1
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, 1996
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
--- ---
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, 1996
----- ----------------------------
Common Stock 4,244,942 shares
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PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
June 30, March 31,
1996 1996
---------------------------
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 439 $ 819
Accounts and notes receivable, less allowance of
$372,000 in 1996 ($357,000 at March 31, 1996) 17,216 11,498
Inventories--Note 2 6,474 5,309
Prepaid expenses and other 243 428
Net current assets of discontinued business--Note 2 23,672 25,036
-------- --------
TOTAL CURRENT ASSETS 48,044 43,090
MARKETABLE SECURITIES - LONG TERM - NOTE 3 18,026 15,419
PROPERTY AND EQUIPMENT
Land 517 497
Buildings 8,862 8,892
Machinery, equipment, and fixtures 16,435 15,938
-------- --------
25,814 25,327
Allowances for depreciation (11,389) (10,837)
-------- --------
14,425 14,490
OTHER ASSETS
Investments 3,040 3,056
Notes and contracts receivable and other 1,032 1,093
Intangibles 2,252 2,255
Net non-current assets of discontinued business--Note 2 8,694 6,629
-------- --------
15,018 13,033
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$ 95,513 $ 86,032
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June 30, March 31,
1996 1996
--------------------------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 226 $ 236
Accounts payable 11,792 7,444
Employee compensation 1,076 1,087
Taxes, interest, and other liabilities 773 942
Current maturities of long-term obligations 2,607 2,827
-------- --------
TOTAL CURRENT LIABILITIES 16,474 12,536
LONG-TERM OBLIGATIONS, less current maturities--Note 4 30,986 28,594
DEFERRED INCOME TAXES 9,363 8,476
INTERESTS OF MINORITY HOLDERS IN
DISCONTINUED BUSINESS 10,534 10,304
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; 16,050 shares issued and outstanding 754 754
Common stock, $1 par value; 10,000,000 shares
authorized, 4,244,942 issued shares (4,227,442 at 4,245 4,227
March 31, 1996)
Additional paid-in capital 702 686
Net unrealized gain on marketable securities 7,013 5,294
Retained earnings 14,542 14,261
-------- --------
28,156 26,122
-------- --------
$ 95,513 $ 86,032
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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,
1996 1995
(Unaudited) (Unaudited)
------------- --------------
(in thousands, except per share data)
Net sales $ 23,730 $ 23,026
Costs and expenses:
Cost of sales and operating expenses 19,692 19,170
Selling, general and administrative 3,024 3,232
Depreciation and amortization 582 503
--------- ---------
23,298 22,905
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OPERATING EARNINGS 432 121
Other income (expense)
Interest income 4 4
Interest expense (649) (547)
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LOSS FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAXES (213) (422)
Federal income tax benefit (75) (151)
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LOSS FROM CONTINUING OPERATIONS (138) (271)
Income from discontinued business--Note 5 470 627
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NET INCOME 332 356
Less preferred stock dividend and other (51) (51)
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NET INCOME APPLICABLE
TO COMMON STOCK $ 281 $ 305
========= =========
NET INCOME (LOSS) PER COMMON SHARE--Primary
Continuing operations $ (.04) $ (.07)
Discontinued business .10 .14
--------- ---------
.06 $ .07
========= =========
Weighted average number of shares of common stock
and common stock equivalents outstanding 4,357 4,399
========= =========
See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXCO, INC. AND SUBSIDIARIES
Three Months Ended June 30,
1996 1995
---------------------------
(Unaudited) (Unaudited)
(in thousands)
OPERATING ACTIVITIES
Net Income $ 332 $ 356
Income from Discontinued Business (470) (627)
-------- -------
Loss from Continuing Operations (138) (271)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 539 459
Amortization 43 44
Changes in operating assets and liabilities:
Accounts receivable (5,718) (4,794)
Inventories (1,165) (1,258)
Prepaid expenses and other 184 72
Accounts payable and other current liabilities 4,158 3,439
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NET CASH USED IN OPERATING ACTIVITIES (2,097) (2,309)
INVESTING ACTIVITIES
Purchases of property and equipment (475) (825)
Other 37 (12)
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NET CASH USED IN INVESTING ACTIVITIES (438) (837)
FINANCING ACTIVITIES
Proceeds from long-term obligations 2,923 3,754
Repayments on long-term obligations and notes payable (751) (320)
Proceeds from exercise of stock options 34 10
Acquisition and retirement of common stock (164)
Dividends paid on preferred stock (51) (51)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 2,155 3,229
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (380) 83
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 819 891
-------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 439 $ 974
======== ======
See notes to consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
JUNE 30, 1996
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, 1996.
The results of operations for the interim periods presented are not
necessarily indicative of the results for the full year. The effect of stock
options and potential conversion of redeemable convertible preferred stock
was anti-dilutive for the quarter ended June 30, 1996.
Effective April 1, 1996, the Company adopted FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
presented and the undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amount. This statement also
addresses the accounting for long-lived assets that are expected to be
disposed. The effect of adopting FASB Statement No. 121 was not material.
NOTE 2 - Inventories
The major classes of inventories, at the dates indicated were as follows:
June 30, March 31,
1996 1996
----------- ---------
(Unaudited)
(In Thousands)
Raw materials $ 1,550 $ 1,449
Finished goods and
work in progress 2,209 2,281
Purchased products
for resale 2,715 1,579
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$ 6,474 $ 5,309
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE 3 - Marketable Securities
At June 30, 1996, Maxco owned 1,737,405 shares of Medar's common stock
(aggregate market value of $18.0 million) representing approximately 19.7% of
Medar's total common stock outstanding. 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
gain net of deferred tax of approximately $7.0 million and $5.3 million being
reported as part of stockholders' equity at June 30, 1996 and March 31, 1996,
respectively.
NOTE 4 - Long-Term Debt
Maxco's revolving credit agreement allows Maxco to borrow up to $24.0 million
at June 30, 1996, with limitations based on the value of certain assets. At
June 30, 1996, $3.7 million was available under this agreement. As a result
of the sale of FinishMaster on July 9, 1996, Maxco's revolving line of credit
was reduced to zero at that date and the agreement was amended to allow Maxco
to borrow up to $14.0 million.
NOTE 5 - DISCONTINUED BUSINESS
On July 9, 1996, Maxco completed an agreement to sell its 4,045,000 shares
(67 percent interest) of FinishMaster, Inc. and for Maxco to enter into an
agreement not to compete for a total consideration of $62.6 million. More
than 90 percent of the total consideration was in cash, including an initial
payment on the non-compete agreement, with the balance payable over the five
year term of the non-compete agreement. The price was negotiated by the
parties based on their evaluation of the intrinsic value of the FinishMaster
operation. The transaction closed on July 9, 1996.
Maxco will report a gain related to this transaction in its second quarter
ending September 30, 1996 of approximately $23 million net of tax or $5.00
per share. Maxco has not formulated plans for the use of the net proceeds
from this transaction.
As a result of the agreement to sell FinishMaster, the results of operations
for FinishMaster have been reported separately as discontinued operations in
the consolidated statements of operations. Consolidated financial statements
for the quarter ended June 30, 1995, have been restated to conform to the
current presentation. Selected operating results for FinishMaster are
presented in the following table:
Three Months Ended June 30,
1996 1995
---------------------
(in thousands)
Net Sales $ 33,149 $ 23,485
Cost and expenses 32,074 22,046
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Income before income taxes 1,075 1,439
Income tax expense 376 507
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Net income 699 932
Minority interest in net earnings
of discontinued business (229) (305)
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Total income from discontinued business $ 470 $ 627
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
JUNE 30, 1996
MATERIAL CHANGES IN FINANCIAL CONDITION
Net cash used in operating and investing activities was the primary reason that
cash and cash equivalents decreased by $380,000 during the quarter. The cash
was consumed during the quarter by increases in accounts receivable, inventory,
and other working capital items.
Cash was also used in investing activities during the quarter for the purchase
of property and equipment. Additional long-term debt issued under Maxco's
revolving line of credit, was the primary reason long-term debt increased $2.4
million since year end.
On July 9, 1996, Maxco completed an agreement to sell its 67 percent interest
in FinishMaster, Inc. The agreement calls for Maxco to sell its 4,045,000
shares of FinishMaster and for Maxco to enter into an agreement not to compete
for a total consideration of $62.6 million. More than 90 percent of the total
consideration was in cash, including an initial payment on the non-compete
agreement, with the balance payable over the five year term of the non-compete
agreement.
Maxco will report a gain related to this transaction in its second quarter
ending September 30, 1996, of approximately $23 million net of tax or $5.00 per
share. Maxco has not formulated plans for the use of the net proceeds from
this transaction.
As a result of the sale of Maxco's interest in FinishMaster, the Company
retired its outstanding balance on its revolving line of credit. The credit
agreement was subsequently amended to allow Maxco to borrow up to $14.0
million.
The Company believes that its current financial resources, together with cash
generated from operations, its available resources under its line of credit,
and the cash generated from the sale of FinishMaster will be adequate to meet
cash requirements for the next year.
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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, 1996 Compared to 1995
Net sales from continuing operations increased to $23.7 million compared to
$23.0 million in last year's first quarter. First quarter results reflect a
loss from continuing operations of $138,000 compared to a loss of $271,000 for
the comparable period in 1995. Net income was $332,000 or $.06 per share
compared to last year's $356,000 or $.07 per share.
The sales growth for the three months ended June 30, 1996 was primarily
attributable to the construction supplies group and Wright Plastic Products.
Sales increased $.6 million at Maxco's construction supplies businesses as a
result of higher demand in the Wisconsin market area. Sales at Wright Plastics
improved due to production on new sales contracts.
The loss from continuing operations was reduced from the prior year comparable
period due to an improvement in operating earnings at Wright Plastics,
primarily as a result of the increase in sales and an improvement in gross
margin percentage at this unit.
A reduction in the sales level at Akemi, coupled with a lower gross margin
percentage in the current year, caused this unit, however to experience a
$300,000 higher operating loss in 1996 compared to the first quarter of 1995.
The increase in interest expense was primarily due to increased borrowings
under the company's line of credit and borrowings for recently completed
capital improvements at Akemi and Wisconsin Wire & Steel.
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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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10.5 Second amendment to the amended and restated loan agreement between
Comerica Bank and Maxco, Inc., dated as of September 8, 1995, is
hereby incorporated by reference from registrants Form 10-Q dated
November 10, 1995.
10.6 Third amendment to the amended and restated loan agreement between
Comerica Bank and Maxco, Inc., dated as of May 15, 1996, is hereby
incorporated by reference from registrants Form 10-K dated June 18,
1996.
10.7* Fourth amendment to amended and restated loan agreement dated as of
July 9, 1996.
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 9, 1996 /s/ VINCENT SHUNSKY
------------------ -----------------------------------
Vincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.7 Fourth amendment to amended and restated loan agreement dated
as of July 9, 1996.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule