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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 JUNE 30, 1995
Commission File Number 0-2762
MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-1792842
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1118 Centennial Way
Lansing, Michigan 48917
(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 13 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 X No
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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 June 30, 1995
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Common Stock 4,274,452 shares
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PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
June 30, March 31,
1995 1995
---- ----
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,205 $ 3,029
Marketable securities - current--Note D 785 2,294
Accounts receivable, less allowance
of $594,000 ($548,000 at March 31, 1995) 27,430 21,899
Inventories--Note B 24,022 19,581
Prepaid expenses and other 446 116
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TOTAL CURRENT ASSETS 54,888 46,919
MARKETABLE SECURITIES - LONG TERM--Note D 17,303 4,552
PROPERTY, PLANT AND EQUIPMENT:
Land 865 831
Buildings and improvements 8,685 8,419
Machinery, equipment and fixtures 19,373 17,920
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28,923 27,170
Allowances for depreciation (deduct) (12,416) (11,825)
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16,507 15,345
OTHER ASSETS:
Investment in Medar, Inc. 7,396
Notes and contracts receivable and other 1,265 1,275
Intangibles 13,967 10,090
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15,232 18,761
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$103,930 $ 85,577
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June 30, March 31,
1995 1995
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(Unaudited)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 236 $ 236
Accounts payable 19,851 16,240
Employee compensation 2,348 2,629
Taxes, interest and other liabilities 1,749 1,307
Current maturities of long-term obligations 3,489 2,594
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TOTAL CURRENT LIABILITIES 27,673 23,006
LONG-TERM OBLIGATIONS, less current maturities 29,588 24,879
DEFERRED INCOME TAXES 8,391 5,515
INTERESTS OF MINORITY HOLDERS IN SUBSIDIARY 9,750 9,445
STOCKHOLDERS' EQUITY:
Preferred stock:
Series Two: 12% cumulative redeemable, convertible,
$50 par value; 18,000 shares issued 900 900
Series Three: 10% cumulative redeemable,
$60 face value; 16,219 shares issued 755 755
Common stock, $1 par value, 10,000,000
shares authorized, 4,274,452 shares issued
(4,289,652 shares at March 31, 1995) 4,274 4,290
Additional paid-in capital 1,052 1,190
Net unrealized gain (loss) on marketable securities 5,585 (60)
Retained earnings 15,962 15,657
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28,528 22,732
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$103,930 $85,577
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See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
Three Months Ended June 30,
1995 1994
(Unaudited) (Unaudited)
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(In Thousands, except per share data)
Net sales $46,510 $38,495
Costs and expenses:
Cost of sales and operating expenses 39,120 32,434
Selling, general and administrative 4,856 3,823
Depreciation and amortization 927 705
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44,903 36,962
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OPERATING EARNINGS 1,607 1,533
Investment income 108 230
Interest expense (698) (436)
Gain on issuance and sale of Medar stock 3,100
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INCOME BEFORE FEDERAL INCOME TAXES
AND EQUITY IN OPERATIONS OF AFFILIATES 1,017 4,427
Federal income taxes 356 1,549
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INCOME BEFORE EQUITY IN EARNINGS
AND MINORITY INTEREST 661 2,878
Equity in earnings of affiliates (net of deferred tax) 169
Minority interest in net earnings of subsidiary (305) (291)
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NET INCOME $ 356 $ 2,756
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Less preferred stock dividend and other (51) (41)
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NET INCOME APPLICABLE
TO COMMON STOCK $ 305 $ 2,715
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Net income per share - primary $ .07 $ .61
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Net income per share - fully diluted $ .07 $ .59
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Weighted average number of shares of
of common stock and common stock
equivalents outstanding 4,399 4,434
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See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
Three Months Ended June 30,
1995 1994
---- ----
(Unaudited) (Unaudited)
(In Thousands)
OPERATING ACTIVITIES
Net Income $ 356 $ 2,756
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 927 705
Equity in earnings from affiliates (260)
Other gains (3,100)
Deferred taxes 826
Minority interest in subsidiary 305 291
Changes in operating assets and liabilities (4,164) (1,274)
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NET CASH USED IN
OPERATING ACTIVITIES (2,576) (56)
INVESTING ACTIVITIES
Purchase of business assets (4,723) (1,183)
Purchases of property and equipment (1,016) (534)
Net proceeds from sale of common stock 1,567
Sale of (investment in) marketable securities 4,684 (12,982)
Other (47) 28
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NET CASH USED IN INVESTING ACTIVITIES (1,102) (13,104)
FINANCING ACTIVITIES
Proceeds from long-term obligations 3,753 1,159
Repayments on long-term obligations (694) (468)
Proceeds from exercise of stock options 10 111
Acquisition and retirement of common stock (164) (242)
Dividends paid on preferred stock (51) (51)
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,854 509
DECREASE IN CASH AND
CASH EQUIVALENTS (824) (12,651)
Cash and cash equivalents at beginning of period 3,029 14,822
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,205 $ 2,171
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See notes to consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
JUNE 30, 1995
NOTE A - Basis of Presentation
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, 1995.
The results of operations for the interim periods presented are not
necessarily indicative of the results for the full year.
NOTE B - Inventories
The major classes of inventories, at the dates indicated were as follows:
June 30, March 31,
1995 1995
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(Unaudited)
(In Thousands)
Raw materials $ 1,717 $ 1,586
Finished goods and
work in progress 1,959 2,116
Purchased products
for resale 20,346 15,879
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$24,022 $19,581
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NOTE C - ACQUISITIONS
During the first quarter, Maxco's FinishMaster subsidiary acquired the
assets of two auto paint distributors located in Texas, Pennsylvania, and
Delaware for a purchase price of approximately $7.3 million ($4.7 million
net of acquisition debt). These acquisitions have been accounted for as
purchases and accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values at the dates of acquisition.
Intangible assets related to goodwill and covenants not to compete were
recorded with each acquisition. Operating results of these acquired
organizations are included in the Company's financial statements from the
date of purchase. These acquisitions were not material in size or scope
relative to Maxco's business.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE D - 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. During the first quarter of
1995, Maxco began to account for its investment in Medar stock as
marketable securities available for sale under FASB 115 because Maxco's
ownership of Medar was reduced to less than 20% of Medar's outstanding
shares. Application of this method resulted in an unrealized gain of
approximately $5.6 million, net of deferred tax of approximately $2.9
million, being reported as part of stockholders' equity at June 30, 1995.
The following is a summary of marketable securities available for sale at
June 30, 1995.
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------- ------------ --------- ----------
(in thousands)
Corporate Securities $ 481 $ 6 $ $ 487
U.S. Government Notes 1,751 4 1,747
Corporate Securities - Medar 7,396 8,458 15,854
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$9,628 $8,464 $4 $18,088
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The amortized cost and estimated fair value of marketable securities
available for sale at June 30, 1995, by contractual maturity is as
follows:
Amortized Estimated
Cost Fair Value
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(in thousands)
Available-for-Sale
Corporate Securities - Medar $7,396 $15,854
Due in one year or less 770 785
Due after one year through five years 1,462 1,449
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$9,628 $18,088
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NOTE E - Long-Term Debt
Maxco's revolving credit agreement allows Maxco to borrow up to $17.0
million with limitations based on the value of certain assets. At June
30, 1995, $1.0 million was available under this agreement. Approximately
$9.4 million of Maxco's consolidated long-term debt at June 30, 1995 ($7.8
million net of current maturities), were direct obligations of
FinishMaster.
During the first quarter, the Company's FinishMaster subsidiary secured a
commitment for a $5.0 million unsecured line of credit to fund periodic
working capital requirements and a separate unsecured $12 million credit
facility to fund acquisitions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
JUNE 30, 1995
MATERIAL CHANGES IN FINANCIAL CONDITION
Stockholders' equity increased by approximately $5.8 million to $28.5 million
at June 30, 1995, from $22.7 million at March 31, 1995. This increase was due
primarily to the application of FASB 115, Accounting for Certain Investments in
Debt and Equity Securities. Effective April 1995, the Company changed its
method of accounting for its investment in Medar, Inc. from the equity method
to that of an equity security available for sale. This change is required
under the provisions of FASB 115 due to the reduction of Maxco's ownership of
Medar to less than 20%. Application of this method at June 30, 1995 resulted
in an unrealized gain of approximately $5.6 million, net of tax, being reported
with the Company's other marketable securities as a separate component of
stockholders' equity. At June 30, 1995, Maxco owned 1,737,405 shares of Medar
common stock with a value of approximately $15.9 million.
Net cash used in operating and investing activities was the primary reason that
cash and cash equivalents decreased by $800,000 during the quarter. The cash
was consumed during the quarter by increases in accounts receivable, inventory,
and other working capital items as a result of higher sales levels and
acquisitions.
Cash was also used in investing activities during the quarter for the
acquisition of two auto paint distributors by FinishMaster in the Southwest and
new East Coast regions. Long-term debt issued to purchase these acquisitions,
and additional borrowings under Maxco's revolving line of credit, resulted in
long-term debt increasing $4.7 million since year end.
The Company believes that its current financial resources, together with cash
generated from operations and its available resources under its lines of
credit, will be adequate to meet cash requirements for the next year. During
the first quarter, the Company's FinishMaster subsidiary secured a commitment
for a $5.0 million unsecured line of credit to fund periodic working capital
requirements and a separate unsecured $12 million credit facility to fund
acquisitions. The borrowings will bear interest at variable rates based on
London Interbank Offered Rate (LIBOR). These lines will contain covenants
which require maintenance of certain financial ratios.
Maxco also holds 4.0 million shares of FinishMaster which has a separate public
market for its stock. The aggregate market value of these shares was $64
million at June 30, 1995. The investments represent a substantial source of
capital which Maxco has available. The amount that could ultimately be
realized by Maxco on the sale of any of these shares will be dependent on the
amount offered, general market conditions, and various other factors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
(CONTINUED)
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 Compared to 1994
Net sales increased 21% to $46.5 million compared to $38.5 million in last
year's first quarter. Net income decreased to $0.4 million or $.07 per share
from last year's $2.8 million or $.59 per share.
The most significant impact to net income for the three months ended June 30,
1994 was a $3.1 million pre-tax gain recognized by Maxco as a result of the
sale by Medar of 1.3 million shares of Medar common stock to the public. This
gain represented the net increase in value of Maxco's investment in Medar and
the gain realized on the sale of 145,000 shares of Medar stock owned by Maxco
to cover the over allotments by the underwriter. No comparable event occurred
in the current year.
The sales growth for the three months ended June 30, 1995 was primarily
attributable to the construction supplies group and FinishMaster. Sales
increased $2.0 million at Maxco's construction supplies businesses as a result
of strong demand in their market area and additional value added products being
added to their steel and mesh lines. Sales at FinishMaster increased $4.7
million over last year. This increase is primarily attributed to sales at
FinishMaster's newly acquired units.
The modest improvement in operating earnings from $1.5 million to $1.6 million
resulted primarily from the improvement in sales at Maxco's construction
supplies businesses and FinishMaster. Earnings were down for the quarter at
Wright Plastics due to lower volumes and margins.
Investment income decreased by approximately $100,000 in the current year as
proceeds from FinishMaster's initial public offering were used to fund recent
acquisitions. Investment income consists primarily of interest earned on
marketable securities invested from the proceeds of the initial public stock
offering by FinishMaster.
The increase in interest expense was primarily due to increased borrowings
under the company's line of credit and acquisitions.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
3 Restated Articles of Incorporation and By-laws are hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
4.1 Resolution establishing Series Two Preferred Shares is hereby
incorporated by reference from Form S-4 dated November 4, 1991
(File No. 33-43855).
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).
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.
10.3 Amended and restated loan agreement between Comerica Bank and
Maxco, Inc. dated as of October 31, 1994 is hereby
incorporated by reference from registrant's Form 10-K dated
June 13, 1995.
10.4 First amendment to the amended and restated loan agreement
between Comerica Bank and Maxco, Inc., dated as of May 9, 1995
is hereby incorporated by reference from registrants Form 10-K
dated June 13, 1995.
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11* Statement Re: Computation of Per Share Earnings
27* Financial Data Schedule
No reports on Form 8-K were filed during the quarter.
*Filed herewith
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 August 7, 1995 \S\ VINCENT SHUNSKY
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Vincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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11 -- Statement Re: Computation of Per Share Earnings 13
27 -- Financial Data Schedule 14
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