MAXCO INC - 10-Q Quarterly Report

UNITED STATES 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 December 31, 2004

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 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 þ No o

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

Yes o No þ

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 January 31, 2005
Common Stock		3,101,195 shares

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS
Maxco, Inc. and Subsidiaries


	December 31,
	2004			March 31,
	(Unaudited)			2004
	*(in thousands)*
ASSETS
Current Assets
Cash and cash equivalents	$	129		$	78
Accounts and notes receivable, less allowance of $98,000 ($134,000 at March 31, 2004)		5,987			7,629
Inventory—Note 9		387			408
Prepaid expenses and other		404			429

Total Current Assets		6,907			8,544

Marketable Securities—Long Term—Note 2		2			2

Property & Equipment
Land		437			446
Buildings		6,008			6,170
Machinery, equipment, and fixtures		29,761			29,068

		36,206			35,684
Allowances for depreciation		(17,330	)		(15,265	)

		18,876			20,419

Other Assets
Investments		1,138			1,138
Notes and contracts receivable and other, less allowance of $0 ($350,000 at March 31, 2004)		1,032			1,338
Advances to affiliate		2,200			2,200
Accounts receivable—related parties		411			416
Intangibles		1,424			1,424

		6,205			6,516


	$	31,990		$	35,481

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


	December 31,
	2004			March 31,
	(Unaudited)			2004
	*(in thousands)*
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable—Note 6	$	4,167		$	4,885
Accounts payable		3,686			4,221
Employee compensation		1,538			1,525
Taxes, interest, and other liabilities		3,918			3,585
Current maturities of long-term obligations		4,546			2,064

Total Current Liabilities		17,855			16,280

Long-Term Obligations, Less Current Maturities		6,145			11,480

Total Liabilities		24,000			27,760

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		—			—

		3,866			3,866

Common stock, $1 par value; 10,000,000 shares authorized, 3,101,195 shares issued and outstanding		3,101			3,101
Net unrealized losses		(63	)		(172	)
Retained earnings		1,086			926

Total Stockholders’ Equity		7,990			7,721


	$	31,990		$	35,481

See notes to consolidated financial statements

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


	Three Months Ended December 31,
	2004			2003
	*(in thousands, except per share data)*
Net sales	$	11,414		$	10,562
Costs and expenses:
Cost of sales and operating expenses		7,437			7,186
Selling, general and administrative		2,654			2,941
Depreciation and amortization		742			749

		10,833			10,876

Operating Earnings (Loss)		581			(314	)
Other income (expense)
Investment, interest, and other income (loss), net		—			(51	)
Gain (loss) on sale of assets		2			(74	)
Interest expense		(371	)		(468	)

Income (Loss) Before Equity in Earnings of Affiliates		212			(907	)
Equity in earnings of affiliates		—			50

Net Income (Loss)		212			(857	)

Less preferred stock dividends		(102	)		(102	)

Net Income (Loss) Applicable to Common Stock	$	110		$	(959	)



Net Income (Loss) Per Common Share—Basic and Diluted	$	0.04		$	(0.31	)

See notes to consolidated financial statements

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


	Nine Months Ended December 31,
	2004			2003
	*(in thousands, except per share data)*
Net sales	$	33,937		$	29,324
Costs and expenses:
Cost of sales and operating expenses		22,152			19,408
Selling, general and administrative		8,164			8,376
Depreciation and amortization		2,229			2,202

		32,545			29,986

Operating Earnings (Loss)		1,392			(662	)
Other income (expense)
Investment, interest, and other income (loss), net		151			(317	)
Gain on sale of assets		59			838
Interest expense		(1,136	)		(1,341	)

Income (Loss) Before Equity in Loss of Affiliates		466			(1,482	)
Equity in loss of affiliates, net of tax		—			(40	)

Net Income (Loss)		466			(1,522	)

Less preferred stock dividends		(306	)		(306	)

Net Income (Loss) Applicable to Common Stock	$	160		$	(1,828	)



Net Income (Loss) Per Common Share—Basic and Diluted	$	0.05		$	(0.59	)

See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Maxco, Inc. and Subsidiaries
(Unaudited)


	Number of
	Common						Accumulated
	Shares		Preferred		Common		Comprehensive			Retained
	Outstanding		Stock		Stock		Loss			Earnings			Totals

	*(in thousands, except number of common shares outstanding)*
Balances at April 1, 2004		3,101,195	$	3,866	$	3,101	$	(172	)	$	926		$	7,721
Net income for the year											466			466
Unrealized gain on swap agreement								109						109

Total Comprehensive income														575
Preferred stock dividends											(306	)		(306	)

Balances at December 31, 2004		3,101,195	$	3,866	$	3,101	$	(63	)	$	1,086		$	7,990

See notes to consolidated financial statements

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


	Nine Months Ended December 31,
	2004			2003
	*(in thousands)*
Operating Activites
Net income (loss)	$	466		$	(1,522	)
Adjustments to reconcile net loss to net cash provided by operating activites:
Net gains on sale of assets		(59	)		(838	)
Non-cash investment losses		—			431
Depreciation and other non-cash items		2,230			2,242
Changes in operating assets and liabilities		592			1,723

Net Cash Provided By Operating Activities		3,229			2,036

Investing Activities
Payments received on notes receivable		1,013			—
Purchases of property and equipment		(685	)		(328	)
Proceeds from sale of assets		57			1,339
Other		7			86

Net Cash Provided By Investing Activities		392			1,097

Financing Activities
Net repayments on line of credit		(696	)		(1,368	)
Net repayments on other debt obligations		(2,874	)		(1,823	)

Net Cash Used In Financing Activities		(3,570	)		(3,191	)


Increase (Decrease) in Cash and Cash Equivalents		51			(58	)
Cash and Cash Equivalents at Beginning of Period		78			391

Cash and Cash Equivalents at End of Period	$	129		$	333


Supplemental cash flow disclosure:
Interest paid	$	1,030		$	1,261

See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maxco, Inc. and Subsidiaries
December 31, 2004
(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 Note 6 and the consolidated financial statements and notes thereto included in Maxco’s annual report on Form 10-K for the year ended March 31, 2004.

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.

NOTE 2 – 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.

NOTE 3 – EARNINGS PER SHARE

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


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
	*(in thousands, except per share data)*
NUMERATOR:
Net income (loss)	$	212		$	(857	)	$	466		$	(1,522	)
Preferred stock dividends		(102	)		(102	)		(306	)		(306	)

Numerator for basic and diluted earnings per share— income (loss) available to common stockholders	$	110		$	(959	)	$	160		$	(1,828	)

DENOMINATOR:
Denominator for basic and diluted earnings per share—weighted average shares		3,101			3,101			3,101			3,101


BASIC AND DILUTED INCOME (LOSS) PER SHARE	$	0.04		$	(0.31	)	$	0.05		$	(0.59	)

NOTE 4 – COMPREHENSIVE INCOME

The components of comprehensive income for the three and nine months ended December 31, 2004 and 2003 are as follows:


	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2004		2003			2004		2003
	*(in thousands)*
Net income (loss)	$	212	$	(857	)	$	466	$	(1,522	)
Unrealized gain on swap agreement		31		28			109		67

Comprehensive income (loss)	$	243	$	(829	)	$	575	$	(1,455	)

Accumulated comprehensive loss, net of related tax was $63,000 at December 31, 2004 and $172,000 at March 31, 2004 and consists of an unrealized loss on an interest rate swap agreement.

NOTE 5 – INDUSTRY SEGMENT INFORMATION

The following summarizes Maxco’s industry segment information:


	December 31,		March 31,
	2004		2004
	*(in thousands)*
Identifiable Assets:
Heat treating	$	26,881	$	29,472
Corporate and other		1,771		2,671
Investments and advances		3,338		3,338

Total Identifiable Assets	$	31,990	$	35,481


	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
	*(in thousands)*
Net Sales:
Heat treating	$	11,414		$	10,562		$	33,937		$	29,280
Corporate and other		—			—			—			44

Total Net Sales	$	11,414		$	10,562		$	33,937		$	29,324

Operating Earnings (Loss):
Heat treating	$	997		$	331		$	2,665		$	971
Corporate and other		(416	)		(645	)		(1,273	)		(1,633	)

Total Operating Earnings (Loss)	$	581		$	(314	)	$	1,392		$	(662	)

Depreciation and Amortization Expense:
Heat treating	$	735		$	741		$	2,206		$	2,177
Corporate and other		6			8			23			25

Total Depreciation and Amortization Expense	$	741		$	749		$	2,229		$	2,202

Capital Expenditures:
Heat treating	$	148		$	74		$	685		$	328
Corporate and other		—			—			—			—

Total Capital Expenditures	$	148		$	74		$	685		$	328

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 or export sales.

The nature of the Company’s services may produce sales to one or a small number of customers in excess of 10% of total sales in any one period. It is possible that the specific customers reaching this threshold may change from year to year. Loss of any one of these customers could have a material impact on the Company’s results of operations.

NOTE 6 – DEBT

At December 31, 2004 the Company’s heat treating segment, Atmosphere Annealing (Atmosphere), had a $6 million line of credit facility. This facility is secured by Atmosphere’s assets. The amount that can be borrowed under this facility is dependent on certain accounts receivable levels at Atmosphere. At December 31, 2004, based on these specific collateral levels, Atmosphere could borrow up to $3.0 million under its line of credit, approximately $1.9 million of which was borrowed. The facility matures in August 2005 and, as such, outstanding borrowings are recorded as current in the accompanying balance sheets.

A summary of the Company’s debt obligations as of December 31, 2004 and March 31, 2004 is as follows:


		December 31,				March 31,
		2004


	PAGE
Part I – Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets		3

Consolidated Statements of Operations		5

Consolidated Statement of Stockholders’ Equity		7

Consolidated Statements of Cash Flows		8

Notes to Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures about Market Risk		15

Item 4. Controls and Procedures		15

Part II – Other Information

Item 1. Legal Proceedings		16

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16

Item 3. Defaults Upon Senior Securities		16

Item 4. Submission of Matters to a Vote of Security Holders		16

Item 5. Other Information		16

Item 6. Exhibits		16

Signatures		18

Certifications		19
Certification of Chief Executive Officer Pursuant to Section 302
Certification of Chief Financial Officer Pursuant to Section 302
Certification of Chief Executive Officer Pursuant to Section 906
Certification of Chief Financial Officer Pursuant to Section 906

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