MAXCO INC - 10-Q Quarterly Report

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, 2002

Commission File Number 0-2762

MAXCO, INC.
(Exact Name of Registrant as Specified in its Charter)


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 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to the filing requirements for at least the past 90 days.

Yes CHECKMARK 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 July 31, 2002

Common Stock		3,101,195 shares

PART I

FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS
Maxco, Inc. and Subsidiaries


			June 30,			March 31,
			2002			2002
			(Unaudited)

			(in thousands)
ASSETS

CURRENT ASSETS
	Cash and cash equivalents		$	791		$	442
	Accounts and notes receivable, less allowance of $336,000 ($424,000 at March 31, 2002)			27,791			18,592
	Note receivable—short-term—Note 12			2,200			2,700
	Advances to affiliate			3,008			3,008
	Inventories—Note 2			5,318			4,580
	Prepaid expenses and other			923			844
	Income taxes receivable and deferred taxes			2,690			4,506

		TOTAL CURRENT ASSETS		42,721			34,672
MARKETABLE SECURITIES—LONG TERM—Note 3				57			145

PROPERTY AND EQUIPMENT
	Land			686			732
	Buildings			9,226			12,095
	Machinery, equipment, and fixtures			51,732			51,937

				61,644			64,764
	Allowances for depreciation			(25,940	)		(25,235	)

				35,704			39,529

OTHER ASSETS
	Investments			5,658			6,018
	Notes and contracts receivable and other, less allowance of $335,000			1,864			1,036
	Note receivable—related party, less allowance of $1,064,000 ($956,000 at March 31, 2002)			2,241			2,349
	Intangibles			3,284			3,289

				13,047			12,692


			$	91,529		$	87,038


				June 30,			March 31,
				2002			2002
				(Unaudited)

				(in thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
	Notes payable—Note 8			$	36,002		$	22,626
	Accounts payable				21,979			18,216
	Employee compensation				2,625			2,331
	Taxes, interest, and other liabilities				2,889			2,347
	Current maturities of long-term obligations				968			2,990

			TOTAL CURRENT LIABILITIES		64,463			48,510

LONG-TERM OBLIGATIONS, less current maturities					2,679			13,332

DEFERRED INCOME TAXES					1,794			1,983

DEFERRED GAIN					209			226

STOCKHOLDERS’ EQUITY
	Preferred stock:
		Series Three: 10% cumulative redeemable, $60 face value; 14,784 shares issued and outstanding			678			678
		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, 3,101,195 shares issued and outstanding				3,101			3,101
	Net unrealized losses				(161	)		(78	)
	Retained earnings				15,578			16,098

			TOTAL STOCKHOLDERS’ EQUITY		22,384			22,987

				$	91,529		$	87,038

See notes to consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries


					Three Months Ended June 30,
					2002			2001
					(Unaudited)			(Unaudited)

					(in thousands, except per share data)
Net sales					$	38,808		$	44,573
Costs and expenses:
	Cost of sales and operating expenses					30,805			35,441
	Selling, general and administrative					6,183			6,238
	Gain on sale of buildings					(149	)		—
	Depreciation and amortization					1,480			1,730

						38,319			43,409

				Operating Earnings		489			1,164
Other income (expense)
	Investment and interest income					103			434
	Interest expense					(778	)		(1,108	)

				Income (Loss) Before Federal Income Taxes and Equity in Earnings (Loss) of Affiliates		(186	)		490
Federal income tax expense (benefit)						(77	)		173

		Income Before Equity in Earnings (Loss) of Affiliates				(109	)		317
Equity in earnings (loss) of affiliates, net of tax						(309	)		87

				Net Income (Loss)		(418	)		404
Less preferred stock dividends						(102	)		(102	)

			Net Income (Loss) Applicable to Common Stock		$	(520	)	$	302

Net Income (Loss) Per Common Share — Basic and Diluted					$	(0.17	)	$	0.10

See notes to consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Maxco, Inc. and Subsidiaries


					Three Months Ended June 30,
					2002			2001
					(Unaudited)			(Unaudited)

					(in thousands)
Operating Activities
Net Income (Loss)					$	(366	)	$	404
Adjustments to reconcile net income to net cash used in operating activities:
	Depreciation and other non-cash items					1,640			1,643
	Changes in operating assets and liabilities					(3,908	)		(7,310	)

				Net Cash Used In Operating Activities		(2,634	)		(5,263	)

Investing Activities
Sale of buildings						2,500			—
Purchases of property and equipment						(186	)		(774	)
Other						(32	)		37

		Net Cash Provided By (Used In) Investing Activities				2,282			(737	)

Financing Activities
Net proceeds from lines of credit						4,068			7,000
Repayments on other debt obligations						(3,367	)		(1,278	)
Dividends paid on preferred stock						—			(102	)

				Net Cash Provided By Financing Activities		701			5,620


			Increase (Decrease) in Cash and Cash Equivalents			349			(380	)
			Cash and Cash Equivalents at Beginning of Period			442			968

				Cash and Cash Equivalents at End of Period	$	791		$	588

See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
June 30, 2002
(Unaudited)

NOTE 1— BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only 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, 2002.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year. Maxco’s sales and operating results have varied substantially from quarter to quarter. Net sales are typically lower in the third and fourth quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company’s customers due to inclement weather and the reduced number of business days during the holiday season. In addition, the timing of acquisitions or the occasional sale of corporate investments may cause substantial fluctuations of operating results from quarter to quarter. Maxco expects its net sales and operating results to continue to fluctuate from quarter to quarter.

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:


	June 30,		March 31,
	2002		2002

	(in thousands)
Raw materials	$	437	$	464
Finished goods and work in progress		732		852
Purchased products for resale		4,149		3,264

	$	5,318	$	4,580

NOTE 3— MARKETABLE SECURITIES

The Company classifies its investments in equity securities with readily determinable fair values 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. The decline in the market value of Provant, Inc. common stock ($79,000 since March 31, 2002) has been recorded in investment and interest income for the quarter ended June 30, 2002 as the Company continued to deem this decline as other than temporary.

NOTE 4— INVESTMENT IN INTEGRAL VISION, INC. (FORMERLY MEDAR, INC.)

The following table summarizes the operating results of Integral Vision, Inc., Maxco’s 24% owned affiliated company:


	Three Months Ended June 30,
	2002			2001

	(in thousands)
Net Sales	$	503		$	669
Gross Margin		158			(328	)
Net Loss		(819	)		(1,608	)

NOTE 5— EARNINGS PER SHARE

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


		Three Months Ended June 30,
		2002			2001

		(in thousands, except per share data)
NUMERATOR:
	Net Income (Loss)	$	(418	)	$	404
	Preferred stock dividends		(102	)		(102	)

Numerator for basic and diluted earnings per share— income (loss) available to common stockholders		$	(520	)	$	302
DENOMINATOR:
Denominator for basic and diluted earnings per share— weighted average shares			3,101			3,101
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE		$	(0.17	)	$	0.10

NOTE 6— COMPREHENSIVE INCOME

The components of comprehensive income for the three months ended June 30, 2002 and 2001 are as follows:


	Three Months Ended
	June 30,
	2002			2001

	(in thousands)
Net earnings (loss)	$	(418	)	$	404
Unrealized losses on marketable securities		(6	)		(701	)
Unrealized loss on swap agreement		(77	)		(15	)

	$	(501	)	$	(312	)

The components of accumulated comprehensive income, net of related tax at June 30, 2002 and March 31, 2002 are as follows:


	June 30,			March 31,
	2002			2002

	(in thousands)
Unrealized gain (loss) on marketable securities	$	—		$	6
Unrealized loss on swap agreement		(161	)		(84	)

NOTE 7— INDUSTRY SEGMENT INFORMATION

The following summarizes Maxco’s industry segment information:


			June 30,		March 31,
			2002		2002

			(in thousands)
Identifiable assets:
	Construction supplies		$	34,040	$	24,244
	Heat treating			30,224		31,444
	Packaging products			4,595		4,912
	Corporate and other			17,012		20,420
	Investments and advances			5,658		6,018

		Total Identifiable Assets	$	91,529	$	87,038


		Three Months Ended
		June 30,
		2002		2001

		(in thousands)
Net sales:
	Construction supplies	$	26,513	$	32,133
	Heat treating		8,893		9,038
	Packaging products		3,220		3,320
	Corporate and other