10-K dated June 24, 1998.

18

PART II
OTHER INFORMATION (Continued)

10.17	Third amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated September 24, 1998, is hereby incorporated by reference from Form 10-Q dated November 12, 1998.
10.18	Maxco, Inc. 1998 Employee Stock Option Plan is hereby incorporated by reference from Form 10-Q dated November 12, 1998.
10.19	Fourth amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated June 22, 1999, is hereby incorporated by reference from Form 10-K dated June 23, 1999.
10.20	Fifth amendment to amended and restated loan agreement between Comerica bank and Maxco, Inc. dated September 1, 1999 is hereby incorporated by reference from Form 10-Q dated November 12, 1999.
10.21	Sixth amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated July 12, 2000 is hereby incorporated by reference from Form 10-K dated July 14, 2000.
27*	Financial Data Schedule
Item 6(b)	Reports on Form 8-K None

*Filed herewith

19

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.

		MAXCO, INC.
Date:	November 14, 2000	/S/ VINCENT SHUNSKY
		Vincent Shunsky, Vice President-Finance
		and Treasurer (Principal Financial and
		Accounting Officer)

20

Exhibit Index

Exhibit	Description
27	Financial Data Schedule

21