ITEM 1 - BUSINESS Maxco, Inc. is a Michigan corporation incorporated in 1946. Maxco currently operates in three business segments; distribution, heat treating and packaging products. Maxco's businesses include Ersco and Wisconsin Wire & Steel, construction supply units; Pak-Sak Industries, Inc., manufacturers of polyethylene bags and packaging material; and Atmosphere Annealing, Inc., a metal heat-treating service company. Maxco also holds investments in a real estate development limited liability company and in three technology-related businesses: Medar, Inc. (Nasdaq/NMS: MDXR); AXSON, S.A.; and Strategic Interactive, Inc.
Several significant events occurred during the year ended March 31, 1997. In July 1996, Maxco sold its then 67% owned subsidiary, FinishMaster, Inc., a distributor of automotive paint, for a total consideration of $62.6 million. Maxco also sold Wright Plastic Products, Inc., its custom plastic injection molder and tool builder, in October 1996; and sold Akemi, Inc., which formulates and compounds polyester and epoxy thermoset plastics, in January 1997.
Effective January 1, 1997, Maxco acquired the business and substantially all the assets of Atmosphere Annealing, Inc., a provider of metal heat treating services to Midwestern industrial users. This unit employs approximately 370 people at facilities in Lansing, Michigan; Canton, Ohio; and North Vernon, Indiana.
Maxco also made other investments during the fiscal year. Effective January 1, 1997, it acquired a 50% interest in a Limited Liability Company (LLC) formed to develop and lease real estate in central Michigan, and invested in approximately 15% of the common stock of Strategic Interactive, Inc., which provides web based training, education and other corporate communications. Effective January 27, 1997, Maxco acquired approximately 7% of the stock of Axson, S.A., a manufacturer of resins and composite materials for advanced applications.
DISTRIBUTION The distribution segment consists of two business units operating in the construction supply industry: Ersco Corporation (a division of Maxco) and Wisconsin Wire and Steel.
These companies are fabricators of reinforcing steel as well as distributors of concrete construction products and accessories for road and commercial building construction. Their products include reinforcing steel rod and mesh, expansion fiber and concrete curing compounds, as well as custom fabrication of steel (rod and mesh) and fiber products used in concrete paving and construction. The geographic market is the Midwest, primarily in Michigan, Indiana, and Wisconsin. Warehouses are located in Detroit, Grand Rapids, Saginaw and Traverse City, Michigan; Lafayette and South Bend, Indiana; and Milwaukee, Wisconsin. Competition is intense and larger project orders are secured on a competitive bid basis. During the years ended March 31, 1997, 1996, and 1995, net sales of the construction supplies group were approximately 61%, 68% and 69%, respectively, of consolidated net sales.
This segment is not dependent on any patents, trademarks, licenses, franchises, or concessions and is not dependent upon a single or a few customers, the loss of which would have a significant adverse effect on the segment.
Units of this segment may carry significant amounts of inventory to meet delivery requirements of customers. Inventories of this segment were equivalent to 34 days sales on hand and represented 46% of Maxco's total inventories at March 31, 1997. Credit policies have been established that provide for extension of credit and collection of amounts due. The Company's general policy requires payment within 30 days of invoice date. Adherence to these policies will mean that accounts receivable levels will generally change with volume levels. However, the collection periods may be extended by prior agreement to accommodate customer cash flows. Where applicable, accounts receivable are secured by perfected lien rights and performance bonds.
The volume of the construction supplies group in the third and fourth quarters is generally lower due to reduced construction activity during the winter months in the unit's market area. Historically, this segment's activities have generally followed the economic cycles within the respective business unit's market area.
Generally, the distribution segment of the Company does not enter into specific long-term contracts with its customers. As such, no backlog exists for this segment.
HEAT TREATING Atmosphere Annealing, Inc.
Acquired in January 1997, Atmosphere Annealing, Inc. provides metal heat treating, phosphate coating and bar shearing and sawing services to the cold forming, stamping, forging and casting industries. Its services are sold through Atmosphere's own sales personnel and outside sales representatives, primarily to the automotive companies and automotive suppliers. This unit employs approximately 370 people at its facilities in Lansing, Michigan; Canton, Ohio; and North Vernon, Indiana.
Since Atmosphere is a service business, inventory levels for this segment are small and consist only of various lubricants and other materials used in the heat treating, phosphate coating or bar shearing and sawing process. In addition to pickup and delivery of consigned inventory by its customers, Atmosphere maintains its own trucks which are in operation 24 hours a day throughout the Midwest to insure prompt pickup and delivery.
The heat treating industry is competitive with over 250 heat treaters in Michigan, Ohio, and Indiana. Atmosphere specializes in high volume, low priced, ferrous heat treating using large furnaces. In its market niche of this type of heat treating, Atmosphere competes with only five or six competitors. Much of the heat treating industry is comprised of smaller companies that specialize in higher priced heat treating such as carburizing, nitriding, tool and die, brazing, salt bath or induction hardening.
The Company's response time to its customer just-in-time requirements does not result in significant backlog for this segment. Company growth is anticipated to be achieved by this unit in the future due to outsourcing of high volume heat treating services. These services are usually outsourced by Atmosphere's customers because of extensive storage requirements with minimal value added to the consumer and it is further removed from the finished product.
Sales for this unit are fairly consistent throughout the year with the exception of lower volume during model changeovers for its automotive customers in July, and during the winter holiday season. Sales to a single or a few customers are significant to this segment. This segment accounted for approximately 11% of consolidated net sales for the year-ended March 31, 1997.
PACKAGING PRODUCTS Pak-Sak Industries, Inc.
Pak-Sak Industries, Inc. extrudes polyethylene film and converts it into a variety of polyethylene bags and packaging materials. A smaller portion of the business is the purchase and resale of film products produced by other companies. Manufactured products are both printed and plain. Products are sold primarily throughout the Midwest area by its own sales personnel, manufacturers' representatives and paper jobbers. Manufacturing facilities are located in Sparta, Michigan.
The customers served by this unit are primarily general manufacturing businesses. This segment's business is primarily affected by changing consumer demands and the general condition of the economy. The business of this segment is relatively stable within the economic cycle of industry in general.
Inventory levels of this segment tend to be in proportion to the level of sales activity. Total inventories of this segment were equivalent to 48 days sales on hand and represented 54% of Maxco's total inventories at March 31, 1997. Credit policies are enforced to help insure that increases in accounts receivable are primarily related to volume increases.
The Company's response time to its customers' just-in-time inventory requirements, which may change on a daily basis, does not result in significant backlog for this segment.
Sales of packaging products to a single customer were not significant to the Company for the years ended March 31, 1997, 1996 and 1995. The segment is not dependent on any patents, trademarks, licenses, franchises or concessions. This segment accounted for approximately 28%, 32% and 31% of consolidated net sales for the years ended March 31, 1997, 1996 and 1995, respectively.
For additional information regarding the Company's industry segments, see Note 12 to "Notes to Consolidated Financial Statements."
OTHER INVESTMENTS Medar, Inc. develops, manufactures and markets microprocessor-based process monitoring and control systems for use in industrial manufacturing environments. The principal applications for the Company's products include optical inspection systems and resistance welding controls. As of March 31, 1997, Maxco's ownership of Medar's Common Stock was approximately 21%.
Effective January 1, 1997, Maxco acquired a 50% interest in a Limited Liability Company (LLC) formed to develop and lease real estate. The LLC has an interest along with other third party investors in a real estate portfolio, valued at approximately $70 million at March 31, 1997. This portfolio consists of properties located in central Michigan, and includes approximately 40 offices and retail buildings, residential building sites, and more than 125 acres of property zoned for commercial and industrial development.
In addition to its interest in the LLC, Maxco Development Company (a division of Maxco) is involved in the management of various real estate projects.
Effective January 1, 1997, Maxco acquired a 15% interest in Strategic Interactive, Inc. which provides web based training, education and other corporate communications solutions.
Maxco also has an investment of approximately 7% of the common stock of Axson, S.A., of France, a manufacturer of resins and composite materials for advanced applications.
DISCONTINUED OPERATIONS Maxco's discontinued operations include Wright Plastic Products, a custom plastic injection molder and tool builder; Akemi, Inc., which formulates and compounds polyester and epoxy thermoset plastics; and FinishMaster, a distributor of automotive paints, coatings and paint-related accessories (see Note 3 to "Notes to Consolidated Financial Statements").
The results of operations for Maxco's discontinued operations are reported separately in the accompanying financial statements.
RESEARCH AND DEVELOPMENT Expenditures on research activities related to development or improvement of products were not significant.
MAJOR CUSTOMERS No sales to any single customer exceeded 10% of consolidated sales for 1997, 1996 or 1995.
ENVIRONMENTAL FACTORS Compliance by Maxco and its subsidiaries with environmental protection laws had no material effect upon capital expenditures, earnings or competitive position.
EMPLOYEES At March 31, 1997, Maxco and its subsidiaries employed approximately 620 full time employees in its continuing operations.
EXPORT SALES AND FOREIGN OPERATIONS The Company and its subsidiaries had no foreign operations or material export sales during the years ended March 31, 1997, 1996 or 1995.
ITEM 2
ITEM 2 - PROPERTIES - ------------------- The following table provides information relative to the principal properties owned or leased by the Company and its subsidiaries as of March 31, 1997. The registrant considers its facilities to be in good operating condition.
- ------------------------------------------------------------ (A)Subject to a mortgage
Expiration dates of leases relative to the Company's principal properties range from 1997 to 2001. Leases expiring within 12 months are expected to be renewed at substantially the same terms as the present leases.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS - -------------------------- None
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Maxco's common stock trades on the Nasdaq Stock Market under the symbol MAXC. The approximate number of record and beneficial holders of Maxco's common stock at May 31, 1997 was 1,500.
The range of high and low sales prices for the last two years as reported by NASDAQ were:
No cash dividends on common stock have been paid during any period.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
NOTES
(1) Includes a $3.1 million and a $12.1 million pre-tax gain from subsidiary stock transactions for the years ended March 31, 1996 and 1994, respectively.
(2) Includes a $35.2 million pre-tax gain for the year ended March 31, 1997, from the sale of FinishMaster stock.
(3) Per share amounts reflect primary earnings per share for the years ended March 31, 1996 and 1993. Earnings per share for the years ended March 31, 1997, 1995 and 1994 are reported on a fully diluted basis.
(4) See Note 3 to "Notes to Consolidated Financial Statements".
No cash dividends on common stock have been paid during any period.
The above selected financial data should be read in conjunction with the consolidated financial statements which appear in Part II, Item 8 of this report.
ITEM 7
Item 7. Financial Statements and Exhibits -- Audited Financial Statements and Proforma Financial Data for Atmosphere Annealing, Inc. (c) Exhibits -Resolution establishing Series Five Preferred Shares -Statement Re: Computation of Per Share Earnings -Subsidiaries of the Registrant -Consent of Independent Auditors -Financial Data Schedule
(d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date June 5, 1997 MAXCO, INC. ----------------------
By /S/ VINCENT SHUNSKY ----------------------- Vincent Shunsky, Vice President of Finance and Treasurer (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2), (c), AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED MARCH 31, 1997
MAXCO, INC.
LANSING, MICHIGAN
FORM 10-K--ITEM 14(a)(1) AND (2)
MAXCO, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Maxco, Inc. and subsidiaries are included in Item 8: