<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Commission File Number 0-2762
MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-1792842
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1118 Centennial Way
Lansing, Michigan 48917
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (517) 321-3130
Indicate by check mark whether the registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 12 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding twelve months and (2) has
been subject to the filing requirements for at least the past 90 days.
Yes X No
-- --
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1998
----- ---------------------------------
Common Stock 3,261,695 shares
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1
<PAGE> 2
PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
(Unaudited)
--------------------------------
(in thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,325 $ 1,040
Marketable securities--Note 3 255 400
Accounts and notes receivable, less allowance of
$608,000 ($565,000 at March 31, 1998) 23,926 16,280
Inventories--Note 2 4,455 3,579
Prepaid expenses and other 607 303
-------- --------
TOTAL CURRENT ASSETS 30,568 21,602
MARKETABLE SECURITIES - LONG TERM--Note 3 2,002 7,657
PROPERTY AND EQUIPMENT
Land 732 732
Buildings 11,605 10,553
Machinery, equipment, and fixtures 24,335 20,854
-------- --------
36,672 32,139
Allowances for depreciation (9,469) (8,321)
-------- --------
27,203 23,818
OTHER ASSETS
Investments 17,439 15,842
Notes and contracts receivable and other 4,020 3,056
Intangibles 2,819 2,992
Restricted cash for acquisition of equipment--Note 4 447 1,088
-------- --------
24,725 22,978
-------- --------
$ 84,498 $ 76,055
======== ========
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
(Unaudited)
--------------------------------------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Notes payable $ 226 $ 226
Accounts payable 12,301 6,568
Employee compensation 2,054 2,058
Taxes, interest, and other liabilities 2,257 2,028
Current maturities of long-term obligations 1,789 1,490
------- -------
TOTAL CURRENT LIABILITIES 18,627 12,370
LONG-TERM OBLIGATIONS, less current maturities 28,599 27,698
DEFERRED INCOME TAXES 1,316 1,180
STOCKHOLDERS' EQUITY
Preferred stock:
Series Three: 10% cumulative redeemable, $60 face
value; 14,988 shares issued and outstanding 690 690
Series Four: 10% cumulative redeemable, $51.50 face
value; 46,414 shares issued and outstanding 2,390 2,390
Series Five: 10% cumulative redeemable, $120 face
value; 6,648 shares issued and outstanding
(6,680 at March 31, 1998) 798 802
Common stock, $1 par value; 10,000,000 shares
authorized, 3,261,695 issued shares (3,307,910 at
March 31, 1998) 3,262 3,308
Net unrealized gain on marketable securities 55 47
Retained earnings 28,761 27,570
------- -------
35,956 34,807
------- -------
$84,498 $76,055
======= =======
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
(Unaudited) (Unaudited)
------------------ ------------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $ 35,553 $ 29,342
Costs and expenses:
Cost of sales and operating expenses 28,146 22,344
Selling, general and administrative 5,233 4,120
Depreciation and amortization 728 591
-------- --------
34,107 27,055
-------- --------
OPERATING EARNINGS 1,446 2,287
Other income (expense)
Investment income 256 247
Interest expense (629) (485)
-------- --------
INCOME BEFORE FEDERAL
INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES 1,073 2,049
Federal income tax expense 376 720
-------- --------
INCOME BEFORE EQUITY IN EARNINGS OF AFFILIATES 697 1,329
Equity in earnings (loss) of affiliates, net of deferred tax (88) 103
-------- --------
NET INCOME 609 1,432
Less preferred stock dividends (102) (103)
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK 507 1,329
======== ========
NET INCOME PER COMMON SHARE - BASIC $ .16 $ .39
======== ========
NET INCOME PER COMMON SHARE - ASSUMING DILUTION $ .15 $ .38
======== ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended September 30,
1998 1997
(Unaudited) (Unaudited)
------------------ ------------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $ 71,249 $ 57,181
Costs and expenses:
Cost of sales and operating expenses 56,354 43,270
Selling, general and administrative 10,103 8,265
Depreciation and amortization 1,425 1,192
-------- --------
67,882 52,727
-------- --------
OPERATING EARNINGS 3,367 4,454
Other income (expense)
Investment income 472 460
Interest expense (1,231) (981)
-------- --------
INCOME BEFORE FEDERAL
INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES 2,608 3,933
Federal income tax expense 913 1,379
-------- --------
INCOME BEFORE EQUITY IN EARNINGS OF AFFILIATES 1,695 2,554
Equity in earnings of affiliates, net of deferred tax 42 203
-------- --------
NET INCOME 1,737 2,757
Less preferred stock dividends (204) (186)
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK 1,533 2,571
======== ========
NET INCOME PER COMMON SHARE - BASIC $ .47 $ .75
======== ========
NET INCOME PER COMMON SHARE - ASSUMING DILUTION $ .46 $ .73
======== ========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
MAXCO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six Months Ended September 30,
1998 1997
(Unaudited) (Unaudited)
--------------------------------------
(in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 1,737 $ 2,757
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and other non-cash items 1,497 1,200
Changes in operating assets and liabilities (2,867) (2,544)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 367 1,413
INVESTING ACTIVITIES
Payments received on notes receivable 3 3,443
Redemption of (investment in) marketable securities 5,812 (793)
Investment in affiliates (2,261) (1,510)
Purchases of property and equipment (4,764) (3,236)
Other (117) 220
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,327) (1,876)
FINANCING ACTIVITIES
Proceeds from long-term obligations 2,829 2,140
Proceeds from restricted cash for acquisition of equipment 641
Repayments on long-term obligations and notes payable (1,629) (986)
Changes in capital stock (392) (1,006)
Dividends paid on preferred stock (204) (186)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,245 (38)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 285 (501)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,040 1,609
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,325 $ 1,108
======= =======
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXCO, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
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, 1998.
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>
September 30, March 31,
1998 1998
---- ----
(Unaudited)
(in thousands)
<S> <C> <C>
Raw materials $ 920 $ 723
Finished goods and
work in progress 897 1,077
Purchased products
for resale 2,638 1,779
-------- -------
$ 4,455 $ 3,579
======== =======
</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 $55,000 being
reported as part of stockholders' equity at September 30, 1998.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE 4 - Restricted Cash
The Company has borrowings under its variable rate tax exempt revenue bond.
The use of the proceeds from these borrowings is restricted to the
acquisition of certain equipment. The unexpended portion of $.4 million is
included in restricted cash at September 30, 1998.
NOTE 5 - Long-Term Debt
In the first quarter of 1998, the Company's Ersco unit secured a commitment
for a $10.0 million credit facility, available under certain circumstances,
to fund acquisitions.
NOTE 6 - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------------------- ---------------------------
(in thousands, except per share data)
NUMERATOR:
<S> <C> <C> <C> <C>
Net income $ 609 $ 1,432 $ 1,737 $ 2,757
Preferred stock dividends (102) (103) (204) (186)
------- ------- ------- -------
NUMERATOR FOR BASIC EARNING PER SHARE--INCOME
AVAILABLE TO COMMON STOCKHOLDERS 507 1,329 1,533 2,571
Effect of dilutive securities:
------- ------- ------- -------
NUMERATOR FOR DILUTED EARNINGS PER SHARE--INCOME
TO COMMON STOCKHOLDERS AFTER ASSUMED CONVERSIONS 507 1,329 1,533 2,571
DENOMINATOR:
DENOMINATOR FOR BASIC EARNINGS PER SHARE--
WEIGHTED-AVERAGE SHARES 3,270 3,384 3,284 3,447
Effect of dilutive securities:
Employee stock options 45 83 49 73
------- ------- ------- -------
Dilutive potential common shares 45 83 49 73
------- ------- ------- -------
DENOMINATOR FOR DILUTED EARNINGS PER SHARE--ADJUSTED
WEIGHTED-AVERAGE SHARES AND ASSUMED CONVERSIONS 3,315 3,467 3,333 3,520
======= ======= ======= =======
BASIC EARNINGS PER SHARE $ .16 $ .39 $ .47 $ .75
======= ======= ======= =======
DILUTED EARNINGS PER SHARE $ .15 $ .38 $ .46 $ .73
======= ======= ======= =======
</TABLE>
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
NOTE 7 - Comprehensive Income
Effective April 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." Statement
130 established new rules for the reporting and display of comprehensive
income and its components. The adoption of this Statement requires
unrealized gains or losses on marketable securities to be included in
comprehensive income, which prior to adoption were only reported separately
in shareholders' equity.
The components of comprehensive income for the three and six months
ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Net earnings $ 609 $1,432 $1,737 $2,757
Unrealized gains on marketable securities 14 59 8 158
------ ------ ------ ------
$ 623 $1,491 $1,745 $2,915
====== ====== ====== ======
</TABLE>
The components of accumulated comprehensive income, net of related tax at
September 30, 1998 and March 31, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------------------------------------
(in thousands)
<S> <C> <C>
Unrealized gains on marketable securities $ 55 $ 47
</TABLE>
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXCO, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash generated from net income, sale of marketable securities, and proceeds from
long-term borrowings in the first six months of the year were used by Maxco in
its operating activities to fund higher levels of working capital items, in
investing activities to purchase property and equipment, and to invest in
additional affiliates.
At September 30, 1998, a higher level of working capital items, primarily
accounts receivable and inventory, resulted in consumption of liquid resources.
The higher sales activity by the Company's construction supplies segment (Ersco)
over the traditionally slower fourth quarter of the prior year was the principal
cause of this increased investment.
In addition to the higher working capital requirements during the summer peak
construction period by the construction supplies segment, Maxco is investing in
the growth of the concrete construction supplies industry by actively seeking
acquisitions and other opportunities in key market areas. During the second
quarter, Ersco established a new sales and distribution facility in Louisville,
Kentucky to serve the growing construction market in Northern Kentucky and
Southern Ohio. Subsequent to September 30, 1998, Ersco purchased a company in
Columbus, Ohio which provides concrete forming and shoring equipment to concrete
construction contractors. Ersco is a participant in the overall consolidation of
the construction industry. This unit, in the first quarter of 1998, secured a
commitment for a $10.0 million credit facility, available under certain
circumstances, to fund acquisitions.
In addition to investments in property and equipment for the expansion of the
construction supplies segment, the Company invested in property and equipment
for its heat treating segment (Atmosphere Annealing). This investment was made
to improve the efficiency and capacity of this metal heat treating unit in
anticipation of higher sales.
During the first quarter, Maxco also acquired a one-third interest in Blasen
Brogan Asset Management Company, a Lansing, Michigan based registered investor
advisory firm.
Effective August 1, 1998, the Company acquired a 50% equity interest in and
agreed to finance certain debt of Mid-State Industrial Services, Inc., which is
in the business of selling, leasing, and servicing lift trucks. In addition, the
Company acquired a 40% equity interest in a software developer, whose customers
primarily are in the light manufacturing and distribution industries. The
Company's cash outflow for its investment in these two affiliates was
approximately $1.5 million.
Subsequent to September 30, 1998, Maxco sold its 45% equity interest in
Strategic Interactive, Inc. to Provant, Inc. for cash and stock. The transaction
contains an earn out provision based on the future performance of Strategic
Interactive over the next three years that could result in additional
compensation to Maxco.
The Company believes that its current financial resources, together with cash
generated from operations, and its available resources under its lines of credit
will be adequate to meet its cash requirements for the next year.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Net sales from continuing operations increased to $35.6 million compared to
$29.3 million in last year's second quarter. Second quarter results reflect
operating earnings of $1.4 million compared to $2.3 million for the comparable
period in 1997. Net income was $609,000 or $.15 per share assuming dilution
compared to last year's $1.4 million or $.38 per share assuming dilution.
Higher sales in the current period occurred at Maxco's construction supplies
segment (Ersco) over the comparable 1997 period primarily as a result of Ersco's
acquisition of an Illinois based sales unit in January 1998, additional
construction activity due to increased availability of federal highway repair
dollars, and a strong general construction market. Sales of heat treating
services by its heat treating segment (Atmosphere Annealing) were modestly lower
than the prior year's comparable quarter. Sales at this unit, however, were less
than planned as a result of a strike at one of its automotive customers and
delay of certain other planned programs.
The construction supplies segment generated additional operating earnings in the
current period over last year due primarily to their increased sales level.
Gross margin percentage at this unit was lower, however, because a significant
portion of their increased sales level for the three months was product sales to
highway contractors on a direct shipment basis which generally have a lower
margin. The operating earnings for Maxco's heat treating segment were
approximately $500,000 lower in the current period over the 1997 comparable
period. This reduction in operating earnings at Atmosphere Annealing was caused
by lower sales of heat treating services, increased employee benefit expenses
and higher costs related to facility improvements which became operational
during the period. The higher facilities costs were incurred as a result of the
expansion of certain facilities of this unit in anticipation of increased sales.
The planned sales increase was delayed in part to a labor strike at one of its
major customers as well as certain other programs being delayed until the
expansion of the facilities was completed. Operating earnings were also affected
by an operating loss which occurred at Pak Sak, Maxco's packaging products
segment, as a result of lower sales and gross margin percentage at this unit.
Net interest expense increased in 1998 from the prior year quarter due to
additional long-term borrowings and reduction in marketable securities, the
proceeds of which were used for investments in new affiliates, repurchases of
the Company's stock, and additional purchases of property and equipment.
Maxco's equity in its earnings of affiliates was lower in 1998 due to a loss by
Medar for the three month period of approximately $1.1 million compared to net
income of $420,000 for the comparable period in 1997. As a result, Maxco
recorded a charge of $250,000 as a share of the losses from this affiliate in
the current period compared to earnings of $94,000 for the comparable period in
1997. Medar's revenues and operating results were lower then Medar anticipated
because of several projects that have shifted into the fourth quarter of the
calendar year.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
Net sales from continuing operations increased to $71.2 million compared to
$57.2 million in last year's second quarter. Second quarter results reflect
operating earnings of $3.4 million compared to $4.5 million for the comparable
period in 1997. Net income was $1.7 million or $.46 per share assuming dilution
compared to last year's $2.8 million or $.73 per share assuming dilution.
Higher sales for the six months occurred at Maxco's construction supplies
segment (Ersco) over the comparable 1997 period primarily as a result of Ersco's
acquisition of an Illinois based sales unit in January 1998, additional
construction activity due to increased availability of federal highway repair
dollars, and a strong general construction market. Sales of heat treating
services were modestly lower at Atmosphere Annealing compared to the prior year
six-month period. Sales at this unit, however, were less than planned for the
current period as a result of a strike at one of its automotive customers and
the delay in certain other planned programs.
For the current six month period, the construction supplies segment generated
additional operating earnings over last year due to their increased sales level.
Gross margin percentage at this unit was lower, however, as a significant
portion of their increased sales level was product sales to highway contractors
on a direct shipment basis, which generally have a lower margin. The operating
earnings increase at this unit was offset by reduced operating earnings of
approximately $1.2 million at Atmosphere Annealing. This reduction in operating
earnings at Atmosphere Annealing was caused by lower sales of heat treating
services, increased employee benefit expenses and higher costs related to
facility improvements which became operational during the period. The higher
facilities costs were incurred as a result of the expansion of certain
facilities of this unit in anticipation of increased sales. The planned sales
increase was delayed in part to a labor strike at one of its major customers as
well as certain other programs being delayed until the expansion of the
facilities was completed. Operating earnings were also affected by an operating
loss which occurred at Pak Sak, Maxco's packaging products segment, as a result
of lower sales and gross margin percentage at this unit.
Net interest expense increased for the first six months of 1998 from the
comparable period in the prior year due to additional long-term borrowings and
reduction in marketable securities, the proceeds of which were used for
investments in new affiliates, repurchases of the Company's stock, and
additional purchases of property and equipment.
Equity in earnings of affiliates was lower in 1998 due to a loss of
approximately $1.0 million reported by its Medar affiliate during the six month
period. As a result, Maxco reported a charge of $225,000 as its share of Medar's
loss for the six months. Medar's revenues and operating results were lower than
Medar anticipated because of several projects that have shifted into the fourth
quarter of the calendar year.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MAXCO, INC. AND SUBSIDIARIES
IMPACT OF THE YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be adversely
impacted by year 2000 software issues and continues to evaluate and manage the
risks associated with this problem. The Company believes that based on initial
assessments, the cost of achieving year 2000 compliance is not estimated to be
materially over the cost of normal software upgrades and replacements which are
expected to be incurred through September 30, 1999.
In addition to reviewing its internal year 2000 issues, Maxco has begun to
analyze any third party readiness. Due to the diverse nature of Maxco's
operations and its many suppliers and vendors, no significant loss of business
is anticipated as a result of any of its customers or vendors not being year
2000 ready.
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on August 25, 1998. The
matters voted upon were the election of directors, adoption of a new
Stock Option Plan, and other business which may come before the
meeting (of which there was none). The results of votes were as
follows:
Election of directors:
For Withheld
-------------- ---------------
Max A. Coon 2,849,274 188,911
Eric L. Cross 2,853,774 184,411
Charles J. Drake 2,717,544 320,641
Joel I. Ferguson 2,717,499 320,686
Richard G. Johns 2,853,774 184,411
Vincent Shunsky 2,853,759 184,426
J. Michael Warren 2,849,274 188,911
Michael W. Wisti 2,853,759 184,426
Andrew S. Zynda 2,711,541 326,644
Adoption of stock option plan:
For Against Abstain Non-Vote
--- ------- ------- --------
1,963,945 249,369 12,636 812,235
Item 5. Other Information
None
14
<PAGE> 15
PART II
OTHER INFORMATION (CONTINUED)
Item 6(a) Exhibits
3 Restated Articles of Incorporation are hereby incorporated
from Form 10-Q dated February 13, 1998.
3.1 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 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.
10.1 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 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
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.
10.13 Loan agreement between Michigan Strategic Fund and
Atmosphere Annealing, Inc. is hereby incorporated by
reference from Form 10-Q dated February 13, 1998.
10.14 Loan agreement between LAM Funding, L.L.C. and borrower
including Guaranty-Maxco, Inc. is hereby incorporated by
reference from Form 10-Q dated February 13, 1998.
15
<PAGE> 16
PART II
OTHER INFORMATION (CONTINUED)
10.15 First Amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated August 1, 1997, is hereby
incorporated by reference from Form 10-K dated June 24, 1998.
10.16 Second amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated June 24, 1998 is
hereby incorporated by reference from Form 10-K dated June 24,
1998.
10.17* Third amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated
September 24, 1998.
10.18* Maxco, Inc. 1998 Employee Stock Option Plan
27* Financial Data Schedule
Item 6(b) Reports on Form 8-K
None
*Filed herewith
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXCO, INC.
Date November 12, 1998 \S\ VINCENT SHUNSKY
---------------- ---------------------------------------
Vincent Shunsky, Vice President-Finance
and Treasurer (Principal Financial and
Accounting Officer)
17
<PAGE> 18
INDEX TO EXHIBITS
3 Restated Articles of Incorporation are hereby incorporated
from Form 10-Q dated February 13, 1998.
3.1 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 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.
10.1 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 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
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.
10.13 Loan agreement between Michigan Strategic Fund and
Atmosphere Annealing, Inc. is hereby incorporated by
reference from Form 10-Q dated February 13, 1998.
10.14 Loan agreement between LAM Funding, L.L.C. and borrower
including Guaranty-Maxco, Inc. is hereby incorporated by
reference from Form 10-Q dated February 13, 1998.
<PAGE> 19
INDEX TO EXHIBITS
10.15 First Amendment to amended and restated loan agreement between
Comerica Bank and Maxco, Inc. dated August 1, 1997, is hereby
incorporated by reference from Form 10-K dated June 24, 1998.
10.16 Second amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated June 24, 1998 is
hereby incorporated by reference from Form 10-K dated June 24,
1998.
10.17* Third amendment to amended and restated loan agreement
between Comerica Bank and Maxco, Inc. dated
September 24, 1998.
10.18* Maxco, Inc. 1998 Employee Stock Option Plan
27* Financial Data Schedule
Item 6(b) Reports on Form 8-K
None
*Filed herewith
<PAGE> 1
EXHIBIT 10.17
THIRD AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
DATED AS OF SEPTEMBER 30, 1996
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (the "Third
Amendment") dated as of the 24th day of September, 1998, by and among MAXCO,
INC., a Michigan Corporation ("Borrower") and COMERICA BANK, a Michigan banking
corporation ("Bank").
W I T N E S S E T H
WHEREAS, Borrower and Bank entered into a certain Amended and Restated
Loan Agreement dated September 30, 1996, as amended by First Amendment thereto
dated as of August 1, 1997, as further amended by Second Amendment thereto dated
June 24, 1998 (the "Agreement");
WHEREAS, Borrower and Bank now desire to amend the Termination Date of
the Agreement and Schedule 5.12 annexed thereto;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, Borrower and Bank hereby agree as follows:
1. In Sub-Section 1.1 of Section 1 of the Agreement, the
following definition is hereby deleted in its entirety and replaced by the
following:
"Termination Date" shall mean, as to the Revolving Credit Loan
and the Revolving Ersco Acquisition Loan, August 1, 2000 (or such
earlier date on which the Borrower shall permanently terminate the
Bank's commitment under Section 2.8.1 of this Agreement).
2. Schedule 5.12 annexed to the Agreement and reference in
Section 5.12 of Section 5 of the Agreement is replaced in its entirety by the
new Schedule 5.12 which is attached hereto and is by this reference made a part
hereof.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Third
Amendment to be executed by their duly authorized officers as of the day and
year first written above.
MAXCO, INC.
By /s/ Vincent Shunsky
---------------------------
Vincent Shunsky
Its Vice President
-1-
<PAGE> 2
COMERICA BANK
By /s/ David G. Grantham
---------------------
David G. Grantham
Its Vice President
The Undersigned Guarantors hereby acknowledge and consent to the above
Third Amendment.
Ersco Corporation Pak-Sak Industries, Inc.
By /s/ Vincent Shunsky By /s/ Vincent Shunsky
--------------------- ---------------------
Vincent Shunsky Vincent Shunsky
Its Treasurer Its Treasurer
Wisconsin Wire & Steel, Inc. Atmosphere Annealing, Inc.
By /s/ Vincent Shunsky By /s/ Vincent Shunsky
--------------------- ---------------------
Vincent Shunsky Vincent Shunsky
Its Treasurer Its Treasurer
-2-
<PAGE> 1
EXHIBIT 10.18
MAXCO, INC.
1998 EMPLOYEE STOCK OPTION PLAN
1. Purpose. This Employee Stock Option Plan (the "Plan") is
intended to further the growth and development of Maxco Inc. (the "Company") by
affording an opportunity to eligible officers and key employees of the Company
and its subsidiaries, as well as nonemployee directors, consultants or advisors,
who are in a position to contribute materially to the prosperity of the Company,
to purchase shares of its common stock. It is further intended that options
issued pursuant to the Plan may be either nonqualified stock options or
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
2. Stock Offering. The Board of Directors of the Company are
authorized to offer and sell stock pursuant to this Plan. The aggregate amount
of stock which may be sold and delivered under the Plan, against payment
therefor, shall not exceed five hundred thousand (500,000) shares. In the event
that any outstanding option under the Plan expires or is terminated for any
reason prior to the end of the period during which options may be granted, the
shares of common stock allocable to the unexercised or canceled portion of such
Plan may again be subjected to an option under the Plan.
3. Designation of Participants and Administration of Plan. The
Board of Directors, or not less than two (2) Board Members appointed from time
to time by the Board of Directors, shall act as a Committee to administer the
Plan.. The employees eligible to participate in the Plan shall be the officers
and any other key employees of the Company and its subsidiaries as the Board of
Directors may designate. Directors who are not also employees of the Company,
consultants and advisors are not eligible to receive incentive stock options,
but may be granted nonqualified stock options.
4. Unauthorized Employees. In no event shall an incentive
stock option be granted to any individual who, immediately before such option is
granted, owns (as defined in Section 422 and 425(d) of the Internal Revenue Code
of 1986, as amended) stock possessing more than ten percent (10%) of the total
combined voting power or value of all classes of stock of the Company or of its
parent or subsidiary corporation, unless the option price to such individual is
no less than 110% of the fair market value of the stock at the time the option
is granted and such option by its terms is not exercisable after the expiration
of five years from the date such option is granted.
5. Effective Date of Plan. The Plan is effective on the date
of ratification by a vote of the holders of a majority of the common stock of
the Company after adoption by the Board of Directors. The Company shall not be
required to issue any stock hereunder, however, until the approvals required by
the proper public authorities have been obtained, if any, and the Board of
Directors shall have been advised by counsel for the Company that all other
applicable legal requirements have been complied with.
<PAGE> 2
6. Termination of Plan. The Plan shall remain in effect until
and shall terminate upon the expiration of ten (10) years from the date the Plan
is adopted. The Plan may be terminated at an earlier date by action of the Board
of Directors. Termination of the Plan shall not affect the rights of
beneficiaries under options granted to purchase common stock under the Plan
prior to termination or to complete payment for and to receive any pledged
shares, and all such options shall continue in force and operation after
termination of the Plan, except as they may be terminated in accordance with the
terms of the Plan. The Board of Directors of the Company may from time to time
suspend or discontinue the Plan with respect to any shares as to which options
have not been granted.
7. Offering to Designated Beneficiaries. Beneficiaries
designated by the committee shall be granted options to purchase stock. Option
periods shall be fixed by the committee (subject to the provisions of paragraph
4), but shall not exceed ten (10) years.
8. Exercise of Options. Options may be exercised in whole or
in part from time to time, but in no event may any option be exercised after ten
(10) years from the date on which such option is granted (subject to the
provisions of paragraph 4).
9. Option Price. The option price shall be not less than 100%
of the fair market value of the stock at the time the option is granted (subject
to the provisions of paragraph 4). The fair market value per share shall be the
closing price of the common stock on the Over The Counter Market on the day the
option is granted, as reported by the National Association of Security Dealers,
Automatic Quotation System (NASDAQ), or if no sale of the Company's common stock
shall have been made on that day, on the next preceding day on which there was a
sale of such stock. If the stock is listed upon an established stock exchange or
exchanges, fair market value shall be deemed to be the highest closing price of
the common stock on such stock exchange or exchanges on the day the option is
granted. Subject to the foregoing, the Committee in fixing the option price
shall have full authority and discretion and be fully protected in doing so.
10. Non-Transferability. Beneficiaries' rights under the Plan
are wholly personal and no assignment or transfer of a beneficiary's rights and
interests in the Plan will be permitted or recognized other than at death. An
option is exercisable during the lifetime of the beneficiary to whom the option
was granted only by such beneficiary.
11. Limit on Annual Eligibility. A participant in the Plan
shall not be granted or be entitled to exercise, in any calendar year, incentive
stock options on which the aggregate fair market value of the stock (determined
at the date the option is granted) exceeds the annual limit established by
Section 422 of the Internal Revenue Code of 1986, as amended.
12. Payment. Upon exercise of any option granted hereunder,
payment in full shall be made at the time of such exercise for all shares then
being purchased; except, however, that the committee may in its discretion
permit the issuance of stock upon such plan of partial payment as it deems
reasonable.
<PAGE> 3
13. Offset. The Company shall be authorized to apply the
payment of any amount due to it under this Plan, to any compensation or other
amount due from the Company or subsidiary to the beneficiary.
14. Termination of Employment. In the event that an optionee
who has been granted an incentive stock option shall cease to be employed by the
Company, his option shall terminate at the expiration of three (3) months from
such cessation. If any cessation of employment is due to permanent and total
disability the optionee shall have the right to exercise his option at any time
within twelve (12) months after leaving employment.
15. Stock Dividends or Recapitalization; Merger or
Acquisition.
(a) If any stock dividend is declared upon the common
stock, or if there is any recapitalization of the
Company with respect to its common stock, resulting
in a split-up or combination or exchange or shares,
the number and kind of shares then subject to options
granted to beneficiaries under the Plan shall be
proportionately and appropriately adjusted, without
any change in the aggregate purchase prices to be
paid therefore. In the alternative, in the discretion
of the committee, the option price may be
appropriately adjusted without change in the number
of shares subject to such options.
(b) Subject to any required action by the stockholders,
if the Company shall be the surviving corporation in
any merger or consolidation, any option granted
hereunder shall pertain to and apply to the
securities to which a holder of the number of shares
of common stock subject to the option would have been
entitled. However, a dissolution or liquidation of
the Company or a merger or consolidation in which the
Company is not the surviving corporation, shall cause
every unexercised option outstanding hereunder to
terminate unless the surviving corporation
specifically agrees that the options shall apply to
shares in such surviving corporation or its parent or
subsidiary and the difference between the option
price and the fair market value of the new option
shares immediately following the transaction does not
exceed the difference between the option price and
the fair market value of the old option shares
immediately before the transaction.
16. Fractional Shares. No fractional shares of stock
shall be issued upon the exercise of any option, and in case a participating
beneficiary shall become entitled to any interest in a fractional share, by
reason of a stock dividend or otherwise, the Company shall either (a) sell the
same and credit the proceeds of the sale to the beneficiary or (b) credit to the
beneficiary a cash sum equal to the market value of such fractional share
interest on the date when such stock dividend was paid for or such fractional
share interest was otherwise created.
<PAGE> 4
17. Administration and Amendment of Plan. The Option Committee
of the Board of Directors shall have the power to interpret the provisions of
the Plan, to make regulations, and to formulate administrative provisions for
carrying it out, and to make such changes in the Plan and in the regulations and
administrative provisions as, from time to time, the committee deems proper and
in the best interest of the Company; provided, it may not increase the number of
shares authorized for the Plan, nor reduce the option price below the minimum
price provided in the Plan. Without limiting the generality of the foregoing,
the committee shall have the power in its discretion to make such changes in the
Plan as to termination of the options granted to designated beneficiaries as the
committee may deem advisable because of changes in the law while the Plan is in
effect or for any other reason; provided, further, no change in an option
already granted to an beneficiary shall be made without the written consent of
the beneficiary concerned. No member of the committee or the Board of Directors
shall be liable for any action or determination made in good faith. All actions
of the committee shall be final.
18. Other Provisions. The option agreements authorized under
the Plan shall contain such other provisions as the committee shall deem
advisable.
19. Application of Funds. The proceeds received by the Company
from the sale of common stock pursuant to options, except as otherwise provided
herein, will be used for general corporate purposes.
20. Indemnification and Exculpation.
(a) Each person who is or shall have been a member of the
Board of Directors or the Option Committee shall be
indemnified and held harmless by the Company against
and from any and all loss, cost, liability, or
expense that may be imposed upon or reasonably
incurred by him, in connection with or resulting from
any claim, action, suit, or proceeding to which he
may be or become a party or in which he may be or
become involved by reason of any action taken or
failure to act under the Plan and against and from
any and all amount paid by him in settlement thereof
(with the Company's written approval) or paid by him
in satisfaction of a judgment in any such action,
suit, or proceeding, except a judgment in favor of
the Company based upon a finding of his lack of good
faith; subject, however, to the condition that upon
the institution of any claim, action, suit, or
proceeding against him, he shall in writing give the
Company an opportunity, at its own expense, to handle
and defend the same before he undertakes to handle
and defend it on his own behalf. The foregoing right
of indemnification shall not be exclusive of any
other right to which such person may be entitled as a
matter of law or otherwise, or any power that the
Company may have to indemnify him or hold him
harmless.
<PAGE> 5
(b) Each member of the Board, the Option Committee and each
officer and employee of the Company shall be fully justified in relying or
acting in good faith upon any information furnished in connection with the
administration of the Plan by any appropriate person or persons other than
himself. In no event shall any person who is or shall have been a member of the
Board, the Option Committee, or an officer or employee of the Company be held
liable for any determination made or other action taken or any omission to act
in reliance upon any such information, or for any action (including the
furnishing of information) taken or any failure to act, if in good faith.
Plan adopted by the Board of Directors on July 16, 1998
Plan approved by the Shareholders on August 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,325
<SECURITIES> 255
<RECEIVABLES> 24,534
<ALLOWANCES> 608
<INVENTORY> 4,455
<CURRENT-ASSETS> 30,568
<PP&E> 36,672
<DEPRECIATION> 9,469
<TOTAL-ASSETS> 84,498
<CURRENT-LIABILITIES> 18,627
<BONDS> 28,599
0
3,878
<COMMON> 3,262
<OTHER-SE> 28,816
<TOTAL-LIABILITY-AND-EQUITY> 84,498
<SALES> 71,249
<TOTAL-REVENUES> 71,249
<CGS> 56,354
<TOTAL-COSTS> 67,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,231
<INCOME-PRETAX> 2,608
<INCOME-TAX> 913
<INCOME-CONTINUING> 1,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,737
<EPS-PRIMARY> .47
<EPS-DILUTED> .46
</TABLE>
