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MAXCO INC
10-Q, 1999-11-15
MISCELLANEOUS NONDURABLE GOODS

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Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)

FOR THE QUARTER ENDED SEPTEMBER 30, 1999

Commission File Number 0-2762

MAXCO, INC.

Michigan (State or other Jurisdiction of Incorporation or Organization)		38-1792842 (I.R.S. Employer Identification Number)
1118 Centennial Way Lansing, Michigan (Address of principal executive offices)		48917 (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 October 31, 1999
		Common Stock		3,151,195 shares

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PART I
CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed) MAXCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAXCO, INC. AND SUBSIDIARIES SEPTEMBER 30, 1999 (Unaudited)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAXCO, INC. AND SUBSIDIARIES SEPTEMBER 30, 1999
PART II OTHER INFORMATION
SIGNATURES
MAXCO, INC.

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FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

				September 30,
				1999				March 31,
				(Unaudited)				1999
				(in thousands)
Assets
Current Assets
	Cash and cash equivalents			$	1,359			$	1,122
	Accounts and notes receivable, less allowance of $424,000 ($558,000 at March 31, 1999)				32,161				19,814
	Inventories				9,138				5,010
	Prepaid expenses and other				601				608
		Total Current Assets			43,259				26,554
Marketable Securities — Long Term					2,422				2,501
Property and Equipment
	Land				732				732
	Buildings				14,248				11,152
	Machinery, equipment, and fixtures				34,020				30,814
					49,000				42,698
	Allowances for depreciation				(12,830	)			(10,799	)
					36,170				31,899
Other Assets
	Investments				17,846				16,144
	Notes and contracts receivable and other				3,479				3,996
	Intangibles				4,187				4,336
					25,512				24,476
				$	107,363			$	85,430

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				September 30,
				1999				March 31,
				(Unaudited)				1999
				(in thousands)
Liabilities and Stockholders’ Equity
Current Liabilities
	Notes payable			$	226			$	226
	Accounts payable				18,378				10,489
	Employee compensation				2,661				2,192
	Taxes, interest, and other liabilities				3,682				1,726
	Current maturities of long-term obligations				3,681				2,063
		Total Current Liabilities			28,628				16,696
Long-Term Obligations, less current maturities					39,983				32,856
Deferred Income Taxes					2,150				1,734
Stockholders’ Equity
	Preferred stock:
		Series Three: 10% cumulative redeemable, $60 face value; 14,801 shares issued and outstanding (14,876 at March 31, 1999)			679				683
		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			798				798
		Series Six: 10% cumulative callable, $160 face value; 20,000 shares authorized, issued — none
	Common stock, $1 par value; 10,000,000 shares authorized, 3,151,195 issued shares (3,219,995 at March 31, 1999)				3,151				3,220
	Net unrealized gain (loss) on marketable securities				(39	)			9
	Retained earnings				29,623				27,044
					36,602				34,144
				$	107,363			$	85,430

See notes to consolidated financial statements

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			Three Months Ended
			September 30,
			1999				1998
			(Unaudited)				(Unaudited)
			(in thousands, except
			per share data)
Net sales			$	47,227			$	35,553
Costs and expenses:
	Cost of sales and operating expenses			36,569				28,146
	Selling, general and administrative			6,982				5,233
	Depreciation and amortization			1,199				728
				44,750				34,107
Operating Earnings				2,477				1,446
Other income (expense)
	Investment and interest income			134				256
	Interest expense			(838	)			(629	)
Income Before Federal Income Taxes and Equity in Earnings of Affiliates				1,773				1,073
Federal income tax expense				626				376
Income Before Equity in Earnings of Affiliates				1,147				697
Equity in earnings (loss) of affiliates, net of tax				130				(88	)
Net Income				1,277				609
Less preferred stock dividends				(102	)			(102	)
Net Income Applicable to Common Stock				1,175				507
Net Income Per Common Share — Basic			$	.37			$	.16
Net Income Per Common Share — Assuming Dilution			$	.37			$	.15

See notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF OPERATIONS (Condensed)

			Six Months Ended
			September 30,
			1999				1998
			(Unaudited)				(Unaudited)
			(in thousands,
			except per share data)
Net sales			$	91,203			$	71,249
Costs and expenses:
	Cost of sales and operating expenses			70,045				56,354
	Selling, general and administrative			13,459				10,103
	Depreciation and amortization			2,368				1,425
				85,872				67,882
Operating Earnings				5,331				3,367
Other income (expense)
	Investment and interest income			289				472
	Interest expense			(1,583	)			(1,231	)
Income Before Federal Income Taxes and Equity in Earnings of Affiliates				4,037				2,608
Federal income tax expense				1,407				913
Income Before Equity in Earnings of Affiliates				2,630				1,695
Equity in earnings of affiliates, net of tax				555				42
Net Income				3,185				1,737
Less preferred stock dividends				(204	)			(204	)
Net Income Applicable to Common Stock				2,981				1,533
Net Income per Common Share — Basic			$	.94			$	.47
Net Income per Common Share — Assuming Dilution			$	.94			$	.46

See notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)

				Six Months Ended
				September 30,
				1999				1998
				(Unaudited)				(Unaudited)
				(in thousands)
Operating Activities
	Net Income			$	3,185			$	1,737
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and other non-cash items			2,014				1,497
		Changes in operating assets and liabilities			(4,199	)			(2,867	)
Net Cash Provided by Operating Activities					1,000				367
Investing Activities
	Purchase of business				(3,103	)
	Payment received on note receivable				750
	Redemption of (investment in) marketable securities				8				5,812
	Investment in affiliates				(484	)			(2,261	)
	Purchases of property and equipment				(5,952	)			(4,764	)
	Other				(47	)			(114	)
Net Cash Used in Investing Activities					(8,828	)			(1,327	)
Financing Activities
	Proceeds from long-term obligations				10,689				2,829
	Proceeds from restricted cash for acquisitions of equipment								641
	Repayments on long-term obligations and notes payable				(1,944	)			(1,629	)
	Changes in capital stock				(476	)			(392	)
	Dividends paid on preferred stock				(204	)			(204	)
Net Cash Provided by Financing Activities					8,065				1,245
Increase in cash and Cash Equivalents					237				285
Cash and Cash Equivalents at Beginning of period					1,122				1,040
Cash and Cash Equivalents at End of Period				$	1,359			$	1,325

See notes to consolidated financial statements

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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, 1999.

      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 to the current presentation.

NOTE 2 — Inventories

      The major classes of inventories, at the dates indicated were as follows:

		September 30,				March 31,
		1999				1999
		(unaudited)
		(in thousands)
Raw materials		$	463			$	732
Finished goods and work in progress			1,333				1,283
Purchased products for resale			7,342				2,995
		$	9,138			$	5,010

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 loss, net of deferred tax, of approximately $39,000 being reported as part of stockholders’ equity at September 30, 1999.

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NOTE 4 — Investment in Integral Vision, Inc.

      On June 30, 1999, Integral Vision, Inc. (formerly Medar, Inc.), Maxco’s 24% owned affiliated company sold its welding division for cash and debt. The gain recognized through September 30, 1999 on this transaction was $6.6 million. Also, as a result of this transaction, Maxco received payment on June 30, 1999 of the full balance due on subordinated debentures of $750,000. Integral Vision’s sales for the three and six months ended September 30, 1999 was $4.0 million and $6.4 million respectively, compared to sales of $2.5 million and $6.1 million for the three and six months ended September 30, 1998. Its net income for the three and six months ended September 30, 1999 was $1.1 million and $4.7 million respectively, compared to net loss of $1.1 million and $953,000 for the three and six months ended September 30, 1998.

NOTE 5 — Long Term Debt

      At September 30, 1999 Maxco could borrow up to $33 million under its three revolving lines of credit of which $10.6 million was available at September 30, 1999.

NOTE 6 — Earnings Per Share

      The following table sets forth the computation of basic and diluted earnings per share:

			Three Months
			Ended								Six Months Ended
			September 30,								September 30,
			1999				1998				1999				1998
			(in thousands, except per share data)
NUMERATOR:
	Net income		$	1,277			$	609			$	3,185			$	1,737
	Preferred stock dividends			(102	)			(102	)			(204	)			(204	)
Numerator for Basic Earning Per Share — Income Available to Common Stockholders				1,175				507				2,981				1,533
Effect of dilutive securities:
Numerator for Diluted Earnings Per Share — Income to Common Stockholders after Assumed Conversions				1,175				507				2,981				1,533
Denominator:
	Denominator for Basic Earnings Per Share — Weighted-Average Shares			3,164				3,270				3,179				3,284
Effect of dilutive securities:
	Employee stock options			1				45				1				49
Dilutive potential common shares				1				45				1				49
Denominator for Diluted Earnings Per Share — Adjusted Weighted-Average Shares and Assumed Conversions				3,165				3,315				3,180				3,333
Basic Earnings Per Share			$	.37			$	.16			$	.94			$	.47
Diluted Earnings Per Share			$	.37			$	.15			$	.94			$	.46

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NOTE 7 — Comprehensive Income

      The components of comprehensive income for the three and six months ended September 30, 1999 and 1998 are as follows:

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		1999				1998				1999				1998
		(in thousands)
Net earnings		$	1,277			$	609			$	3,185			$	1,737
Unrealized losses on marketable securities			(12	)			14				(48	)			8
		$	1,265			$	623			$	3,137			$	1,745

      The components of accumulated comprehensive income, net of related tax at September 30, 1999 and March 31, 1999 are as follows:

		September 30,				March 31,
		1999				1999
		(in thousands)
Unrealized gains (losses) on marketable securities		$	(39	)		$	9

NOTE 8 — Industry Segment Information

      The following summarizes Maxco’s industry segment information:

				September 30,				March 31,
				1999				1999
				(in thousands)
Identifiable assets:
	Distribution — construction supplies			$	41,280			$	21,275
	Heat treating				27,720				26,211
	Packaging products				6,983				7,402
	Corporate and other				13,853				14,398
	Investments and advances				17,527				16,144
		Total Identifiable Assets		$	107,363			$	85,430

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NOTE 8 — Industry Segment Information — Continued

				Three Months Ended								Six Months Ended
				September 30,								September 30,
				1999				1998				1999				1998
Net sales:
	Distribution — construction supplies			$	33,240			$	22,867			$	62,653			$	45,764
	Heat treating				9,702				8,258				19,786				16,660
	Packaging products				4,203				4,346				8,599				8,661
	Corporate and other				82				82				165				164
		Total Net Sales		$	47,227			$	35,553			$	91,203			$	71,249
Operating earnings (loss):
	Distribution — construction supplies			$	2,421			$	1,550			$	4,480			$	3,472
	Heat treating				930				600				2,379				1,299
	Packaging products				(26	)			(125	)			(49	)			(259	)
	Corporate and other				(848	)			(579	)			(1,479	)			(1,145	)
		Total Operating Earnings		$	2,477			$	1,446			$	5,331			$	3,367
Depreciation and amortization expense:
	Distribution — construction supplies			$	448			$	169			$	871			$	321
	Heat treating				481				333				963				653
	Packaging products				180				172				354				343
	Corporate and other				90				54				180				108
		Total Depreciation And Amortization Expense		$	1,199			$	728			$	2,368			$	1,425
Capital expenditures:
	Distribution — construction supplies			$	1,412			$	928			$	2,750			$	1,274
	Heat treating				1,671				1,529				2,696				3,019
	Packaging products				278				342				497				440
	Corporate and other				2				4				9				31
		Total Capital Expenditures		$	3,363			$	2,803			$	5,952			$	4,764

      Accounting policies of the business segments are consistent with those described in the summary of significant accounting policies (see Note 1).

      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.

      Maxco has no significant foreign operations, export sales, or inter-segment sales.

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Material Changes in Financial Condition

      Operating activities generated $1.0 million in cash for the six months. Individual working capital component levels increased over the March 31, 1999 level, primarily due to the seasonally higher sales levels by the Company’s construction supplies unit (Ersco) as well as working capital components of an acquired business added to this unit.

      Investing activities included the purchase by Ersco, in April 1999, of a distributor of concrete construction products and accessories in the St. Louis market area. Cash was also used in investing activities during the quarter at Ersco to purchase equipment, primarily forms, used for rental to its customers and additional equipment for Maxco’s heat-treating unit (Atmosphere Annealing).

      During the quarter ended June 30, 1999, Integral Vision, Inc. (formerly Medar, Inc.), Maxco’s 24% owned affiliated company, sold its welding division for cash and debt. Consequently, payment was received of the full balance due of $750,000 on subordinated debentures held by Maxco.

      Net proceeds from additional long-term debt were used primarily to fund the acquisition of Ersco’s St. Louis branch and the purchase of equipment at Ersco and Atmosphere Annealing.

      At September 30, 1999, Maxco could borrow up to $33 million under its lines of credit of which $10.6 million was available at September 30, 1999.

      Beginning November 1999 Maxco will recognize its investment in Provant Inc. common stock as securities available for sale. These shares will be classified as available for sale and will no longer be considered restricted stock under FASB 115, as these securities will be saleable without restriction within one year. Consequently, the securities will be carried at fair value, with the unrealized gains and losses net of tax, reported as a separate component of stockholders’ equity. At September 30,1999 the unrealized gain of this stock was approximately $500,000 net of tax.

      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.

Material Changes in Results of Operations

Three Months Ended September 30, 1999 Compared to 1998

      Net sales increased to $47.2 million compared to $35.6 million in last year’s second quarter. Second quarter results reflect operating earnings of $2.5 million compared to $1.4 million for the comparable period in 1998. Net income was $1.3 million or $.37 per share assuming dilution compared to last year’s $609,000 or $.15 per share assuming dilution.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

      Higher sales in the current period occurred at Maxco’s construction supplies unit (Ersco) over the comparable 1998 period primarily as a result of an increase in same branch sales and sales generated by branches added since September 1998 in the St. Louis, Columbus, and Louisville metropolitan areas. A strong general construction market resulting from an overall stable and growing general economy, increased availability of federal highway repair dollars, as well as an increase in form rental revenues were primary reasons for the sales increase. On a comparable basis, sales at Atmosphere Annealing increased in part because last year’s sales levels were depressed due to a labor strike at one of its automotive customers. Additionally, sales of coating and other services increased due to greater processing capabilities of equipment and facilities recently placed in service.

      Consolidated gross profit (net sales less cost of sales and operating expenses) increased to $10.7 million or approximately 23% of sales from $7.4 million or 21% of sales. The construction supplies unit generated additional gross profit in the current period over last year due to its increased sales level. Gross margin at this unit was higher in the current quarter due primarily to the increase in sales of higher margin products such as rentals and associated accessories. A higher proportion of these sales were from inventory which generally have a higher margin as compared to sales made on a direct shipment basis. The higher sales from inventory were due in part to sales by Ersco’s newly acquired St. Louis branch being primarily from inventory. Improvements in gross margin also occurred at Maxco’s heat-treating unit as efficiency improvements resulting from the completion of certain major capital projects were realized.

      Selling, general, and administrative expenses increased to $7.0 million from $5.2 million. The increase is primarily attributable to the construction supplies segment due to additional operating costs associated with new locations, costs of additional selling activities, increases in staffing levels, and other expenses incurred to support the planned growth of this unit.

      The increase in depreciation expense in 1999 was attributable to depreciation by Ersco on purchases of rental forms and shoring equipment and depreciation of assets from its acquired businesses, as well as depreciation by Atmosphere Annealing on new equipment, including a new coating line, additional furnaces, and facility improvements since September of last year. The increase in amortization expense was attributable to the goodwill recorded as a result of acquisitions by Ersco since September of last year.

      As a result of the above, operating earnings increased to approximately $2.5 million from $1.4 million in last year’s comparable period.

      Net interest expense increased in 1999 from the prior year quarter due to additional long-term borrowings and reduction in marketable securities, the proceeds of which were used primarily for additional purchases of property and equipment and the purchase of businesses.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

      Equity in earnings of affiliates increased primarily because of higher net income at Integral Vision for the current three-month period. Integral Vision’s net income for the three months ended September 30, 1999 was $1.1 million compared to a net loss of $1.1 million for the three months ended September 30, 1998.

Six Months Ended September 30, 1999 Compared to 1998

      Net sales increased to $91.2 million compared to $71.2 million in last year’s comparable six-month period. Results for this period include operating earnings of $5.3 million compared to $3.4 million for the comparable period in 1998. Net income was $3.2 million or $.94 per share assuming dilution compared to last year’s $1.7 million or $.46 per share assuming dilution.

      Higher sales in the current period occurred at Maxco’s construction supplies unit (Ersco) over the comparable 1998 period primarily as a result of a 10.5% increase in same branch sales, and sales of approximately $12.1 million generated by branches added since September 1998 in the St. Louis, Columbus, and Louisville metropolitan areas. A strong general construction market resulting from an overall stable and growing general economy, increased availability of federal highway repair dollars, as well as an increase in form rental revenues were primary reasons in the increase in same branch sales for the six months. Sales at Atmosphere Annealing increased in the current six-month period over the comparable six-month period last year in part because last year’s sales levels were depressed due to a labor strike at one of its automotive customers. Additionally, sales of coating and other services increased due to greater processing capabilities of equipment and facilities recently placed in service.

      Consolidated gross profit (net sales less cost of sales and operating expenses) increased to $21.2 million or approximately 23% of sales from $14.9 million or 21% of sales. The construction supplies unit generated additional gross profit in the current period over last year due to its increased sales level. Gross margin at this unit was higher for the current six-month period due to increased sales of higher margin products such as rentals and associated accessories as well as higher percentage of sales from inventory. Inventory sales generally have higher margins as compared to sales on a direct shipment basis. The higher proportion of products sold from inventory was primarily attributable to Ersco’s acquisition of its St. Louis branch where sales are primarily made by this method. Improvements in gross margin also occurred at Maxco’s heat-treating unit as efficiency improvements resulting from the completion of certain major capital projects were realized.

      Selling, general, and administrative expenses increased to $13.5 million from $10.1 million. The increase was in large part attributable to the construction supplies segment. Additional operating costs associated with new locations and related selling activities were incurred as Ersco added four branches since September 1998. Additionally, staffing levels were increased at Atmosphere Annealing and Ersco to support their planned growth. At September 30,1999 Maxco’s total number of employees was 770 compared to 620 at September 30, 1998.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

      The increase in depreciation expense in 1999 was attributable to depreciation by Ersco on purchases of rental forms and shoring equipment well as assets of its acquired businesses. Additionally, depreciation by Atmosphere Annealing also increased as a result of new equipment including a new coating line, additional furnaces, and facility improvements placed in service since September of last year. The increase in amortization expense was attributable to the goodwill recorded as a result of acquisitions by Ersco since September of last year.

      As a result of the above, operating earnings increased to approximately $5.3 million from $3.4 million in last year’s comparable period.

      Net interest expense increased from the prior year due to additional long-term borrowings and reduction in marketable securities, the proceeds of which were used primarily for additional purchases of property and equipment and the purchase of businesses.

      On June 30, 1999, Integral Vision, Inc. (formerly Medar Inc.) sold its welding division for cash and debt. The gain recognized through September 30, 1999 on this transaction was $6.6 million. Integral Vision’s net income for the six months ended September 30, 1999 was $4.7 million compared to a net loss of $953,000 for the six months ended September 30, 1998. The increase in Integral Vision’s net income was the major reason that Maxco’s equity in affiliates, net of tax, increased $513,000 over the same period of the prior year.

Impact of the Year 2000 Issue

      The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company’s computer programs that have date-sensitive software may recognize a date using “00” as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities.

      The Company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. The Company has addressed this risk to the availability and integrity of financial systems and the reliability of operational systems. Except for Ersco’s St. Louis operation, we believe that all of our date sensitive equipment is Year 2000 compliant and all major systems have been tested.

      Remediation costs are not expected to be significant. We estimate the total pre-tax costs to date relating to the Year 2000 issue are approximately $200,000. Separate from the Y2K issue, the Company has committed to upgrade Ersco’s business information system for approximately $800,000, which is expected to be completed by the first quarter of fiscal 2001. The portion of this upgrade assignable to Ersco’s St. Louis operation is approximately $145,000.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

      The Company believes its planning efforts are adequate to address the Year 2000 Issue and that its greatest risks in this area are primarily those that it cannot directly control, including the readiness of its major suppliers, customers and service providers. Failure on the part of any of these entities to timely remediate their Year 2000 Issues could result in disruptions in the Company’s supply of materials, disruptions in our customers’ ability to conduct business and interruptions to the Company’s daily operations. Management believes that its exposure to third party risk may be minimized to some extent because we obtain supplies from a variety of sources and no one supplier is significant to our operations. There can be no guarantee, however, that the systems of other third parties on which the Company’s systems and operations rely will be corrected on a timely basis and will not have a material adverse effect on the Company.

      The Company has contacted its major suppliers, customers, and service providers regarding their Year 2000 Issues. The Company believes this area is among its greatest risks, as information is received and evaluated, the Company has developed contingency plans, as deemed necessary, to safeguard its ongoing operations. Such contingency plans include identifying alternative suppliers or service providers, stockpiling certain inventories if alternative sources of supply are not available, and the addition of lending capacity if deemed necessary to finance higher levels of inventory or working capital on an interim basis. In addition, because the impact of the Year 2000 issue would occur for our construction segment at its seasonal slow period, we believe that we will have adequate inventory on hand at that unit, even if our alternative suppliers are adversely affected.

      The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management’s best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans, and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans.

New Financial Accounting Pronouncement

      The Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. Statement 133 is effective for fiscal years beginning after December 31, 1999. The Company expects to adopt the new statement effective April 1, 2000. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. The Company has not evaluated the potential effect the adoption of this statement will have on its results of operations or financial condition.

Quantitative and Qualitative Disclosures About Market Risk

      The Company’s variable interest expense is sensitive to changes in the general level of United States interest rates. Some of the Company’s interest expense is fixed through long-term borrowings to mitigate the impact of such potential exposure. Additionally, the Company entered into an interest rate swap agreement based on a notional amount of $5.0 million to manage its exposure to interest rate changes. The swap involves the exchange of fixed and variable interest payments without changing the notional principal amount. The Company had total outstanding variable rate long-term borrowings of $38.6 million at March 31, 1999. A 1% increase from the prevailing interest rates at March 31, 1999 on the unhedged variable rate portion of the Company’s long-term borrowings would increase interest expense by $339,000 based on principal balances at September 30, 1999.

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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 24, 1999. The matters voted upon were the election of directors 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			3,207,312				13,480
Eric L. Cross			3,207,312				13,480
Charles J. Drake			3,207,312				13,480
Joel I Ferguson			3,207,267				13,525
Richard G. Johns			3,207,267				13,525
Vincent Shunsky			3,207,312				13,480
J. Michael Warren			3,207,312				13,480
Michael W. Wisti			3,207,312				13,480
Andrew S. Zynda			3,206,812				13,980

Item 5.		Other Information
		None
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).

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PART II

OTHER INFORMATION (Continued)

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.
4.5		Resolution establishing Series Six Preferred Shares is hereby incorporated by reference from Form 10-K dated June  23, 1999.
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.
10.9		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.
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.

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PART II

OTHER INFORMATION (Continued)

10.17		Third amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated September 24, 1998, is hereby incorporated by reference from Form 10-Q dated November 12, 1998.
10.18		Maxco, Inc. 1998 Employee Stock Option Plan is hereby incorporated by reference from Form 10-Q dated November  12, 1998.
10.19		Fourth amendment to amended and restated loan agreement between Comerica Bank and Maxco, Inc. dated June 22, 1999, is hereby incorporated by reference from Form 10-K dated June 23, 1999.
10.20*		Fifth amendment to amended and restated loan agreement between Comerica bank and Maxco, Inc. dated September 1, 1999.
27*		Financial Data Schedule
Item  6(b)		Reports on Form 8-K
		None

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      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, 1999		/s/ VINCENT SHUNSKY -------------------------------------------------------- Vincent Shunsky, Vice President-Finance and Treasurer (Principal Financial and Accounting Officer)

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