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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 SEPTEMBER 30, 1997
Commission File Number 0-2762
MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-1792842
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1118 Centennial Way
Lansing, Michigan 48917
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number, including area code: (517) 321-3130
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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 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 September 30, 1997
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Common Stock 3,318,810 shares
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PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
September 30, March 31,
1997 1997
(Unaudited)
------------------------
(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,108 $ 1,609
Marketable securities--Note 3 3,096 2,984
Accounts and notes receivable, less allowance of
$581,000 ($470,000 at March 31, 1997) 19,099 13,526
Inventories--Note 2 4,075 3,667
Prepaid expenses and other 394 269
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TOTAL CURRENT ASSETS 27,772 22,055
MARKETABLE SECURITIES - LONG TERM--Note 3 8,700 7,780
PROPERTY AND EQUIPMENT
Land 732 732
Buildings 11,969 9,810
Machinery, equipment, and fixtures 15,338 14,358
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28,039 24,900
Allowances for depreciation (7,335) (6,325)
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20,704 18,575
OTHER ASSETS
Investments--Note 4 13,165 12,219
Notes and contracts receivable and other 2,861 4,896
Intangibles 2,538 2,636
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18,564 19,751
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$75,740 $68,161
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September 30, March 31,
1997 1997
(Unaudited)
------------------------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 226 $ 226
Accounts payable 11,157 6,556
Employee compensation 1,507 1,699
Taxes, interest, and other liabilities 2,823 1,714
Current maturities of long-term obligations 1,984 4,458
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TOTAL CURRENT LIABILITIES 17,697 14,653
LONG-TERM OBLIGATIONS, less current maturities 19,655 16,027
DEFERRED INCOME TAXES 1,686 2,502
STOCKHOLDERS' EQUITY
Preferred stock:
Series Three: 10% cumulative redeemable, $60 face
value; 15,152 shares issued and outstanding
(15,426 at March 31, 1997) 700 716
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; 6,698 shares issued and outstanding--Note 5 804
Common stock, $1 par value; 10,000,000 shares
authorized, 3,318,810 issued shares (3,517,680 at
March 31, 1997) 3,319 3,518
Net unrealized gain (loss) on marketable securities 90 (68)
Retained earnings 29,399 28,423
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36,702 34,979
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$75,740 $68,161
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See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
Three Months Ended September 30,
1997 1996
(Unaudited) (Unaudited)
(Restated-
Note 4)
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(in thousands, except per share data)
Net sales $29,342 $19,876
Costs and expenses:
Cost of sales and operating expenses 22,344 16,492
Selling, general and administrative 4,120 2,379
Depreciation and amortization 591 281
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27,055 19,152
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OPERATING EARNINGS 2,287 724
Other income (expense)
Investment income 247 402
Interest expense (485) (230)
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INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL
INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES 2,049 896
Federal income tax expense 720 313
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INCOME FROM CONTINUING OPERATIONS
BEFORE EQUITY IN EARNINGS OF AFFILIATES 1,329 583
Equity in earnings of affiliates, net of deferred tax--Note 4 103 79
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INCOME FROM CONTINUING OPERATIONS 1,432 662
Income from discontinued operations 21,782
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NET INCOME 1,432 22,444
Less preferred stock dividend and other ( 103) (53)
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NET INCOME APPLICABLE TO COMMON STOCK 1,329 22,391
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NET INCOME PER COMMON SHARE
Continuing operations $ .38 $ .15
Discontinued operations 5.14
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$ .38 $ 5.29
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Weighted average number of shares of common stock
and common stock equivalents outstanding 3,467 4,236
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See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
Six Months Ended September 30,
1997 1996
(Unaudited) (Unaudited)
(Restated-
Note 4)
-----------------------------------
(in thousands, except per share data)
Net sales $57,181 $38,216
Costs and expenses:
Cost of sales and operating expenses 43,270 31,760
Selling, general and administrative 8,265 4,616
Depreciation and amortization 1,192 531
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52,727 36,907
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OPERATING EARNINGS 4,454 1,309
Other income (expense)
Investment income 460 406
Interest expense (981) (783)
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INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL
INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES 3,933 932
Federal income tax expense 1,379 325
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INCOME FROM CONTINUING OPERATIONS
BEFORE EQUITY IN EARNINGS OF AFFILIATES 2,554 607
Equity in earnings of affiliates, net of deferred tax--Note 4 203 194
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INCOME FROM CONTINUING OPERATIONS 2,757 801
Income from discontinued operations 22,090
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NET INCOME 2,757 22,891
Less preferred stock dividend and other (186) (109)
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NET INCOME APPLICABLE TO COMMON STOCK 2,571 22,782
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NET INCOME PER COMMON SHARE
Continuing operations $ .73 $ .17
Discontinued operations 5.03
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$ .73 $ 5.20
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Weighted average number of shares of common stock
and common stock equivalents outstanding 3,516 4,392
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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
Six Months Ended September 30,
1997 1996
(Unaudited) (Unaudited)
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(in thousands)
OPERATING ACTIVITIES
Net Income $2,757 $22,891
Income from Discontinued Operations (22,090)
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Income from Continuing Operations 2,757 801
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and other non-cash charges 1,200 336
Changes in operating assets and liabilities (2,544) 13,926
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NET CASH PROVIDED BY OPERATING ACTIVITIES 1,413 15,063
INVESTING ACTIVITIES
Sale of subsidiary 37,711
Payments received on notes receivable 3,443
Net investment in marketable securities (793) (26,529)
Investment in affiliates (1,510)
Purchases of property and equipment (3,236) (622)
Other 220 8
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,876) 10,568
FINANCING ACTIVITIES
Proceeds from long-term obligations 2,140 446
Repayments on long-term obligations and notes payable (986) (19,566)
Changes in capital stock (1,006) (5,557)
Dividends paid on preferred stock (186) (102)
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NET CASH USED IN FINANCING ACTIVITIES (38) (24,779)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (501) 852
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,609 735
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,108 $1,587
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See notes to consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
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, 1997.
The results of operations for the interim periods presented are not
necessarily indicative of the results for the full year. Certain other
amounts in the consolidated financial statements have been reclassified to
conform with the current presentation.
NOTE 2 - Inventories
The major classes of inventories, at the dates indicated were as follows:
September 30, March 31,
1997 1997
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(Unaudited)
(in thousands)
Raw materials $ 717 $ 783
Finished goods and
work in progress 1,224 1,212
Purchased products
for resale 2,134 1,672
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$4,075 $3,667
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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 gain, net of deferred tax, of approximately $90,000 being reported
as part of stockholders' equity at September 30, 1997.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE 4 - Investment in Medar, Inc.
The financial statements for the three and six months ended September 30,
1996 have been restated to show Medar as an equity investment as a result of
Maxco's current ownership percentage of Medar stock being greater than 20%.
The effect of the restatement was to increase net income as reported
previously for the three and six months ended September 30, 1996, by $79,000
or $.02 per share and $194,000 or $.04 per share, respectively.
During the quarter ended September 30, 1997, the Company participated in the
private placement by Medar, Inc. of $7.0 million of subordinated debentures.
Maxco purchased $750,000 of these debentures representing 10.7% of the total
placed. Maxco also received warrants to purchase 150,000 shares of Medar
stock at $6.86. The debentures have maturities of up to eight years and bear
interest at 12.95%. In connection with this transaction, Maxco also
purchased 150,000 shares of previously unissued Medar stock at $5.00 a share.
At September 30, 1997, Maxco owned 2,045,405 shares or approximately 23% of
Medar's common stock (aggregate market value of approximately $15.2 million
at that date).
NOTE 5 - Issuance of Series Five Preferred Stock
In the first quarter of the current year, 6,767 shares of Series Five
Preferred stock were issued in exchange for 101,870 shares of common stock.
These new shares were issued in conjunction with an offer to exchange shares
of common stock for shares of the Company's non-voting Series Five Preferred
Stock. The Series Five Preferred shares have a face value of $120 and pay a
dividend at the rate of 10% of face value per annum. The Company exchanged
one share of Series Five Preferred Stock for every 15 shares of common stock
surrendered.
NOTE 6 - Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 is effective for financial statements issued for periods ending after
December 15, 1997. The adoption of SFAS No. 128 would not have a material
impact on the results of the earnings per share calculation for the three or
six months ended September 30, 1997 or 1996, and is not anticipated to have a
material effect for the year ended March 31, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1997
MATERIAL CHANGES IN FINANCIAL CONDITION
Maxco's operating activities generated $1.4 million in cash during the first
six months of 1997. Higher sales levels during the summer construction period
by Ersco and Wisconsin Wire & Steel was the primary reason for the increases in
accounts receivable, inventory and accounts payable over the fourth quarter of
the prior year. Current maturities of long-term obligations were reduced from
the March 31, 1997 level due to the refinancing of one of the Company's lines
of credit.
The cash generated from operations in 1997, as well as proceeds from the
collection of a note related to the sale of Maxco's interest in FinishMaster,
were used by Maxco principally as follows:
* The Company invested in property and equipment of approximately $3.2
million during the first six months.
* The Company participated in the private placement by Medar, Inc. of $7.0
million of subordinated debentures. Maxco purchased $750,000 of these
debentures representing 10.7% of the total placed. Maxco also received
warrants to purchase 150,000 shares of Medar stock at $6.86 as part of
this transaction. The debentures have maturities of up to eight years and
bear interest at 12.95%. In connection with this transaction, Maxco also
purchased 150,000 shares of previously unissued Medar stock at $5.00 a
share.
* The Company repurchased approximately 97,000 shares of Maxco stock during
the six-months ended September 30, 1997.
In the first quarter of the current fiscal year, 6,767 shares of Series Five
Preferred stock were issued in exchange for 101,870 shares of common stock
pursuant to an exchange offer.
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 its cash requirements for the next year.
Subsequent to September 30, 1997, Maxco increased its investment in Strategic
Interactive, Inc., a technology based training and education provider, from 15%
to 45% ownership.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to 1996
Net sales from continuing operations increased to $29.3 million compared to
$19.9 million in last year's second quarter. Second quarter results reflect
income from continuing operations of approximately $1.4 million compared to
$662,000 for the comparable period in 1996. Net income was $1.4 million or
$.38 per share compared to last year's $22.4 million or $5.29 per share. Net
income for last year's second quarter reflects $22.0 million in income from
discontinued operations resulting from the sale of Maxco's interest in
FinishMaster stock on July 9, 1996. Prior year results have been restated to
reflect Maxco's change in its accounting for its investment in Medar from a
security available for sale under FASB 115 to an equity investment. The effect
of this restatement was to increase net income as reported previously for the
three months ended September 30, 1996 by $79,000 or $.02 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
Higher sales in the current period occurred at Maxco's construction supplies
companies (Ersco and Wisconsin Wire & Steel) over the comparable 1996 period.
This increase in sales at these companies, as well as the inclusion of the
sales for Atmosphere Annealing, acquired in January 1997, were the primary
reasons that net sales increased over the comparable period of the prior year.
Ersco and Wisconsin Wire & Steel generated additional operating earnings in the
current period over last year due to their increased sales level and a higher
gross margin percentage. In addition, operating results for Atmosphere
Annealing, acquired in January 1997, were included in the current quarter
results.
The change in net interest was attributable to the cash requirements for the
purchase of assets, investments made in affiliates, and the repurchase of
Company stock.
Six Months Ended June 30, 1997 Compared to 1996
Net sales from continuing operations increased to $57.2 million compared to
$38.2 million for last year's comparable six month period. Results for this
period reflect income from continuing operations of approximately $2.8 million
compared to $801,000 for the comparable period in 1996. Net income was $2.8
million or $.73 per share compared to last year's $22.9 million or $5.20 per
share. Income from discontinued operations for the six month period of the
prior year included a $22.0 million gain from the sale of FinishMaster. Prior
year results have been restated to reflect Maxco's change in its accounting for
its investment in Medar from a security available for sale under FASB 115 to an
equity investment. The effect of this restatement was to increase net income
as reported previously for the six months ended September 30, 1996 by $194,000
or $.04 per share.
The sales growth in the current period was due to an increase in sales at Ersco
and Wisconsin Wire & Steel, and the inclusion of sales for Atmosphere
Annealing, acquired in January 1997.
Higher earnings at Ersco and Wisconsin Wire & Steel, and the inclusion of
operating earnings generated by Atmosphere Annealing during the six months,
improved operating earnings over the comparable prior period. Net interest
expense increased for the six months due to the cash requirements for the
investment in assets, investments in affiliates, and repurchase of Company
stock.
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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(a) Exhibits
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).
4.2 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 registrants 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.
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PART II
OTHER INFORMATION (CONTINUED)
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.
10.8 Stock Purchase Agreement (sale of FinishMaster, Inc.) effective
July 9, 1996, is hereby incorporated by reference from
registrants Form 10-K dated June 18, 1996.
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 registrants 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 registrants 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.
11* Statement Re: Computation of Per Share Earnings
27* Financial Data Schedule
Item 6(b) Reports on Form 8-K
None
*Filed herewith
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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 6, 1997 \S\ VINCENT SHUNSKY
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Vincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)
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