MAXCO INC - 10-Q Quarterly Report

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date.


		September 30,			March 31,
		2003			2003
		(Unaudited)

		*(in thousands)*
ASSETS
Current Assets
	Cash and cash equivalents	$	608		$	391
	Accounts and notes receivable, less allowance of $199,000 ($150,000 at March 31, 2003)		5,057			7,173
	Accounts receivable—related parties		484			502
	Inventory—Note 9		542			176
	Prepaid expenses and other		63			227

Total Current Assets			6,754			8,469
Marketable Securities—Long Term—Note 2			28			312
Property & Equipment
	Land		446			446
	Buildings		6,168			6,166
	Machinery, equipment, and fixtures		28,629			28,401

			35,243			35,013
	Allowances for depreciation		(13,827	)		(12,416	)

			21,416			22,597
Other Assets
	Investments		1,038			1,157
	Notes and contracts receivable and other, less allowance of $600,000		681			981
	Advances to affiliate		3,008			3,008
	Intangibles		1,424			1,424
	Non-current assets of discontinued operations—Note 11		474			474

			6,625			7,044

		$	34,823		$	38,422

CONDENSED CONSOLIDATED BALANCE SHEETS — CONTINUED
Maxco, Inc. and Subsidiaries


			September 30,			March 31,
			2003			2003
			(Unaudited)

			*(in thousands)*
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Notes payable—Note 6		$	4,606		$	18,780
	Accounts payable			4,112			3,425
	Employee compensation			1,382			1,268
	Taxes, interest, and other liabilities			3,062			3,004
	Current maturities of long-term obligations			3,814			995
	Current liabilities of discontinued operations—Note 11			286			303

Total Current Liabilities				17,262			27,775
Long-Term Obligations, Less Current Maturities				8,800			1,113
Stockholders’ Equity
	Preferred stock:
		Series Three: 10% cumulative redeemable, $60 face value; 14,784 shares issues and outstanding		678			678
		Series Four: 10% cumulative redeemable, $51.50 face value; 46,414 shares issues and outstanding		2,390			2,390
		Series Five: 10% cumulative redeemable, $120 face value; 6,648 shares issues 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			(203	)		(298	)
	Retained earnings			1,997			2,865

Total Stockholders’ Equity				8,761			9,534

			$	34,823		$	38,422

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
(Unaudited)


		Three Months Ended September 30,
		2003			2002

		*(in thousands, except per share data)*
Net sales		$	9,189		$	8,908
Costs and expenses:
	Cost of sales and operating expenses		6,070			5,762
	Selling, general and administrative		2,626			2,788
	Depreciation and amortization		702			753

			9,398			9,303

Operating Loss			(209	)		(395	)
Other income (expense)
	Investment and other loss		(55	)		(1,598	)
	Interest income		37			222
	Interest expense		(470	)		(412	)

Loss From Continuing Operations Before Federal Income Taxes and Equity in Loss of Affiliates			(697	)		(2,183	)
	Federal income tax benefit		—			(727	)

Loss From Continuing Operations Before Equity in Loss of Affiliates			(697	)		(1,456	)
	Equity in loss of affiliates, net of tax		(90	)		(2,102	)

Loss From Continuing Operations			(787	)		(3,558	)
	Loss from discontinued operations, net of tax		—			(1,666	)

Net Loss			(787	)		(5,224	)

	Less preferred stock dividends		(102	)		(102	)

Net Loss Applicable to Common Stock		$	(889	)	$	(5,326	)

Net Loss Per Common Share—Basic and Diluted
Continuing operations		$	(0.29	)	$	(1.18	)
Discontinued operations			—			(0.54	)

		$	(0.29	)	$	(1.72	)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Maxco, Inc. and Subsidiaries
(Unaudited)


		Six Months Ended September 30,
		2003			2002

		*(in thousands except per share data)*
Net sales		$	18,762		$	17,834
Costs and expenses:
	Cost of sales and operating expenses		12,222			11,137
	Selling, general and administrative		5,435			5,579
	Depreciation and amortization		1,453			1,510

			19,110			18,226

Operating Loss			(348	)		(392	)
Other income (expense)
	Investment and other losses		(340	)		(1,678	)
	Gain on sale of assets		912			149
	Interest income		74			404
	Interest expense		(873	)		(862	)

Loss From Continuing Operations Before Federal Income Taxes and Equity in Loss of Affiliates			(575	)		(2,379	)
	Federal income tax benefit		—			(809	)

Loss From Continuing Operations Before Equity in Loss of Affiliates			(575	)		(1,570	)
	Equity in loss of affiliates, net of tax		(90	)		(2,411	)

Loss From Continuing Operations			(665	)		(3,981	)
	Loss from discontinued operations, net of tax		—			(1,661	)

Net Loss			(665	)		(5,642	)

	Less preferred stock dividends		(204	)		(204	)

Net Loss Applicable to Common Stock		$	(869	)	$	(5,846	)

Net Loss Per Common Share—Basic and Diluted
Continuing operations		$	(0.28	)	$	(1.35	)
Discontinued operations			—			(0.54	)

		$	(0.28	)	$	(1.89	)

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


			Six Months Ended September 30,
			2003			2002

			*(in thousands)*
Operating Activities
	Net loss		$	(665	)	$	(5,642	)
	Loss from discontinued operations			—			1,661

	Loss from continuing operations			(665	)		(3,981	)
	Advances to discontinued operations			—			1,302
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Net gains on sale of assets		(912	)		(149	)
		Non-cash investment losses		340			1,678
		Depreciation and other non-cash items		1,543			1,879
		Changes in operating assets and liabilities		3,029			2,268

Net Cash Provided By Operating Activities				3,335			2,997
Investing Activities
	Proceeds from sale of assets			939			2,500
	Purchases of property and equipment			(254	)		(163	)
	Other			(13	)		(25	)

Net Cash Provided By Investing Activities				672			2,312
Financing Activities
	Net proceeds from (repayments on) line of credit			(1,737	)		35
	Net repayments on other debt obligations			(2,053	)		(3,951	)

Net Cash Used In Financing Activities				(3,790	)		(3,916	)

Increase in Cash and Cash Equivalents				217			1,393
Cash and Cash Equivalents at Beginning of Period				391			345

Cash and Cash Equivalents at End of Period			$	608		$	1,738

Supplemental cash flow disclosure:
	Interest paid		$	696		$	672

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
September 30, 2003
(Unaudited)

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, 2003.

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 second and third quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company’s customers due to a customer changeover 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.

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 Company recorded a charge of $57,000 in the current quarter as an other than temporary impairment to the value of its investment in Provant.


		Three Months Ended						Six Months Ended
		September 30,						September 30,

		2003			2002			2003			2002

		*(in thousands, except per share data)*
NUMERATOR:
	Loss from continuing operations	$	(787	)	$	(3,558	)	$	(665	)	$	(3,981	)
	Income from discontinued operations		—			(1,666	)		—			(1,661	)

	Net loss		(787	)		(5,224	)		(665	)		(5,642	)
	Preferred stock dividends		(102	)		(102	)		(204	)		(204	)

Numerator for basic and diluted earnings per share— loss available to common stockholders		$	(889	)	$	(5,326	)	$	(869	)	$	(5,846	)
DENOMINATOR:
Denominator for basic and diluted earnings per share—weighted average shares			3,101			3,101			3,101			3,101
BASIC AND DILUTED LOSS PER SHARE
Continuing operations		$	(0.29	)	$	(1.18	)	$	(0.28	)	$	(1.35	)
Discontinued operations			—			(0.54	)		—			(0.54	)

		$	(0.29	)	$	(1.72	)	$	(0.28	)	$	(1.89	)


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)


PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations
		Condensed Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Disclosure Controls and Procedures
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6(a) Exhibits
	Signatures
Credit Agreement
Subordination Agreement
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

Table of Contents

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Registrant’s Telephone Number, including area code:		(517) 321-3130


Class		Outstanding at October 31, 2003

Common Stock		3,101,195 shares


Yes þ		No o


Yes o		No þ