<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
<TABLE>
<S><C>
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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</TABLE>
Commission File Number 0-2762
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MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S><C>
Michigan 38-1792842
-------- ----------
(State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer 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
--------------
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S><C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Common stock Series Three Preferred Stock
------------ ----------------------------
(Title of Class) (Title of Class)
</TABLE>
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 30, 1997:
$13,887,000.
At April 30, 1997, there were outstanding 3,517,680 shares of Registrant's
common stock.
Documents Incorporated By Reference
-----------------------------------
Portions of the annual proxy statement for the year ended March 31, 1997 are
incorporated by reference into Part III.
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<PAGE> 2
MAXCO, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- --------------------------------------------------------------------- ----
<S> <C> <C>
1 Business 3
2 Properties 6
3 Legal Proceedings 6
4 Submission of Matters to a Vote of Security Holders 6
5 Market for Registrant's Common Equity and Related Shareholder Matters 7
6 Selected Financial Data 8
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
8 Financial Statements and Supplemental Data 13
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
10 Directors and Executive Officers of the Registrant 13
11 Executive Compensation 13
12 Security Ownership of Certain Beneficial Owners and Management 13
13 Certain Relationships and Related Transactions 13
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14
Signatures 15
List of Financial Statements and Financial Statement Schedules 17
</TABLE>
2
<PAGE> 3
PART I
ITEM 1 - BUSINESS
Maxco, Inc. is a Michigan corporation incorporated in 1946. Maxco currently
operates in three business segments; distribution, heat treating and packaging
products. Maxco's businesses include Ersco and Wisconsin Wire & Steel,
construction supply units; Pak-Sak Industries, Inc., manufacturers of
polyethylene bags and packaging material; and Atmosphere Annealing, Inc., a
metal heat-treating service company. Maxco also holds investments in a real
estate development limited liability company and in three technology-related
businesses: Medar, Inc. (Nasdaq/NMS: MDXR); AXSON, S.A.; and Strategic
Interactive, Inc.
Several significant events occurred during the year ended March 31, 1997. In
July 1996, Maxco sold its then 67% owned subsidiary, FinishMaster, Inc., a
distributor of automotive paint, for a total consideration of $62.6 million.
Maxco also sold Wright Plastic Products, Inc., its custom plastic injection
molder and tool builder, in October 1996; and sold Akemi, Inc., which
formulates and compounds polyester and epoxy thermoset plastics, in January
1997.
Effective January 1, 1997, Maxco acquired the business and substantially all
the assets of Atmosphere Annealing, Inc., a provider of metal heat treating
services to Midwestern industrial users. This unit employs approximately 370
people at facilities in Lansing, Michigan; Canton, Ohio; and North Vernon,
Indiana.
Maxco also made other investments during the fiscal year. Effective January 1,
1997, it acquired a 50% interest in a Limited Liability Company (LLC) formed to
develop and lease real estate in central Michigan, and invested in
approximately 15% of the common stock of Strategic Interactive, Inc., which
provides web based training, education and other corporate communications.
Effective January 27, 1997, Maxco acquired approximately 7% of the stock of
Axson, S.A., a manufacturer of resins and composite materials for advanced
applications.
DISTRIBUTION
The distribution segment consists of two business units operating in the
construction supply industry: Ersco Corporation (a division of Maxco) and
Wisconsin Wire and Steel.
These companies are fabricators of reinforcing steel as well as distributors of
concrete construction products and accessories for road and commercial building
construction. Their products include reinforcing steel rod and mesh, expansion
fiber and concrete curing compounds, as well as custom fabrication of steel
(rod and mesh) and fiber products used in concrete paving and construction.
The geographic market is the Midwest, primarily in Michigan, Indiana, and
Wisconsin. Warehouses are located in Detroit, Grand Rapids, Saginaw and
Traverse City, Michigan; Lafayette and South Bend, Indiana; and Milwaukee,
Wisconsin. Competition is intense and larger project orders are secured on a
competitive bid basis. During the years ended March 31, 1997, 1996, and 1995,
net sales of the construction supplies group were approximately 61%, 68% and
69%, respectively, of consolidated net sales.
This segment is not dependent on any patents, trademarks, licenses, franchises,
or concessions and is not dependent upon a single or a few customers, the loss
of which would have a significant adverse effect on the segment.
Units of this segment may carry significant amounts of inventory to meet
delivery requirements of customers. Inventories of this segment were
equivalent to 34 days sales on hand and represented 46% of Maxco's total
inventories at March 31, 1997. Credit policies have been established that
provide for extension of credit and collection of amounts due. The Company's
general policy requires payment within 30 days of invoice date. Adherence to
these policies will mean that accounts receivable levels will generally change
with volume levels. However, the collection periods may be extended by prior
agreement to accommodate customer cash flows. Where applicable, accounts
receivable are secured by perfected lien rights and performance bonds.
The volume of the construction supplies group in the third and fourth quarters
is generally lower due to reduced construction activity during the winter
months in the unit's market area. Historically, this segment's activities have
generally followed the economic cycles within the respective business unit's
market area.
Generally, the distribution segment of the Company does not enter into specific
long-term contracts with its customers. As such, no backlog exists for this
segment.
3
<PAGE> 4
HEAT TREATING
Atmosphere Annealing, Inc.
Acquired in January 1997, Atmosphere Annealing, Inc. provides metal heat
treating, phosphate coating and bar shearing and sawing services to the cold
forming, stamping, forging and casting industries. Its services are sold
through Atmosphere's own sales personnel and outside sales representatives,
primarily to the automotive companies and automotive suppliers. This unit
employs approximately 370 people at its facilities in Lansing, Michigan;
Canton, Ohio; and North Vernon, Indiana.
Since Atmosphere is a service business, inventory levels for this segment are
small and consist only of various lubricants and other materials used in the
heat treating, phosphate coating or bar shearing and sawing process. In
addition to pickup and delivery of consigned inventory by its customers,
Atmosphere maintains its own trucks which are in operation 24 hours a day
throughout the Midwest to insure prompt pickup and delivery.
The heat treating industry is competitive with over 250 heat treaters in
Michigan, Ohio, and Indiana. Atmosphere specializes in high volume, low
priced, ferrous heat treating using large furnaces. In its market niche of
this type of heat treating, Atmosphere competes with only five or six
competitors. Much of the heat treating industry is comprised of smaller
companies that specialize in higher priced heat treating such as carburizing,
nitriding, tool and die, brazing, salt bath or induction hardening.
The Company's response time to its customer just-in-time requirements does not
result in significant backlog for this segment. Company growth is anticipated
to be achieved by this unit in the future due to outsourcing of high volume
heat treating services. These services are usually outsourced by Atmosphere's
customers because of extensive storage requirements with minimal value added to
the consumer and it is further removed from the finished product.
Sales for this unit are fairly consistent throughout the year with the
exception of lower volume during model changeovers for its automotive customers
in July, and during the winter holiday season. Sales to a single or a few
customers are significant to this segment. This segment accounted for
approximately 11% of consolidated net sales for the year-ended March 31, 1997.
PACKAGING PRODUCTS
Pak-Sak Industries, Inc.
Pak-Sak Industries, Inc. extrudes polyethylene film and converts it into a
variety of polyethylene bags and packaging materials. A smaller portion of the
business is the purchase and resale of film products produced by other
companies. Manufactured products are both printed and plain. Products are
sold primarily throughout the Midwest area by its own sales personnel,
manufacturers' representatives and paper jobbers. Manufacturing facilities are
located in Sparta, Michigan.
The customers served by this unit are primarily general manufacturing
businesses. This segment's business is primarily affected by changing consumer
demands and the general condition of the economy. The business of this segment
is relatively stable within the economic cycle of industry in general.
Inventory levels of this segment tend to be in proportion to the level of sales
activity. Total inventories of this segment were equivalent to 48 days sales
on hand and represented 54% of Maxco's total inventories at March 31, 1997.
Credit policies are enforced to help insure that increases in accounts
receivable are primarily related to volume increases.
The Company's response time to its customers' just-in-time inventory
requirements, which may change on a daily basis, does not result in significant
backlog for this segment.
Sales of packaging products to a single customer were not significant to the
Company for the years ended March 31, 1997, 1996 and 1995. The segment is not
dependent on any patents, trademarks, licenses, franchises or concessions.
This segment accounted for approximately 28%, 32% and 31% of consolidated net
sales for the years ended March 31, 1997, 1996 and 1995, respectively.
4
<PAGE> 5
For additional information regarding the Company's industry segments, see Note
12 to "Notes to Consolidated Financial Statements."
OTHER INVESTMENTS
Medar, Inc. develops, manufactures and markets microprocessor-based process
monitoring and control systems for use in industrial manufacturing
environments. The principal applications for the Company's products include
optical inspection systems and resistance welding controls. As of March 31,
1997, Maxco's ownership of Medar's Common Stock was approximately 21%.
Effective January 1, 1997, Maxco acquired a 50% interest in a Limited Liability
Company (LLC) formed to develop and lease real estate. The LLC has an interest
along with other third party investors in a real estate portfolio, valued at
approximately $70 million at March 31, 1997. This portfolio consists of
properties located in central Michigan, and includes approximately 40 offices
and retail buildings, residential building sites, and more than 125 acres of
property zoned for commercial and industrial development.
In addition to its interest in the LLC, Maxco Development Company (a division
of Maxco) is involved in the management of various real estate projects.
Effective January 1, 1997, Maxco acquired a 15% interest in Strategic
Interactive, Inc. which provides web based training, education and other
corporate communications solutions.
Maxco also has an investment of approximately 7% of the common stock of Axson,
S.A., of France, a manufacturer of resins and composite materials for advanced
applications.
DISCONTINUED OPERATIONS
Maxco's discontinued operations include Wright Plastic Products, a custom
plastic injection molder and tool builder; Akemi, Inc., which formulates and
compounds polyester and epoxy thermoset plastics; and FinishMaster, a
distributor of automotive paints, coatings and paint-related accessories (see
Note 3 to "Notes to Consolidated Financial Statements").
The results of operations for Maxco's discontinued operations are reported
separately in the accompanying financial statements.
RESEARCH AND DEVELOPMENT
Expenditures on research activities related to development or improvement of
products were not significant.
MAJOR CUSTOMERS
No sales to any single customer exceeded 10% of consolidated sales for 1997,
1996 or 1995.
ENVIRONMENTAL FACTORS
Compliance by Maxco and its subsidiaries with environmental protection laws had
no material effect upon capital expenditures, earnings or competitive position.
EMPLOYEES
At March 31, 1997, Maxco and its subsidiaries employed approximately 620 full
time employees in its continuing operations.
EXPORT SALES AND FOREIGN OPERATIONS
The Company and its subsidiaries had no foreign operations or material export
sales during the years ended March 31, 1997, 1996 or 1995.
5
<PAGE> 6
ITEM 2 - PROPERTIES
- -------------------
The following table provides information relative to the principal properties
owned or leased by the Company and its subsidiaries as of March 31, 1997. The
registrant considers its facilities to be in good operating condition.
<TABLE>
<CAPTION>
OWNED/
LOCATION APPROXIMATE SIZE LEASED USE
- -------- ---------------- ------ ---
DISTRIBUTION
------------
<S> <C> <C> <C>
Ersco Corporation
- -----------------
Southfield, MI 24,000 sq ft Leased Warehouse and
administrative offices
Saginaw, MI 15,000 sq ft Leased Warehouse and distribution
Traverse City, MI 7,800 sq ft Leased Warehouse and distribution
Wyoming, MI 7,500 sq ft Leased Warehouse and distribution
Lafayette, IN 9,200 sq ft Leased Warehouse and distribution
Mishawaka, IN 21,200 sq ft on 1.3 acres Owned(A) Warehouse and distribution
Wisconsin Wire & Steel, Inc.
- ----------------------------
Brookfield, WI 15,000 sq ft on 1.6 acres Owned(A) Warehouse and
administrative offices
Brookfield, WI 5,900 sq ft on .75 acres Owned(A) Held for Sale
HEAT TREATING
-------------
Atmosphere Annealing, Inc.
- --------------------------
Canton, OH 150,000 sq ft Owned(A) Heat Treating Plant
Lansing, MI 100,000 sq ft Leased Plant and administrative offices
Lansing, MI 45,000 sq ft Leased Heat Treating Plant
N. Vernon, IN 88,000 sq ft Owned(A) Heat Treating Plant
PACKAGING PRODUCTS
------------------
Pak-Sak Industries, Inc.
- ------------------------
Sparta, MI 78,000 sq ft on 2.5 acres Owned(A) Manufacturing and
administrative offices
Sparta, MI 12,000 sq ft Leased Manufacturing
REAL ESTATE AND CORPORATE
-------------------------
Maxco Development Company
- -------------------------
Thornapple Township, MI 150 acres Owned Held for investment
Lansing, MI 6,000 sq ft on 1.0 acre Owned(A) Leased to FinishMaster, Inc.
Eaton Rapids, MI 44,200 sq ft on 5 acres Owned(A) Leased to Axson, N.A.
Eaton Rapids, MI 9,300 sq ft on 1.5 acres Owned Leased to Axson, N.A.
Maxco, Inc.
- -----------
Lansing, MI 7,200 sq ft on 1.9 acres Owned(A) Executive offices
</TABLE>
- ------------------------------------------------------------
(A)Subject to a mortgage
Expiration dates of leases relative to the Company's principal properties range
from 1997 to 2001. Leases expiring within 12 months are expected to be renewed
at substantially the same terms as the present leases.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
6
<PAGE> 7
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Maxco's common stock trades on the Nasdaq Stock Market under the symbol MAXC.
The approximate number of record and beneficial holders of Maxco's common stock
at May 31, 1997 was 1,500.
The range of high and low sales prices for the last two years as reported by
NASDAQ were:
<TABLE>
<CAPTION>
YEAR QUARTER ENDED HIGH LOW
---- ------------- ---- ---
<S> <C> <C> <C>
1995 March 31 10-3/4 8
June 30 9 7-1/4
September 30 10 7-7/8
December 31 9-1/8 7
1996 March 31 10 6-3/4
June 30 10-1/8 8
September 30 9-3/4 8-1/8
December 31 8-5/8 7-3/8
1997 March 31 7-3/4 6-1/4
</TABLE>
No cash dividends on common stock have been paid during any period.
7
<PAGE> 8
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995 1994 1993
-------------------------------------------------------------------
-------------------(Restated)--------------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 74,277 $ 59,330 $ 55,850 $ 43,039 $ 41,282
Income (loss) from continuing
operations before equity in
earnings of affiliates(1) 1,482 (1,098) 1,646 6,377 (1,023)
Equity in earnings (loss) of
affiliates, net of deferred tax (250) (1,501) 438 701 438
Income (loss) from continuing
operations 1,232 (2,599) 2,084 7,078 (585)
Income (loss) from discontinued
operations(2)(4) 21,322 (94) 2,034 2,235 1,952
Net income (loss) (1) (2) 22,554 (2,693) 4,118 9,313 1,367
Net income (loss) per share: (3)
Continuing operations .27 (.64) .42 1.50 (.19)
Discontinued operations 5.23 (.02) .44 .48 .45
Net income (loss) per share 5.50 (.66) .86 1.98 .26
AT MARCH 31:
Total assets 68,161 57,531 48,148 39,325 29,830
Long-term obligations
(net of current maturities) 16,027 26,815 15,369 10,219 13,320
Working capital 7,402 31,551 24,138 25,228 11,224
</TABLE>
NOTES
(1) Includes a $3.1 million and a $12.1 million pre-tax gain from subsidiary
stock transactions for the years ended March 31, 1996 and 1994,
respectively.
(2) Includes a $35.2 million pre-tax gain for the year ended March 31, 1997,
from the sale of FinishMaster stock.
(3) Per share amounts reflect primary earnings per share for the years ended
March 31, 1996 and 1993. Earnings per share for the years ended March 31,
1997, 1995 and 1994 are reported on a fully diluted basis.
(4) See Note 3 to "Notes to Consolidated Financial Statements".
No cash dividends on common stock have been paid during any period.
The above selected financial data should be read in conjunction with the
consolidated financial statements which appear in Part II, Item 8 of this
report.
8
<PAGE> 9
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the major elements relating to Maxco's
financial and operating results for 1997 compared with 1996, and 1996 compared
with 1995. The comments that follow should be read in conjunction with Maxco's
Consolidated Financial Statements and related notes, contained in Part II, Item
8 of this report.
RESULTS OF OPERATIONS
1997 VERSUS 1996
Net sales from continuing operations increased to $74.3 million compared to
$59.3 million in 1996. Income from continuing operations increased to $1.2
million in 1997 compared to a loss of $2.6 million for the comparable period in
1996. Net income was $22.6 million or $5.50 per share on a fully diluted basis
compared to a net loss of $2.7 million or $.66 per share in 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. This restatement was required as Maxco increased its
ownership to a level greater than 20% of Medar's outstanding shares. The
effect of this restatement was to reduce net income as reported previously for
the year ended March 31, 1996 by approximately $1.5 million or $.34 per share.
The primary contributors to the increase in net sales from continuing
operations in 1997 were an increase in sales in the construction supplies group
due to an expanded market area and product line, and the inclusion of
Atmosphere Annealing since the acquisition of this company in January 1997.
Sales also increased at Pak-Sak due to a change in customer mix.
A significant contributor to the improvement in income from continuing
operations in the current year was approximately $1.2 million in operating
earnings generated by Atmosphere Annealing since Maxco acquired this operation
in January 1997. In addition, earnings increased in the current year at
Pak-Sak due primarily to its sales volume increase. Operating earnings at the
construction supplies group were comparable to 1996 despite the sales volume
increase for this unit. Gross margin percentage was lower in the current year
due to a highly competitive market for the resteel portion of their business.
Other expense decreased approximately $1.7 million from 1996 as a result of
investment income generated in the current period as a result of the investment
of the cash proceeds received from the sale of Maxco's interest in
FinishMaster. Interest expense was also reduced as a portion of the proceeds
from the offering was used to retire $21.3 million in debt under Maxco's
revolving line of credit.
Income from continuing operations was also assisted by a reduction in the
amount of equity losses from affiliates recorded in the current year. Improved
operating results at Medar during this current period and equity from Maxco's
investment in its real estate LLC contributed to the year to year improvement.
The primary reason for the after-tax gain from disposal of discontinued
operations in 1997 of $22.0 million was due to the sale of Maxco's interest in
FinishMaster stock which occurred on July 9, 1996.
1996 VERSUS 1995
Continuing operations results reflect a loss of $2.6 million compared to income
of $2.1 million in 1995. Net sales from continuing operations increased 6% to
$59.3 million compared to $55.9 million in 1995. A net loss of $2.7 million or
$.66 per share was reported for 1996 versus net earnings of $4.1 million or
$.86 per share in 1995.
A $3.1 million pre tax gain was recognized from continuing operations in 1995
by Maxco as a result of the issuance 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.
The sales growth in 1996 was primarily attributable to Maxco's distribution
companies (Ersco and Wisconsin Wire & Steel). Sales increased $2.3 million at
Maxco's construction supplies businesses as a result of strong demand in their
market area and additional value added products being added.
9
<PAGE> 10
Increased volumes and margins at the Construction Supplies group enabled these
units to generate an increase in operating earnings over the comparable period
in the prior year.
Operating income improvements at the Construction Supplies Group were affected
by reduced operating earnings at Pak-Sak.
The increase in interest expense for continuing operations was primarily due to
increased borrowings under the Company's line of credit.
Continuing operations were also affected by the inclusion in the current year
of an equity loss of $1.5 million related to the Company's investment in Medar.
The Company's effective tax rate varied from the Company's statutory rate of
34% due to certain expenses, which are not deductible for tax purposes.
Discontinued operations decreased to a net loss of $0.1 million in 1996 from
income of $2.0 million in 1995 primarily due to acquisition related costs due
to rapid expansion into two new regions, coupled with flat same outlet sales
for FinishMaster. Net income for FinishMaster was also affected by a reduction
in investment income as well as additional interest expense in 1996.
Investment income was lower as funds from FinishMaster's IPO were used to fund
continued growth of this business and interest expense for this unit was higher
due to increased borrowings for acquisitions.
10
<PAGE> 11
SEASONAL AND QUARTERLY FLUCTUATIONS
The following table sets forth consolidated operating data for each of the
eight quarters ended March 31, 1997. The unaudited quarterly information has
been prepared on the same basis as the annual information and, in management's
opinion, includes all adjustments, consisting of only normal recurring entries,
necessary for a fair presentation of the information for the quarters
presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
Fiscal 1997 Fiscal 1996
------------------------------------------------- ---------------------------------------------
6/30/96 9/30/96 12/31/96 3/31/97 6/30/95 9/30/95 12/31/95 3/31/96
--------- --------- ----------- --------- --------- -------- --------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 18,340 $ 19,876 $ 15,955 $20,106 $ 17,694 $ 16,927 $ 14,485 $ 10,224
Gross margin 3,073 3,384 3,046 5,344 2,844 2,896 2,861 1,273
Income (loss) from
continuing operations 139 662 87 344 (244) (31) (1,129) (1,195)
Income (loss) from
discontinued operations 308 21,782 (693) (75) 299 52 54 (499)
Net income (loss) 447 22,444 (606) 269 55 21 (1,075) (1,694)
Net income (loss) per common
share:
Continuing operations $ .02 $ .15 $.00 $.09 $ (.07) $ (.02) $ (.27) $ (.29)
Discontinued businesses .07 5.14 (.19) (.02) .07 .01 .01 (.11)
--------- --------- ---------- ------------ --------- -------- --------- ---------
Net income (loss) per
common share * $ .09 $ 5.29 $ (.19) $.07 $ .00 $ (.01) $ (.26) $ (.40)
</TABLE>
* The sum of the quarterly net income per share amounts may not equal the
annual amounts reported. Net income per share is computed independently
for each quarter and the full year and is based on the respective weighted
average common shares outstanding.
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. The increase in the quarter
ended March 31, 1997, however, resulted from the inclusion of sales from
Atmosphere Annealing acquired at the beginning of the quarter. 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 earnings to continue to fluctuate from quarter
to quarter.
The quarter ended September 30, 1996, includes a $35.2 million pre-tax gain on
the sale of Maxco's interest in FinishMaster.
LIQUIDITY AND SOURCES OF CAPITAL
In 1997, several events occurred which strengthened the financial condition of
Maxco. On July 9,1996, Maxco completed an agreement to sell its interest in
FinishMaster for a total consideration of $62.6 million, of which approximately
$58 million was paid in cash on the date of sale. Maxco recognized an after
tax gain of approximately $22.0 million as a result of this transaction.
Stockholders' equity increased by the net amount of $15.7 million primarily due
to the recognized gain on the FinishMaster sale, offset by the repurchase of
$6.1 million of the Company's common stock.
11
<PAGE> 12
The Company used $21.3 million of the proceeds from this sale to retire
outstanding borrowings under the Company's line of credit at that date. The
remaining net proceeds from the sale were used primarily to repurchase stock
and to invest in marketable securities.
Effective October 31, 1997, Maxco sold the business and substantially all the
assets of Wright Plastic Products, Inc. The assets of approximately $10
million were sold for cash, the assumption of certain liabilities, and a note.
In January 1997, Maxco sold the business and certain assets of Akemi for
approximately $2 million in cash. The recent divestitures of Akemi and Wright
have eliminated operations that had incurred operating losses during the last
three years.
In addition to the reduction in long-term debt, the infusion of cash from the
FinishMaster sale allowed Maxco to invest in several opportunities to create
value during the year. Effective January 1, 1997, Maxco acquired the business
and substantially all the assets of Atmosphere Annealing, a provider of metal
heat treating services to Midwestern industrial users. The consideration paid
for these assets, totaling approximately $12.8 million, consisted of the
assumption of funded debt of approximately $6.4 million, cash and the issuance
of a subordinated note. The sellers received one-half of the net purchase
price in cash with the balance in the form of a subordinated note.
Effective January 1,1997, Maxco acquired a 50% interest in a Limited Liability
Company formed to own and develop and lease real estate in central Michigan.
In addition, the Company acquired 15% of the common stock of Strategic
Interactive, which provides web based training, education and other corporate
communications. The Company acquired, effective January 27, 1997,
approximately 7% of the stock of AXSON, S.A., a manufacturer of resins and
composite materials for advanced applications.
Operating activities for 1997 generated cash of approximately $2.6 million
primarily due to the Company's income from continuing operations of $1.2
million in the current year. The cash generated from continuing operations was
partially offset by a net increase in certain working capital items. Cash
generated was used to fund an increase in accounts receivable which was
attributable to the increased sales activity by the Company in 1997, in
addition to the amounts acquired from the purchase of Atmosphere Annealing.
Conversely, funds were generated by an increase in accounts payable and other
current liabilities.
Financing activities during the year consisted primarily of repayments on
long-term obligations and the acquisition and retirement of common stock. The
company has lines of credit totaling $15.5 million of which approximately $9.3
million was available at March 31,1997. The lines of credit consist of a $12
million unsecured facility with the remaining $3.5 million secured by the
assets at Atmosphere.
The Company plans to expand the capacities of several of its facilities.
Separate financing for these expansion projects is expected to be secured.
In fiscal 1997, the Company repurchased 647,762 shares of its common stock for
approximately $6.1 million. In addition, effective January 1, 1997, Maxco
converted its entire issue of cumulative non-voting Series Two Preferred stock.
The conversion of this stock eliminated a class of stock which had rights to
convert into approximately 230,000 shares of common stock. At the option of
the holder, this redemption was accomplished in some cases by issuing shares of
a newly established Series Four Preferred Stock. The Series Four Preferred
Stock is redeemable, is non-voting, has no conversion rights, and will pay a
dividend of 10% per year. Alternatively, certain holders of the Series Two
Stock accepted payment in the form of an unsecured subordinated note which
bears interest at 10% annually. In addition, 140,000 shares of common stock
were exchanged in January 1997 for 21,746 shares of the Series Four Preferred
Stock.
During the year, Maxco invested in 156,000 shares of Medar stock bringing its
ownership percentage of Medar to approximately 21% of Medar's outstanding
common stock. The 1,893,405 shares of Medar common stock that Maxco owns had
an aggregate market value at March 31,1997 of approximately $10.2 million.
Maxco's investment in Medar is reflected in Maxco's financial statements under
the equity method for all periods presented as the Company owns greater than
20% of Medar's outstanding stock. The Medar investment was previously reported
in 1996 as an equity security available for sale as Maxco's ownership was below
20%. The Company had an unrealized gain of approximately $5.3 million, net of
tax at March 31, 1996 as a separate component of stockholders' equity. The
Company reversed this unrealized gain in 1997 when it increased its ownership
above 20%, and was required to revert to the equity method to account for this
investment.
Maxco 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.
12
<PAGE> 13
Subsequent to March 31,1997, Maxco announced an offer to exchange up to 500,000
shares of common stock for shares of the Company's non-voting Series Five
Preferred Stock. Maxco's Series Five Preferred Stock will have a face value of
$120 and will pay a dividend at the rate of 10% of face value per annum. The
Company will exchange one share of Series Five Preferred Stock for every 15
shares of common stock surrendered.
IMPACT OF INFLATION
Inflation impacts Maxco's costs for materials, labor and related costs of
manufacturing and distribution. To the extent permitted by competition, Maxco
has offset these higher costs through selective price increases.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENT
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 year ended
March 31, 1997, 1996 and 1995.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The response to this item is submitted in a separate section of this report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1997.
ITEM 11 - EXECUTIVE COMPENSATION
Item 11 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1997.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1997.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13 is hereby incorporated by reference from the Registrant's definitive
proxy statement to be filed within 120 days of March 31, 1997.
13
<PAGE> 14
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2)--The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
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).
4.3 Resolution authorizing the redemption of Series Two
Preferred Stock, establishing Series Four Preferred Stock and the
terms of the subordinated notes is hereby incorporated by
reference from registrant's Form 10-Q dated February 14, 1997.
4.4 Resolution establishing Series Five Preferred Shares.
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 registrants Form 10-Q dated
February 14, 1997.
11 Statement Re: Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors (Form S-8 filed June 2,
1992 - File No. 33-48351)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
Form 8-K/A dated January 3, 1997
Item 2. Acquisition or Disposition of Assets -- Acquisition of
Atmosphere Annealing, Inc.
Item 7. Financial Statements and Exhibits -- Audited Financial
Statements and Proforma Financial Data for Atmosphere Annealing, Inc.
(c) Exhibits
-Resolution establishing Series Five Preferred Shares
-Statement Re: Computation of Per Share Earnings
-Subsidiaries of the Registrant
-Consent of Independent Auditors
-Financial Data Schedule
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date June 5, 1997 MAXCO, INC.
----------------------
By /S/ VINCENT SHUNSKY
-----------------------
Vincent Shunsky, Vice President of
Finance and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ MAX A. COON 06/05/97 President (Principal Executive Officer) and Director
- ------------------------------
Max A. Coon Date
/S/ VINCENT SHUNSKY 06/05/97 Vice President of Finance and Treasurer (Principal
- ------------------------------ Financial and Accounting Officer) and Director
Vincent Shunsky Date
/S/ ERIC L. CROSS 06/05/97 Director
- ------------------------------
Eric L. Cross Date
/S/CHARLES J. DRAKE 06/05/97 Director
- ------------------------------
Charles J. Drake Date
Director
- ------------------------------
Joel I. Ferguson Date
/S/ RICHARD G. JOHNS 06/05/97 Director
- ------------------------------
Richard G. Johns Date
/S/J. MICHAEL WARREN 06/05/97 Director
- ------------------------------
J. Michael Warren Date
/S/MICHAEL W. WISTI 06/05/97 Director
- ------------------------------
Michael W. Wisti Date
/S/ANDREW S. ZYNDA 06/05/97 Director
- ------------------------------
Andrew S. Zynda Date
</TABLE>
15
<PAGE> 16
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2), (c), AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED MARCH 31, 1997
MAXCO, INC.
LANSING, MICHIGAN
16
<PAGE> 17
FORM 10-K--ITEM 14(a)(1) AND (2)
MAXCO, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Maxco, Inc. and subsidiaries
are included in Item 8:
<TABLE>
<S> <C>
Consolidated balance sheets--March 31, 1997 and 1996 .................................................. 19
Consolidated statements of operations--Years ended March 31, 1997, 1996, and 1995 ..................... 21
Consolidated statements of stockholders' equity--Years ended March 31, 1997, 1996, and 1995 ........... 22
Consolidated statements of cash flows--Years ended March 31, 1997, 1996, and 1995 ..................... 23
Notes to consolidated financial statements--March 31, 1997 ............................................ 24
The following consolidated financial statement schedule of Maxco, Inc. and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts and reserves ........................................... 34
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
Financial statements of the Registrant's discontinued operation
(FinishMaster, Inc.), are hereby incorporated by reference to the
FinishMaster, Inc. Form 10-K for the year ended March 31, 1996, as filed
with the Securities and Exchange Commission (SEC File Number 000-23222).
Financial statements of the Registrant's significant unconsolidated
affiliate (Medar, Inc.) are hereby incorporated by reference to the Medar,
Inc. Form 10-K for the year ended December 31, 1996, as filed with the
Securities and Exchange Commission (SEC File Number 0-12728).
17
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxco, Inc.
We have audited the consolidated balance sheets of Maxco, Inc. and subsidiaries
as of March 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended March 31, 1997. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements and schedule referred to
above present fairly, in all material respects, the consolidated financial
position of Maxco, Inc. and subsidiaries at March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Detroit, Michigan
May 20, 1997
18
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31,
1997 1996
----------------------------------
(Restated-Note 3)
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,609 $ 735
Marketable securities 2,984
Accounts receivable, less allowance of
$470,000 in 1997 and $276,000 in 1996 13,526 6,699
Inventories--Note 1 3,667 3,729
Prepaid expenses and other 269 345
Net current assets of discontinued operations--Note 3 27,169
-------- --------
TOTAL CURRENT ASSETS 22,055 38,677
MARKETABLE SECURITIES - LONG TERM--Note 2 7,780
PROPERTY AND EQUIPMENT
Land 732 470
Buildings 9,810 6,399
Machinery, equipment, and fixtures 14,358 6,876
-------- --------
24,900 13,745
Allowances for depreciation (6,325) (4,506)
-------- --------
18,575 9,239
OTHER ASSETS
Investments--Notes 4 and 10 12,219 8,177
Notes and contracts receivable and other 4,896 942
Intangibles--Note 1 2,636 496
-------- --------
19,751 9,615
-------- --------
$ 68,161 $ 57,531
======== ========
</TABLE>
See notes to consolidated financial statements
19
<PAGE> 20
<TABLE>
<CAPTION>
March 31,
1997 1996
-----------------------------------
(Restated-Note 3)
(in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 226 $ 236
Accounts payable 6,556 4,778
Employee compensation 1,699 821
Taxes, interest, and other liabilities 1,714 265
Current maturities of long-term obligations 4,458 1,026
--------- --------
TOTAL CURRENT LIABILITIES 14,653 7,126
LONG-TERM OBLIGATIONS, less current maturities--Note 5 16,027 26,815
DEFERRED INCOME TAXES--Note 9 2,502 1,894
NET NON-CURRENT LIABILITIES OF
DISCONTINUED OPERATIONS--Note 3 2,370
STOCKHOLDERS' EQUITY--Notes 6 and 7
Preferred stock:
Series Two: 12% cumulative redeemable, convertible,
$50 par value; 18,000 shares issued 900
Series Three: 10% cumulative redeemable, $60 face value;
15,426 shares issued and outstanding 716 754
Series Four: 10% cumulative redeemable, $51.50 face value,
46,414 shares issued and outstanding 2,390
Common stock, $1 par value; 10,000,000 shares authorized,
3,517,680 shares (1996--4,227,442 shares) issued and outstanding 3,518 4,227
Additional paid-in capital 686
Net unrealized loss on marketable securities (68)
Retained earnings 28,423 12,759
--------- --------
34,979 19,326
--------- --------
$ 68,161 $ 57,531
========= ========
</TABLE>
See notes to consolidated financial statements
20
<PAGE> 21
CONSOLIDATED STATEMENTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
----------------------------------------------
(Restated-Note 3)
(in thousands except per share data)
<S> <C> <C> <C>
Net sales $74,277 $ 59,330 $ 55,850
Costs and expenses:
Cost of sales and operating expenses 59,430 49,456 46,924
Selling, general and administrative 10,997 8,650 7,520
Depreciation and amortization 1,404 875 754
------- -------- --------
71,831 58,981 55,198
------- -------- --------
OPERATING EARNINGS 2,446 349 652
Other income (expense):
Investment income 1,209 17 24
Interest expense (1,381) (1,923) (1,232)
Gains on subsidiary stock transactions--Note 4 3,100
------- -------- --------
(172) (1,906) 1,892
------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAXES AND EQUITY IN
EARNINGS (LOSS) OF AFFILIATES 2,274 (1,557) 2,544
Federal income tax expense (benefit)--Note 9 792 (459) 898
------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EQUITY IN EARNINGS OF AFFILIATES 1,482 (1,098) 1,646
Equity in earnings (loss) of affiliates, net of
deferred tax--Notes 4 and 9 (250) (1,501) 438
------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 1,232 (2,599) 2,084
Income (loss) from discontinued operations--Note 3 (670) (94) 2,034
Gain from disposal of discontinued operations,
net of tax--Note 3 21,992
------- -------- --------
NET INCOME (LOSS) $22,554 $ (2,693) $ 4,118
------- -------- --------
Less preferred stock dividend and other (177) (186) (232)
------- -------- --------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $22,377 $ (2,879) $ 3,886
======= ======== =======
NET INCOME (LOSS) PER COMMON SHARE--Primary
Continuing operations $ .27 $ (.64) $ .42
Discontinued operations 5.45 (.02) .46
------- -------- -------
$ 5.72 $ (.66) $ .88
======= ======== =======
NET INCOME (LOSS) PER COMMON SHARE--Fully diluted
Continuing operations $ .27 $ .42
Discontinued operations 5.23 .44
------- -------
$ 5.50 $ .86
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON AND COMMON
STOCK EQUIVALENTS OUTSTANDING 3,910 4,372 4,426
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional Net
Preferred Common Paid-in Unrealized Retained
Stock Stock Capital Gain (Loss) Earnings Totals
---------- ---------- ---------- ------------ -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1994 $ 1,655 $ 4,298 $ 1,510 $ $ 11,742 $ 19,205
Net income for the year 4,118 4,118
Net unrealized loss on marketable
securities (60) (60)
Preferred stock dividend (204) (204)
Exercise of stock options for
46,500 shares 47 64 111
Acquisition and retirement of 55,320
shares (55) (384) (439)
---------- ---------- -------- ------------ -------- --------
Balances at March 31, 1995 $ 1,655 $ 4,290 $ 1,190 $ (60) $ 15,656 $ 22,731
Net loss for the year (2,693) (2,693)
Net unrealized gain on marketable
securities 60 60
Preferred stock dividend (204) (204)
Exercise of stock options for
5,500 shares 5 5 10
Redemption of preferred stock (1) (1)
Acquisition and retirement of 67,710
shares (68) (509) (577)
---------- ---------- --------- ------------ -------- --------
Balances at March 31, 1996 $ 1,654 $ 4,227 $ 686 $ 12,759 $ 19,326
Net income for the year 22,554 22,554
Net unrealized loss on marketable
securities (68) (68)
Preferred stock dividend (236) (236)
Exercise of stock options for
78,000 shares 78 1 79
Issuance of preferred stock 1,490 (140) (1,932) (582)
Redemption of preferred stock (38) (1) (39)
Acquisition and retirement of 647,762
shares (647) (686) (4,722) (6,055)
---------- ---------- --------- ------------ -------- --------
BALANCES AT MARCH 31, 1997 $ 3,106 $ 3,518 $ $ (68) $ 28,423 $ 34,979
========== ========== ========= ============ ======== ========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
----------------------------------------
(Restated-Note 3)
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $22,554 $(2,693) $ 4,118
Loss (income) from discontinued operations (21,322) 94 (2,034)
---------- ---------- ----------
Income (loss) from continuing operations 1,232 (2,599) 2,084
Advances to discontinued operations (1,943) (2,292)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 1,291 831 711
Amortization 113 44 43
Equity in operations of Medar and other 250 2,275 (664)
Gain on sale of Medar stock (3,100)
Deferred federal income taxes 608 (835) 1,006
Changes in operating assets and liabilities
of continuing operations:
Accounts receivable (2,842) 132 186
Inventories 62 252 (708)
Prepaid and other 315 (149) (73)
Accounts payable and other current liabilities 1,604 (848) (849)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,633 (2,840) (3,656)
INVESTING ACTIVITIES
Sale of subsidiaries 41,671
Purchase of subsidiary (3,184)
Purchases of property and equipment (1,450) (5,042) (1,583)
Net proceeds from sale of common stock 1,567
Investment in affiliates (6,890) (2,777)
Investment in marketable securities (10,847)
Other 361 (190) (636)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 19,661 (8,009) (652)
FINANCING ACTIVITIES
Proceeds from long-term obligations 4,876 12,532 5,521
Repayments on long-term obligations (20,045) (430) (257)
Proceeds from exercise of stock options 79 10 111
Dividends paid on preferred stock (236) (204) (204)
Acquisition and retirement of preferred and common stock (6,094) (578) (439)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (21,420) 11,330 4,732
---------- ---------- ----------
INCREASE IN CASH 874 481 424
CASH AT BEGINNING OF PERIOD 735 254 (170)
---------- ---------- ----------
CASH AT END OF PERIOD $ 1,609 $ 735 $ 254
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
March 31, 1997
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: Maxco, Inc. (Maxco) is a Michigan corporation incorporated
in 1946. Maxco is primarily involved in three industry segments: distribution,
packaging products and heat treating, through three active subsidiaries and two
divisions. Maxco also holds investments in a real estate development limited
liability company, and in three technology-related businesses: Medar, Inc.;
Axson, S.A.; and Strategic Interactive, Inc.
Principles of Consolidation: The consolidated financial statements include the
accounts of Maxco, Inc. and its majority owned subsidiaries. Upon
consolidation, all intercompany accounts and transactions are eliminated.
Investments in Medar, Inc. and other greater than 20% owned investments are
accounted for on the equity method. Investments in less than 20% owned
affiliates are accounted under the cost method.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications: Certain items in the prior year financial statements have
been reclassified to conform with the presentation used in 1997.
Cash and Cash Equivalents: The Company considers cash and other highly liquid
investments, including investments in interest bearing repurchase agreements
with less than 90 day maturities, as cash and cash equivalents.
Receivables: Trade accounts receivable represent amounts due from highway and
general construction, automotive, and flexible packaging industries primarily
in the mid-western United States. Where applicable, accounts and notes
receivable are collateralized or secured by perfected lien rights and
performance bonds.
Inventories: Inventories are stated at the lower of first-in, first-out cost
or market and at March 31 consisted of the following:
<TABLE>
<Caption
1997 1996
---------- ---------
(in thousands)
<S> <C> <C>
Raw materials $ 783 $ 587
Finished goods and work in process 1,212 1,574
Purchased products for resale 1,672 1,568
------- -------
$ 3,667 $ 3,729
======= =======
</TABLE>
Marketable Securities:
Marketable securities are classified in accordance with FASB 115 as securities
available-for-sale. 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. The amortized cost of securities in this
category is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment income. Realized gains
and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in investment income or loss. The
cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in investment income. The fair value of marketable securities is
based on quoted market value. The carrying amount of cash and cash equivalents
approximates fair value because of the short maturity of those instruments.
At March 31, 1997, the Company's marketable securities consist of debt
securities and United States government securities.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES-Continued
Properties and Depreciation: Property and equipment are stated on the basis of
cost and include expenditures for new facilities and equipment and those which
materially extend the useful lives of existing facilities and equipment.
Equipment capitalized under lease agreements is not significant.
Expenditures for normal repairs and maintenance are charged to operations as
incurred. Depreciation (and amortization of capitalized leases) for financial
reporting purposes is computed by the straight-line method based on the
estimated useful lives of the assets ranging from 3 to 31 years.
Federal Income Taxes: The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Intangibles: Intangibles primarily consist of the excess of cost over fair
market value of net assets of acquired businesses. Intangibles, including
non-compete agreements, are amortized on a straight-line basis over periods
ranging from 5 to 20 years. The carrying value of goodwill will be reviewed if
the facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of the goodwill will be reduced by the
estimated shortfall of cash flows. Accumulated amortization was approximately
$436,000 and $390,000 at March 31, 1997 and 1996, respectively.
Net Income (Loss) Per Share: The weighted average number of shares of common
stock (and common stock equivalents) utilized in the computation of net income
(loss) per share was 3,910,000 in 1997, 4,372,000 in 1996 and 4,426,000 in
1995. Per share amounts, which were dilutive in 1997 and 1995, give effect to
preferred stock dividend requirements and dilutive stock options of less than
50% owned affiliates for the periods. The effect of stock options and
potential conversion of redeemable convertible preferred stock was antidilutive
for the year ended March 31, 1996.
Gain Recognition on Sale of Subsidiary Stock: Company policy is to record
gains from the sale or other issuance of previously un-issued stock by its
subsidiaries.
Advertising: Advertising costs are expensed as incurred. The amounts were not
material for all years presented.
Fair Value Disclosure: The carrying amounts of certain financial instruments
such as cash and equivalents, accounts receivable, marketable securities,
accounts payable and long-term debt approximate their fair values. The fair
value of the long-term debt is estimated using discounted cash flow analysis
and the Company's current incremental borrowing rates for similar types of
arrangements.
Recent Accounting Pronouncement:
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 year ended
March 31, 1997, 1996 and 1995.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 2--ACQUISITION OF ASSETS
On January 3, 1997, Maxco acquired the business and substantially all of the
assets (consisting principally of accounts receivable, inventory and fixed
assets) of Atmosphere Annealing, Inc. Atmosphere Annealing, which was
privately owned by four individuals, including a 25% ownership by the spouse of
Maxco Chairman, Max A. Coon, provides metal heat treating to Midwestern
industrial users.
The consideration paid for these assets, acquired for approximately $12.8
million, consisted of the assumption of funded debt of approximately $6.4
million, cash and the issuance of a subordinated note. The sellers received
one half of the net purchase price in cash with the balance in the form of a
subordinated note.
The acquisition of Atmosphere has been accounted for as a purchase. The
results of operations for Atmosphere have been included in the consolidated
financial statements since the date of acquisition.
Cash used for this transaction was provided by proceeds from the sale of some
of the Company's marketable securities.
Agreement on the purchase price was reached based on an arms length
negotiation.
The following unaudited proforma summary presents the consolidated
results of operations as if the acquisition of Atmosphere had
occurred at April 1, 1996, and does not purport to be indicative of
what would have occurred had the acquisition actually been made as of
such date or of results which may occur in the future.
<TABLE>
<CAPTION>
Twelve-months ended March 31, 1997
Maxco Atmosphere Proforma Proforma
(as reported) Annealing Adjustments Consolidated
--------------- ---------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $74,277 $20,800 $95,077
Income from
continuing operations 1,232 1,257 (562) (A) 1,927
Per common share: $ .27 $ .32 (.14) $ .45
</TABLE>
(A) The financial statements of Atmosphere did not provide for
a federal tax provision because prior to the acquisition by Maxco,
Atmosphere elected to be taxed as an S-Corporation. Consequently,
proforma adjustments include a 34% federal tax provision for
Atmosphere's income for the period presented. In addition,
proforma adjustments include estimated incremental amortization,
depreciation and interest expense resulting from the purchase.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 3 - DISCONTINUED OPERATIONS
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.
Approximately $58 million was in cash with the balance payable over the five
year term of the non-compete agreement. As a result of this transaction, a
pre-tax gain of $35.2 million was recognized in the second quarter.
Effective October 31, 1996, Maxco sold the business and substantially all the
assets (consisting principally of accounts receivable, inventory and fixed
assets) of Maxco's wholly owned subsidiary, Wright Plastic Products, Inc.,
including substantially all the assets of Wright's subsidiary, Pacer Tool and
Mold, Inc. to Plastic Acquisition Co. LLC, a privately held company. The
assets of approximately $10 million were purchased for cash, assumption of
certain liabilities and a note. The assets were sold for an amount which
approximates book value.
Effective January 27, 1997, Maxco sold the business and certain assets
(consisting principally of accounts receivable, inventory, fixed assets and
intangibles) of Maxco's wholly owned subsidiary, Akemi, Inc. to Axson North
America, a Houston based subsidiary of privately held Axson, S.A., based in
Paris, France for approximately $2.0 million in cash. In addition, Maxco
purchased approximately 7 percent of the capital stock of Axson, S.A. for
approximately $1.9 million.
The results of operations for these units have been reported separately as
discontinued operations in the consolidated statements of operations for the
current and prior periods.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Net Sales $46,297 $128,348 $99,145
Cost and expenses 46,976 127,124 94,271
------- -------- -------
Income (loss) before income taxes (679) 1,224 4,874
Income tax expense (benefit) (238) 459 1,712
------- -------- -------
Net income (loss) (441) 765 3,162
Minority interest in net earnings
of discontinued operations (229) (859) (1,128)
------- -------- -------
Total income (loss) from
discontinued operations $ (670) $ (94) $ 2,034
======= ======== =======
</TABLE>
Net assets of the discontinued operations at March 31, 1996 were as follows:
<TABLE>
<CAPTION>
1996
-------------------
(in thousands)
<S> <C>
Current assets $ 47,084
Current liabilities (19,915)
--------
Net current assets 27,169
Property and equipment 11,501
Intangibles and other 21,894
Non-current liabilities (25,461)
Interests of minority holders in
discontinued operations (10,304)
--------
Net non-current liabilities of discontinued operations (2,370)
--------
Net total assets $ 24,799
========
</TABLE>
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 4--INVESTMENT IN MEDAR, INC.
At March 31, 1997, Maxco owned 1,893,405 shares of Medar's common stock
(aggregate market value of $10.2 million), representing approximately 21% of
Medar's total common stock outstanding.
In 1997, Maxco purchased 156,000 shares of Medar stock bringing its ownership
percentage above 20% of Medar's outstanding shares. Consequently, Maxco's
investment in Medar for the years ended March 1997, 1996 and 1995 is accounted
for under the equity method. The 1996 statement of operations was restated as
Maxco had accounted for its investment in Medar stock as marketable securities
available for sale in accordance with FASB 115 in 1996 as Maxco's ownership of
Medar was less than 20% of Medar's outstanding shares. The effect of the
restatement was to lower net income for 1996 by $1.5 million or $.34 per share.
Medar's net income (loss) for the years ended March 31, 1997, 1996 and 1995
were approximately $(2.3) million, $(11.4) million, and $3.1 million,
respectively. Accordingly, Maxco's equity share of Medar's net earnings (loss)
for these years was $(519,000), $(2,275,000) and $670,000 and is recorded net
of deferred tax for these periods in equity earnings from affiliates, along
with the equity results of other less than 50% owned affiliates. For the years
ended March 31, 1997, 1996 and 1995, Medar's sales were $41.4 million, $38.6
million and $39.7 million, respectively.
In February 1997, Medar's bank advanced $1.5 million to Medar under a demand
note. In connection with this financing, Maxco executed a guarantee of this
indebtedness between Medar and its bank.
On May 25, 1994, Medar sold 1.3 million shares of its common stock to the
public at $11.50 a share. As a result of this offering, Maxco recognized a
$3.1 million pre-tax gain representing the net increase in value of its
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.
NOTE 5--LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------------
(in thousands)
<S> <C> <C>
Revolving line of credit (interest up to
prime- 1/2% rate, 7.44% at March 31, 1997) $ 3,800 $18,700
Line of credit (interest 8.25% at March 31, 1997) 2,350
Tax exempt revenue bonds (variable rate of
interest, 3.5% at March 31, 1997) 2,390 2,500
Mortgage notes payable (various interest rates
ranging up to 9.25%) 3,874 4,257
Equipment purchase contracts and capitalized lease
obligations (various interest rates) 4,196 2,293
Subordinated debt (interest rate of 10%) 3,765
Other 110 91
------- -------
$20,485 $27,841
Less current maturities 4,458 1,026
------- -------
$16,027 $26,815
======= =======
</TABLE>
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 5--LONG-TERM OBLIGATIONS--Continued
Under its revolving credit agreement at March 31, 1997, Maxco can borrow up to
$12.0 million on an unsecured basis. At March 31, 1997, the Company had $8.2
million available under this agreement. The line of credit matures August 1,
1998.
The revolving credit arrangement requires a facility fee of 0.25%, a commitment
fee of 0.25% of the unused line, and compensating balances equal to 5% of
borrowings under this arrangement or the fee equivalent. The fees incurred and
the interest effect of required balances approximated $136,000 for 1997,
$128,000 for 1996 and $100,000 for 1995.
The Company also has a separate credit line of $3.5 million available as part
of its acquisition of Atmosphere Annealing, Inc. (Note 2). The Company had
$1.1 million of this line available at March 31, 1997.
Notes and contracts payable are generally collateralized by assets purchased
with proceeds of the borrowings. The aggregate principal maturities of
long-term debt from 1999 - 2002 are as follows:
1999 2000 2001 2002
------------ ------------ ------------ ------------
$2,308,000 $1,656,000 $2,367,000 $1,625,000
Interest paid approximates interest expensed for the years presented.
NOTE 6--PREFERRED STOCK
Maxco may issue up to 100,000 shares of preferred stock with terms determined
by Maxco's Board of Directors.
Effective January 1, 1997, the Company converted its entire issue of cumulative
non-voting Series Two Preferred Stock. The conversion of this stock eliminated
a class of stock which had rights to convert into approximately 230,000 shares
of common stock. At the option of the holder, this conversion was accomplished
in some cases by issuing shares of a newly established Series Four Preferred
Stock. The Series Four Preferred Stock is cumulative redeemable, is
non-voting, has no conversion rights, and will pay an annual dividend at the
rate of 10% annually. Alternatively, certain holders of the Series Two
Preferred Stock accepted payment in the form of an unsecured subordinated note
which bears interest at the rate of 10% a year. In addition, 140,000 shares of
common stock were exchanged for 21,746 shares of the Series Four Preferred
Stock in January 1997.
Primary earnings per share would have been reduced by $.04 to $5.68 per share
had the conversion of Series Two Preferred Stock taken place at the beginning
of the year.
Series Three Preferred Stock is voting stock on a par with the common stock,
and has twenty votes per share. Quarterly cumulative dividends are provided at
the annual rate of 10%, subject to the restrictions of Michigan corporate law
and the discretion of the Maxco Board of Directors. The stock is callable at
the option of the Company , with the call price declining at the rate of one
percent per year to a minimum price after February 1999, equal to face value
($60 per share).
Subsequent to March 31, 1997, the Maxco Board of Directors approved an offer to
exchange up to 500,000 shares of common stock for shares of the Company's
non-voting Series Five Preferred Stock. The Series Five Preferred shares will
have a face value of $120 and will pay a dividend at the rate of 10% of face
value per annum. The Company will exchange one share of Series Five Preferred
Stock for every 15 shares of common stock surrendered.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 7--STOCK OPTIONS
Under the terms of Maxco's incentive common stock option plan, options for the
purchase of up to 500,000 shares of common stock may be granted and options are
exercisable upon grant.
A summary of incentive stock options activity follows for the year ended
March 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ --------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
(number of shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding and exercisable at
beginning of year 341 $5.24 161 $1.96 208 $2.05
Granted and exercisable 185 8.00
Exercised (78) 2.55 (5) 1.87 (47) 2.37
Cancelled (60) 8.00
Outstanding and exercisable at ---- --- ----
end of year 203 $5.47 341 $5.24 161 $1.96
==== ===== === ===== ==== =====
</TABLE>
Exercise prices for options outstanding as of March 31, 1997 ranged from $1.38
to $8.00. The weighted average fair value of options granted during the year
ended March 31, 1996 was $2.71. The weighted average remaining contractual
life of those options is nine years.
The Company has elected to follow APB No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee stock
options because, in management's opinion, the alternative fair value provided
for under FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value of these options was estimated at the date of grant using a
Black-Schole option pricing model.
After adjusting for the proforma effect of stock compensation, the net loss is
estimated to be approximately $3.2 million ($.73 per share) for 1996. There
was no effect for 1997. Assumptions used in determining the above proforma
disclosures were risk free interest rates of approximately 6%, no dividend
yields, .24 market price volatility, and a five year weighted average life of
option. These proforma results reflect only stock options granted in 1996
(none were granted in 1997) and may not be comparable with the results of
applying the fair market value methodology to all stock options granted prior
to the initial adoption of this statement.
NOTE 8--EMPLOYEE SAVINGS PLAN
The Company has two 401(k) Employee Savings Plans covering substantially all
employees of the Company. Employees may contribute a portion of their
compensation to the plans which is then matched based on the percentages
specified in the plan documents. A separate employer contribution may be made
at the discretion of the Board of Directors. Company contributions charged to
continuing operations under both Plans were approximately $172,000, $136,000
and $123,000 for the years ended March 31, 1997, 1996 and 1995, respectively.
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 9--FEDERAL INCOME TAXES
The provision for federal income taxes (benefit) consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------
(in thousands)
<S> <C> <C> <C>
Current (benefit) $ 184 $ 376 $ (108)
Deferred 608 (835) 1,006
----- ------- -------
792 (459) 898
Deferred amount allocated to equity in
earnings of affiliates (129) (774) 226
----- ------- -------
$ 663 $(1,233) $ 1,124
===== ======= =======
</TABLE>
The federal income tax expense differs from the amount computed by applying
statutory rates due to certain expenses which are not deductible for tax
purposes. Federal income taxes paid by Maxco were $15.8 million in 1997, which
included taxes paid on the gain from disposal of discontinued operations and
$275,000 in 1995. No taxes were paid in 1996.
Federal income tax expense (benefit) related to Maxco's discontinued operations
amounted to $(238,000), $459,000 and $1,712,000 for the years ended March 31,
1997, 1996, and 1995, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of March 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
(in thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation $ 235 $ 477
Undistributed earnings 1,439 1,614
Gain on sale of subsidiary 1,171
------- -------
Total Deferred Tax Liabilities 2,845 2,091
DEFERRED TAX ASSETS:
Allowance for doubtful accounts 160 122
Inventory 66 69
Other--net 117 6
------- -------
Total Deferred Tax Assets 343 197
------- -------
Net Deferred Tax Liabilities 2,502 1,894
======= =======
</TABLE>
NOTE 10--OTHER INVESTMENTS
Effective January 1, 1997, Maxco acquired a 50% interest in a Limited Liability
Company (LLC) for approximately $3.9 million in cash and properties. The LLC
was formed to develop and lease real estate in central Michigan.
Effective January 1, 1997, Maxco acquired a 15% interest in Strategic
Interactive, Inc. which provides web based training, education and other
corporate communications solutions for companies.
Maxco also has an investment of approximately 7% of the common stock of Axson,
S.A., of France, a manufacturer of resins and composite materials for advanced
applications.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 11--CONTINGENCIES AND COMMITMENTS
Maxco and certain subsidiaries occupy facilities and use equipment under
operating lease agreements requiring annual rental payments approximating
$812,000 in 1998, $587,000 in 1999, $523,000 in 2000, $404,000 in 2001,
$291,000 in 2002, and $581,000 thereafter for a total commitment aggregating
$3,198,000. Rent expense charged to operations, including short-term leases,
aggregated $810,000 in 1997, $631,000 in 1996 and $578,000 in 1995.
The Company plans to expand the capacities of several of its facilities.
Separate financing for these expansion projects is expected to be secured.
NOTE 12--INDUSTRY SEGMENT INFORMATION
The following summarizes Maxco's industry segment information:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
(in thousands)
<S> <C> <C> <C>
Net sales:
Distribution $ 45,577 $ 40,600 $ 38,288
Heat treating 8,254
Packaging products 19,991 18,789 17,838
Corporate and other 455 (59) (276)
-------- -------- --------
TOTAL NET SALES $ 74,277 $ 59,330 $ 55,850
======== ======== ========
Operating income (loss):
Distribution $ 1,954 $ 1,975 $ 1,666
Heat treating 1,201
Packaging products 645 243 758
Corporate and other (1,354) (1,869) (1,772)
-------- -------- --------
TOTAL OPERATING EARNINGS 2,446 349 652
Interest expense, investment income and
equity in earnings of affiliates (551) (4,181) 2,556
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAXES $ 1,895 $ (3,832) $ 3,208
======== ======== ========
</TABLE>
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
MAXCO, INC. AND SUBSIDIARIES
NOTE 12--INDUSTRY SEGMENT INFORMATION--Continued
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Identifiable assets:
Distribution $ 9,707 $ 8,246 $ 6,763
Heat treating 17,522
Packaging products 7,126 7,679 7,577
Corporate and other 21,616 9,316 3,565
Investments and advances 12,190 5,121 7,396
Net assets of discontinued operations 27,169 22,847
--------- --------- ---------
$ 68,161 $ 57,531 $ 48,148
========= ========= =========
Depreciation and amortization expense:
Distribution $434 $284 $229
Heat treating 260
Packaging products 541 485 432
Corporate and other 169 106 93
--------- --------- ---------
$ 1,404 $ 875 $ 754
========= ========= =========
Capital expenditures:
Distribution $ 641 $ 1,629 $ 324
Heat treating 9,788
Packaging products 246 953 761
Corporate and other 95 2,590 518
--------- --------- ---------
$ 10,770 $ 5,172 $ 1,603
========= ========= =========
</TABLE>
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.
Operations for the year ended March 31, 1995 include a gain of $3.1 million on
the sale of common stock.
Maxco has no significant foreign operations, export sales, or inter-segment
sales.
No sales to any single customer exceeded 10% of consolidated sales for 1997,
1996 or 1995.
33
<PAGE> 34
MAXCO, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------ ---------------- ------------- ------------ -------------- -------------
ADDITIONS
------------------------------
Charged to
Balance at Charged to Other Balance
DESCRIPTION Beginning Costs and Accounts- Deductions-- at End
of Period Expenses Describe Describe of Period
- ------------------------------------ --------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997:
Allowance for doubtful accounts $276 $303 $132(B) $241(A) $470
Year ended March 31, 1996:
Allowance for doubtful accounts $214 $174 $112(A) $276
Year ended March 31, 1995:
Allowance for doubtful accounts $170 $183 $139(A) $214
</TABLE>
(A) Represents uncollectible accounts written off, less recoveries.
(B) Represents allowance for doubtful accounts for acquired business.
34
<PAGE> 35
MAXCO, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBITS
Exhibit PAGE
- ------- ---------------------------------------------------- ----
4.4 Resolution Establishing Series Five Shares 36
11 Statement Re: Computation of Per Share Earnings 38
21 Subsidiaries of the Registrant 39
23 Consent of Independent Auditors 40
27 Financial Data Schedule
35
<PAGE> 1
EXHIBIT 4.4
CERTIFICATE OF RESOLUTION
RESOLVED, that the Board of Directors shall and hereby does establish
Series Five Preferred Stock of Maxco, Inc., having the following rights,
privileges and restrictions:
A. Series Five Preferred Stock. Series Five Preferred Stock of Maxco, Inc.
shall be 34,000 shares with a face value of $120.00 per share.
B. Dividends. The Corporation shall pay a Dividend upon such Series Five
Preferred Stock as follows:
1. Such Dividend shall be equal to 10% per annum of the face value of
each share.
2. The Corporation shall be obligated to declare a Dividend each and
every quarter if it shall then be legally entitled to do so.
3. If the Dividend set forth herein is not paid and if such Dividend
did not, under the circumstances, have to be paid, then such
Dividend shall be payable in the next period when such Dividend
legally can be made.
4. Should the surplus of said Corporation prior to any Dividend Day be
insufficient to pay the Dividend on the Series Five Preferred
Shares, such Dividend shall be payable from future surplus, but
without interest, and no Dividend shall at any time be paid on the
Common Shares until the full amount of 10% per annum up to such time
and for the then current fiscal year upon all the Preferred Shares
issued shall have been paid or set apart.
C. Redemption. The Series Five Preferred Shares are redeemable at any time
after the third anniversary of their issuance in whole or in part, at
the Company's option at 100% of principal amount plus a declining
premium amount which shall be equal to 5% until the fourth anniversary
of issuance and shall decline 1% annually thereafter to zero following
the eighth anniversary, and plus any accumulated and unpaid Dividends to
the date of redemption.
Notice of the election of the Corporation to redeem all or a portion of
the Series Five Preferred Stock shall be given by the Corporation by
mailing a copy of such notice, not less than 30 nor more than 90 days
prior to the date designated therein as the date for such redemption, to
the holders of record of the Series Five Preferred Stock to be redeemed,
addressed to them at their respective address appearing on the books of
the Corporation.
<PAGE> 2
D. Voting. The Series Five Preferred Shares are nonvoting; provided
however if accrued but unpaid dividends on the Series Five
Preferred Shares are in arrears for six consecutive fiscal quarters
of the Company, the holders shall have the right to elect as a
class, one member of the Board of Directors of the Corporation.
Also, the consent of the holders of two-thirds of the Series Five
Preferred Stock will be required to create or authorize any series
of stock ranking prior in liquidation to the Series Five Preferred
Stock, or to change any of the express terms of the Series
Preferred Stock in a manner prejudicial to the holders thereof.
E. Liquidation. In any event of dissolution of the Corporation, the
holders of Series Five Preferred Stock shall be entitled to receive
the face value of their shares, together with accumulated dividends
thereon to the date of payment, before holders of the Common Shares
shall be entitled to receive anything thereon. Thereafter, the
Series Five Preferred Stock shall not be entitled to share in the
assets of the Corporation.
Signed this 9th Day of April, 1997.
/s/ERIC L. CROSS
----------------------------
Eric L. Cross, Secretary and
Executive Vice President
<PAGE> 1
MAXCO, INC.
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended March 31,
1997 1996 1995
----------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS
- ------------------------------------------------------
Net income (loss) from continuing operations $ 1,232 $ (2,599) $ 2,084
Net income (loss) from discontinued operations 21,322 (94) 2,034
----------- ------------ -----------
Net income (loss) 22,554 (2,693) 4,118
Preferred stock series 2 dividend (81) (108) (108)
Preferred stock series 3 dividend (95) (96) (96)
Preferred stock series 4 dividend (60)
Net effect of minority interest from assumed conversion
of dilutive stock options of subsidiary--based on the
Treasury Stock Method using average market price 59 18 (28)
----------- ------------ -----------
Net Income (Loss) Attributable To Common Stock-Primary
Continuing operations $ 1,055 $ (2,785) $ 1,852
Discontinued operations 21,322 (94) 2,034
----------- ------------ -----------
22,377 (2,879) 3,886
=========== ============ ===========
Net Income (Loss) Attributable To Common Stock-Fully Diluted
Continuing operations $ 1,136 $ (2,677) $ 1,960
Discontinued operations 21,322 (94) 2,034
----------- ------------ -----------
22,458 (2,771) 3,994
=========== ============ ===========
PRIMARY
- ------------------------------------------------------
Average shares outstanding 3,845 4,251 4,302
Net effect of dilutive stock options--based on the
Treasury Stock Method using average market price 65 121 124
----------- ------------ -----------
TOTAL 3,910 4,372 4,426
Net income per share:
Continuing operations $ .27 $ (.64) $ .42
Discontinued operations 5.45 (.02) .46
----------- ------------ -----------
$ 5.72 $ (.66) $ .88
=========== ============ ===========
FULLY DILUTED
- ------------------------------------------------------
Average shares outstanding 3,845 4,251 4,302
Net effect of dilutive stock options--based on the Treasury
Stock Method using the quarter-end market price if
higher than average market price 65 135 124
Assumed conversion of series two 12% cumulative
redeemable convertible preferred stock 174 232 232
----------- ------------ -----------
TOTAL 4,084 4,618 4,658
Net income per share:
Continuing operations $ .27 $ (.58) $ .42
Discontinued operations 5.23 (.02) .44
----------- ------------ -----------
$ 5.50 $ (.60) $ .86
=========== ============ ===========
</TABLE>
<PAGE> 1
MAXCO, INC. AND SUBSIDIARIES
EXHIBIT 21 - SUBSIDIARIES OF MAXCO, INC.
SUBSIDIARIES OF MAXCO, INC.
<TABLE>
<CAPTION>
State of
Incorporation
-------------
<S> <C>
Atmosphere Annealing, Inc. Michigan
Ersco of Michigan, Inc. Michigan
Pak-Sak Industries, Inc. Michigan
Wisconsin Wire & Steel, Inc. Wisconsin
GUM, Inc. (formerly Ultra-Mag Industries, Inc.) (Inactive) Michigan
Parcco, Inc. (Inactive) Michigan
T.H.&P. Corporation (formerly Planet Corporation) (Inactive) Michigan
</TABLE>
<PAGE> 1
MAXCO, INC. AND SUBSIDIARIES
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement (Form
S-8 No. 33-48351) pertaining to the Maxco, Inc. Incentive Stock Option Plan and
in the related prospectus of our report dated May 20, 1997, with respect to the
consolidated financial statements and schedule of Maxco, Inc. included in the
Annual Report (Form 10-K) for the year ended March 31, 1997.
/S/ERNST & YOUNG LLP
Detroit, Michigan
June 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,609
<SECURITIES> 2,984
<RECEIVABLES> 13,996
<ALLOWANCES> 470
<INVENTORY> 3,667
<CURRENT-ASSETS> 22,055
<PP&E> 24,900
<DEPRECIATION> 6,325
<TOTAL-ASSETS> 68,161
<CURRENT-LIABILITIES> 14,653
<BONDS> 16,027
0
3,106
<COMMON> 3,518
<OTHER-SE> 28,355
<TOTAL-LIABILITY-AND-EQUITY> 68,161
<SALES> 74,277
<TOTAL-REVENUES> 74,277
<CGS> 59,430
<TOTAL-COSTS> 71,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,381
<INCOME-PRETAX> 2,274
<INCOME-TAX> 792
<INCOME-CONTINUING> 1,232
<DISCONTINUED> 21,322
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,554
<EPS-PRIMARY> 5.72
<EPS-DILUTED> 5.50
</TABLE>
