<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
Commission File Number 0-2762
MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S><C>
Michigan 38-1792842
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1118 Centennial Way
Lansing, Michigan 48917
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, including area code: (517) 321-3130
--------------
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 12 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
----- ----------------------------
Common Stock 3,415,810 shares
1
<PAGE> 2
PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
(Unaudited)
---------------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,328 $ 1,609
Marketable securities--Note 3 2,996 2,984
Accounts and notes receivable, less allowance of
$548,000 ($470,000 at March 31, 1997) 19,880 13,526
Inventories--Note 2 4,491 3,667
Prepaid expenses and other 462 269
------- -------
TOTAL CURRENT ASSETS 29,157 22,055
MARKETABLE SECURITIES - LONG TERM--Note 3 8,812 7,780
PROPERTY AND EQUIPMENT
Land 732 732
Buildings 10,057 9,810
Machinery, equipment, and fixtures 15,168 14,358
------- -------
25,957 24,900
Allowances for depreciation (6,873) (6,325)
------- -------
19,084 18,575
OTHER ASSETS
Investments--Note 4 12,316 12,219
Notes and contracts receivable and other 2,104 4,896
Intangibles 2,587 2,636
------- -------
17,007 19,751
------- -------
$74,060 $68,161
======= =======
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
(Unaudited)
--------------------------
(in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 226 $ 226
Accounts payable 10,624 6,556
Employee compensation 1,761 1,699
Taxes, interest, and other liabilities 3,783 1,714
Current maturities of long-term obligations 2,046 4,458
-------- -------
TOTAL CURRENT LIABILITIES 18,440 14,653
LONG-TERM OBLIGATIONS, less current maturities 17,998 16,027
DEFERRED INCOME TAXES 1,371 2,502
STOCKHOLDERS' EQUITY
Preferred stock:
Series Three: 10% cumulative redeemable, $60 face
value; 15,373 shares issued and outstanding
(15,426 at March 31, 1997) 713 716
Series Four: 10% cumulative redeemable, $51.50 face
value; 46,414 shares issued and outstanding 2,390 2,390
Series Five: 10% cumulative redeemable, $120.00 face
value; 6,767 shares issued and outstanding--Note 5 812
Common stock, $1 par value; 10,000,000 shares
authorized, 3,415,810 issued shares (3,517,680 at
March 31, 1997) 3,416 3,518
Net unrealized gain (loss) on marketable securities 31 (68)
Retained earnings 28,889 28,423
-------- -------
36,251 34,979
-------- -------
$ 74,060 $68,161
======== =======
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
(Unaudited) (Unaudited)
(Restated-
Note 4)
------------------ ------------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $27,839 $18,340
Costs and expenses:
Cost of sales and operating expenses 20,926 15,268
Selling, general and administrative 4,145 2,237
Depreciation and amortization 601 250
------------------ ------------------
25,672 17,755
------------------ ------------------
OPERATING EARNINGS 2,167 585
Other income (expense)
Investment income 212 4
Interest expense (495) (553)
------------------ ------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE FEDERAL INCOME TAXES AND EQUITY IN
EARNINGS OF AFFILIATES 1,884 36
Federal income tax expense 660 12
------------------ ------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
EQUITY IN EARNINGS OF AFFILIATES 1,224 24
Equity in earnings of affiliates, net of deferred tax--Note 4 101 115
------------------ ------------------
INCOME FROM CONTINUING OPERATIONS 1,325 139
Income from discontinued operations 308
------------------ ------------------
NET INCOME 1,325 447
Less preferred stock dividend (83) (51)
------------------ ------------------
NET INCOME APPLICABLE
TO COMMON STOCK 1,242 396
================== ==================
NET INCOME PER COMMON SHARE--Primary
Continuing operations $ .35 $ .02
Discontinued operations .07
------------------ ------------------
$ .35 $ .09
================== ==================
Weighted average number of shares of common stock
and common stock equivalents outstanding 3,574 4,357
================== ==================
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
(Unaudited) (Unaudited)
-------------------------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,325 $ 447
Income from Discontinued Businesses (308)
---------- ----------
Income from Continuing Operations 1,325 139
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and other non-cash charges 500 136
Changes in operating assets and liabilities 357 (2,628)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,182 (2,353)
INVESTING ACTIVITIES
Net investment in marketable securities (894)
Purchases of property and equipment (1,061) (382)
Other 70 41
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,885) (341)
FINANCING ACTIVITIES
Proceeds from long-term obligations 300 2,923
Repayments on long-term obligations and notes payable (740) (521)
Changes in capital stock (55) 33
Dividends paid on preferred stock (83) (51)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (578) 2,384
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (281) (310)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,609 735
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,328 $ 425
========== ==========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
JUNE 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:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---- ----
(Unaudited)
(in thousands)
<S> <C> <C>
Raw materials $ 694 $ 783
Finished goods and
work in progress 1,246 1,212
Purchased products
for resale 2,551 1,672
------ ------
$4,491 $3,667
====== ======
</TABLE>
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 $31,000 being reported
as part of stockholders' equity at June 30, 1997.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE 4 - Investment in Medar, Inc.
At June 30, 1997, Maxco owned 1,894,405 shares of Medar's common stock
(aggregate market value of approximately $9.7 million).
The financial statements for the quarter ended June 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 months ended June 30, 1996, by $115,000 or $.03 per share.
Subsequent to June 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 on 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.
NOTE 5 - Issuance of Series Five Preferred Stock
During the current quarter, 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 quarters
ended June 30, 1997 or 1996.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
JUNE 30, 1997
MATERIAL CHANGES IN FINANCIAL CONDITION
Maxco's operating activities generated $2.2 million in cash during the first
quarter of 1997. Increases in accounts receivable, inventory and accounts
payable were primarily related to the higher first quarter sales level over the
fourth quarter of the prior year. In addition, accounts and notes receivable
also increased due to a long-term note receivable being paid currently in July
1997. Current maturities of long-term obligations were reduced due to the
refinancing of one of the Company's lines of credit to long-term.
The cash generated from operations was used by the Company in its financing and
investing activities. The Company purchased property and equipment of
approximately $1.1 million during the quarter.
During the current quarter, 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.
Subsequent to June 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 on 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.
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 next year.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to 1996
Net sales from continuing operations increased to $27.8 million compared to
$18.3 million in last year's first quarter. First quarter results reflect
income from continuing operations of approximately $1.3 million compared to
$139,000 for the comparable period in 1996. Current period net income was $1.3
million or $.35 per share compared to last year's $447,000 or $.09 per share.
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 June 30,
1996 by $115,000 or $.03 per share.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
The sales growth in the current period was primarily due to the inclusion of
$8.2 million in sales from Atmosphere Annealing, acquired in January 1996.
Sales also increased at Maxco's distribution companies (Ersco and Wisconsin
Wire & Steel), as well as Pak-Sak.
Operating earnings increased for the three months primarily because of the
operating earnings generated by Atmosphere Annealing during the quarter. Ersco
and Wisconsin Wire also generated additional operating earnings due to their
improved sales level and a higher gross margin percentage.
The increase in earnings from continuing operations was also assisted by the
investment income generated as a result of the investment of the cash proceeds
from the sale of Maxco's interest in FinishMaster which occurred in July 1996.
9
<PAGE> 10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During the current quarter, 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.
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.
10
<PAGE> 11
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
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXCO, INC.
Date August 7, 1997 \S\ VINCENT SHUNSKY
- -------------------- ---------------------------------
Vincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)
12
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE> 1
MAXCO, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
------------------ ------------------
(In thousands except per share data)
<S> <C> <C>
NET INCOME FOR COMPUTATION
OF PER SHARE AMOUNTS
- ---------------------------------------------------------
Net income from continuing operations $ 1,325 $ 139
Net income from discontinued operations 308
---------- ----------
Net income 1,325 447
Preferred stock dividends (83) (51)
Net Income Attributable To Common Stock-Primary
Continuing operations 1,242 88
Discontinued operations 308
---------- ----------
1,242 396
========== ==========
Net Income Attributable To Common Stock-Fully Diluted
Continuing operations 1,242 115
Discontinued operations 308
---------- ----------
1,242 423
========== ==========
PRIMARY
- ---------------------------------------------------------
Average shares outstanding 3,510,963 4,233,184
Net effect of dilutive stock options--based on the
Treasury Stock Method using average market price 62,916 123,755
---------- ----------
TOTAL 3,573,879 4,356,939
Net income per share:
Continuing operations $ .35 $ .02
Discontinued operations .07
---------- ----------
$ .35 $ .09
========== ==========
FULLY DILUTED
- ---------------------------------------------------------
Average shares outstanding 3,510,963 4,233,184
Net effect of dilutive stock options--based on the Treasury
Stock Method using the quarter-end market price if
higher than average market price 64,131 123,755
Assumed conversion of series two 12% cumulative
redeemable convertible preferred stock 231,840
---------- ----------
TOTAL 3,575,094 4,588,779
Net income per share:
Continuing operations $ .35 $ .02
Discontinued operations .07
---------- ----------
$ .35 $ .09
========== ==========
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997. AND IS IS QUALIFIED IN ITS ENTIRELY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,328
<SECURITIES> 2,996
<RECEIVABLES> 20,428
<ALLOWANCES> 548
<INVENTORY> 4,491
<CURRENT-ASSETS> 29,157
<PP&E> 25,957
<DEPRECIATION> 6,873
<TOTAL-ASSETS> 74,060
<CURRENT-LIABILITIES> 18,440
<BONDS> 17,998
0
3,915
<COMMON> 3,416
<OTHER-SE> 28,920
<TOTAL-LIABILITY-AND-EQUITY> 74,060
<SALES> 27,839
<TOTAL-REVENUES> 27,839
<CGS> 20,926
<TOTAL-COSTS> 25,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 495
<INCOME-PRETAX> 1,884
<INCOME-TAX> 660
<INCOME-CONTINUING> 1,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,325
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
