<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995
Commission file number 33-31797
ADAGE, INC.
(Exchange name of registrant as specified in its charter)
Pennsylvania 04-2225121
(State or other jurisdiction of I.R.S. Employer Identification
Incorporation or organization) Number
400 Willowbrook Lane, West Chester, PA 19382
(Address of principal executive officers) (Zip Codes)
(215) 430-3900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date of October 31, 1995
5,121,538 shares of Common Stock, par value $.60 per share.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADAGE, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1995 DECEMBER 31, 1994
------------------ ----------------
(Unaudited) (Unaudited)
ASSETS 000's Omitted
-------------
<S> <C> <C>
Current Assets
Cash $ - $ 184
Accounts receivable, net 10,895 16,354
Inventories 21,760 29,425
Marketable securities 177 175
Other current assets 2,336 1,885
-------- --------
Total Current Assets 35,168 48,023
Property, plant and equipment, net 13,179 21,136
Investments and long-term receivable 758 941
Net assets of discontinued segments 5,545 5,983
Intangible and other assets 3,008 2,829
-------- --------
Total Assets $ 57,658 $ 78,912
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of
long-term debt $ 2,678 $ 3,034
Accounts payable 7,223 13,735
Accrued expenses 3,794 6,750
Income taxes payable 209 -
-------- --------
Total Current Liabilities 13,904 23,519
Long-term debt 11,044 22,891
Minority interest in subsidiaries - 1,266
Stockholders' equity 32,710 31,236
-------- -------
$ 57,658 $78,912
======== =======
</TABLE>
Note 1. The consolidated balance sheet at December 31, 1994 has been condensed
from the audited financial statements.
See Notes to condensed consolidated financial statements.
2
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
SEPTEMBER 30,
1995 1994
---- ----
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Income
Sales $ 19,257 $ 20,280
Investment income 2 48
Other 125 (36)
-------- --------
19,384 20,292
Costs and Expenses
Cost of sales 16,247 15,699
Selling, general & administrative 3,985 4,044
Interest 230 239
-------- --------
20,462 19,982
Income (loss) from continuing
operations before income taxes (1,078) 310
Provision for income taxes (benefit) (347) 108
-------- --------
Net income (Loss) from
continuing operations $ (731) $ 202
Income from discontinued
operations net of taxes 189 116
Gain on sale of discontinued
operations net of taxes 1,409 -
-------- --------
Net income $ 867 $ 318
======== ========
Earnings Per Common Share
Continuing operations $ (.14) $ .04
Discontinued operations .04 .02
Sale of discontinued operations .27 -
-------- --------
Net Income $ .17 $ .06
======== ========
Weighted Average Common Shares
Outstanding 5,105,440 5,088,595
========= =========
</TABLE>
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
1995 1994
---- ----
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Income
Sales $ 62,130 $ 60,651
Investment income 196 65
Other 336 122
-------- -------
62,662 60,838
Costs and Expenses
Cost of sales 50,952 46,637
Selling, general and administrative 12,633 13,347
Interest 640 537
-------- --------
64,225 60,521
Income (loss) from continuing
operations before income taxes (1,563) 317
Provision for income taxes (benefit) (531) 114
-------- --------
Net income (loss) from
continuing operations (1,032) 203
Income from discontinued
operations net of applicable
taxes 1,014 238
Gain on sale of discontinued operations 1,409 -
-------- --------
Net income $ 1,391 $ 441
======== ========
Earnings Per Common Share
Continuing operations $ (.20) $ .04
Discontinued operations .20 .05
Gain on sale of discontinued
operations . 28 . -
-------- --------
Net Income $ .28 $ .09
======== ========
Weighted Average Common Share
Outstanding 5,100,875 5,092,595
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
1995 1994
---- -----
(Unaudited) (Unaudited)
000's Omitted
--------------
<S> <C> <C>
Operating activities:
Net income $ 1,391 $ 524
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 1,968 1,379
(Gain) Loss on sale of marketable
securities (187) (35)
Decrease (increase) in current assets
Accounts receivable, net 1,335 (167)
Inventory (1,608) (1,149)
Other current assets (671) 103
Increase (decrease) in current
liabilities
Accounts payable (2,320) (301)
Other current liabilities (206) 153
Discontinued segment-noncash
charges and working capital
changes 678 1,306
Gain on sale of discontinued
operations (1,409) -
------- --------
Cash (used) provided from operations (1,029) 1,813
Investing activities:
Property, plant and equipment
Purchases (588) (848)
Long-term investments and receivables
Sales 184 -
Investing activities of
discontinued segment (193) (441)
Sales of discontinued operations 6,804
Other items (14) (20)
------- --------
Cash (used) provided by investing
activities 6,193 (1,309)
Financing activities:
Long-term debt
Additions 345 361
Payments (3,511) (1,429)
Changes in lines of credit (2,293) 976
Financing activities of
discontinued segment 111 (134)
-------- --------
Cash (used) by financing activities (5,348) (226)
-------- --------
Increase in cash (184) 278
Cash at beginning of period 184 184
-------- --------
Cash at end of period $ - $ 462
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(000's Omitted)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of September 30, 1995, the
consolidated statements of operations and the consolidated statements of cash
flows for the three months ended September 30, 1995 and 1994 have been prepared
by the Company, without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and changes in cash flows at
September 30, 1995 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1994 Annual
Report to Shareholders. The results of operations for the period ended September
30, 1995 are not necessarily indicative of the operating results for a full
year.
2. Inventories
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Inventories consisted of:
Raw Material $ 11,802 $ 18,375
Work in Process 2,501 2,447
Finished goods 7,457 8,603
-------- ---------
$ 21,760 $ 29,425
======== =========
</TABLE>
The excess of current cost over LIFO inventory value at December
31, 1994 is: $452.
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Inventories valued at FIFO $ 21,760 $ 20,152
Inventories valued at LIFO - 9,273
-------- --------
$ 21,760 $ 29,425
======== ========
</TABLE>
6
<PAGE>
3. Stockholder's Equity
Stockholder's Equity is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- -----
<S> <C> <C>
Common Stock $ 3,073 $ 3,059
Additional Capital 20,325 20,349
Retained Earnings 9,943 8,553
Net unrealized loss on
marketable securities (631) (725)
-------- --------
$ 32,710 $ 31,236
======== ========
</TABLE>
4. Sale of Niagara Cold Drawn Corporation
On August 16, 1995 the Company sold its 80% interest in the stock of
Niagara Cold Drawn Corporation to International Metals Acquisition Corporation
for $6.8 million in cash. Niagara Cold Drawn Corporation net assets at the date
of sale were as follows:
<TABLE>
<S> <C>
Current Assets $ 17,909
Property, Plant and Equipment, net 6,214
Other Assets 631
---------
Total Assets 24,754
Current Liabilities 11,146
Long-term Debt 7,087
---------
Net Assets $ 6,521
=========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
Results of Operations
As an aid to understanding the Company's operating results, the following table
shows each item from the consolidated statement of income expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
Quarter Ended Nine Month Ended Year Ended
September 30, September 30, December 31,
1995 1994 1995 1994 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.4% 77.4% 82.0% 76.9% 75.4%
Selling, general
administrative 20.6% 19.9% 20.3% 22.0% 22.9%
Interest expense 1.2% 1.2% 1.0% 0.9% 0.8%
Net Income from
continuing operations (3.8%) 1.0% (1.7%) 0.3% 0.6%
</TABLE>
Net Sales
Net sales for the three months and nine months ended September 30, 1995
increased (decreased) compared to sales for the same period in 1994. This
change is made up of the following:
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994
---- ----
<S> <C> <C>
Paper Manufacturing $ 191 $ 3,480
Specialty Manufacturing (218) 48
Wireless Communications Equipment (2,114) (2,867)
</TABLE>
Sales in the wireless communications equipment business segment decreased due to
parts shortage which constrained production of certain products. Increases in
the paper manufacturing segment were due to price increases.
Cost of Sales
Cost of sales as a percentage of net sales increased 7.0% to 84.4% for the
quarter ended September 30, 1995 from 77.4% for the quarter ended September 30,
1994 and increased 5.1% to 82.0% for the nine months ended September 30, 1995
compared to 76.9% for the nine months ended September 30, 1994.
Detail of these changes by segment follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Paper Manufacturing 92.5% 86.3% 89.7% 84.0%
Specialty Manufacturing 83.5% 85.0% 85.6% 84.0%
Wireless Communications Equipment 78.1% 72.7% 76.4% 73.2%
</TABLE>
8
<PAGE>
Material costs, primarily recycled paper fiber, have increased approximately
400% over the past year. Prices for paperboard have increased also but have
generally lagged price increases in raw materials. Cost of electronic components
have increased in the specialty manufacturing business. These increases have not
been passed on fully to customers as of September 30, 1995. Costs increased in
the wireless equipment manufacturing segment due to increased labor costs
associated with the manufacture of certain products in the Bendix/King product
line. These costs are expected to decrease as this product line is fully
absorbed into this segment's facility.
Selling, General and Administrative Expenses
Selling, general and administrative expenses which consist primarily of
commissions, marketing, salary and related costs, data processing and occupancy
costs increased to 20.6% from 19.9% for the quarter ended September 30, 1995
from the quarter ended September 30, 1994, but decreased to 20.3% from 22.0% for
the nine months ended September 30, 1995. Details of this change by segment
follow:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Paper Manufacturing $ 677 $ 790 $ 2,229 $ 2,199
Specialty Manufacturing 547 502 1,529 1,518
Wireless Communications Equipment 2,167 2,650 7,482 8,747
Corporate 482 233 1,349 1,382
</TABLE>
The decrease in selling, general and administrative expenses were in the
wireless communications equipment segment. This was related to the reduction in
personnel in 1994 and the first half of 1995. RELM Communications the Company's
wireless communications equipment subsidiary, purchased the Bendix/King Mobile
Communications Division from AlliedSignal in September, 1993.
Interest Expense
Interest Expense decreased from $239 for the quarter ended September 30, 1994 to
$230 for the quarter ended September 30, 1995 and increased from $537 for the
nine months ended September 30, 1994 to $640 for the nine months ended September
30, 1995. The increase for the nine months ended September 1995 was due to
increased debt levels.
Investment Income
Investment income for the nine months ended September 30, 1995 was due to the
settlement of a class action suit for a security previous owned by the Company.
9
<PAGE>
Income Taxes
Income taxes (benefit) represented a 34.0% effective tax rate for the quarter
ended September 30, 1995. This rate is made up of a 34% federal tax rate and
varying state tax rates. The effective tax rate for 1994 was 37.6%. The
effective tax rate for the quarter ended September 30, 1994 was 36.0%.
Inflation and Changing Prices
Inflation and changing prices for the nine months ended September 30, 1995
and the nine months ended September 30, 1994 have contributed to increases in
wages, facility and raw material costs. The Company believes that it will be
able to pass on most of its future inflationary increases to its customers. The
wireless equipment manufacturing segment is also subject to changing foreign
currency exchange rates in its purchases of raw materials. The Company employs
several methods to protect against increases in costs due to currency
fluctuations. It is not always possible to pass on the effects of currency
fluctuations to customers. However, competition in these markets are subject to
similar fluctuations in product cost.
Liquidity and Capital Resources
Working capital decreased by $3,250,000 during the nine months ended September
30, 1995. This decrease is due to the sale of the Company's steel processing
facility during the third quarter of 1995. The Company has credit available
under its existing lines of credit in excess of $2,000,000.
Capital expenditures for the nine months of 1995 were $588,000 which was paid
from operating cash flow and bank credit lines.
Capital expenditures for 1995 for the combined entity are not expected to exceed
$1.5 million. Management expects that capital expenditures will be funded
through operating cash flow and financing sources available to the Company.
Based on the anticipated replacement needs, and expected purchases of equipment
for additional capacity, management expects that capital expenditures will
continue at these levels for the foreseeable future.
Inventories decreased $5,459,000 for the nine months ended September 30, 1995.
This decrease is due to the sale of the Company's steel processing subsidiary.
10
<PAGE>
Discontinued Operations
In February, 1995 the Company decided to discontinue and dispose of its
real estate development and management segment. Real estate inventories were
written down to their estimated orderly liquidation value as of December 31,
1994.
On May 23, 1995 the Board of Directors decided to accept an offer to
purchase the stock of Niagara Cold Drawn Corporation for approximately $6.8
million. The sale was completed on August 6, 1995.
Management will consider disposal of subsidiaries that do not earn an
adequate return or fit the long-term goals of the Company.
11
<PAGE>
ITEM 6. Exhibits and Reports of Form 8-K
b.) Reports on Form 8-K
The Registrant was not required to file reports on Form 8K during the quarter
ended September 30, 1995.
12
<PAGE>
Pursuant to the requirements of securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ADAGE, INC.
\s\Robert T. Holland
-------------------------------------
Robert T. Holland
Vice President - Finance
Date: November 14, 1994
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1994 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 10,895
<ALLOWANCES> 0
<INVENTORY> 21,760
<CURRENT-ASSETS> 35,168
<PP&E> 13,179
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,658
<CURRENT-LIABILITIES> 13,904
<BONDS> 0
<COMMON> 3,073
0
0
<OTHER-SE> 29,637
<TOTAL-LIABILITY-AND-EQUITY> 57,658
<SALES> 62,130
<TOTAL-REVENUES> 62,662
<CGS> 50,952
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 640
<INCOME-PRETAX> (1,563)
<INCOME-TAX> (531)
<INCOME-CONTINUING> (1,032)
<DISCONTINUED> 2,423
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,391)
<EPS-PRIMARY> $(.28)
<EPS-DILUTED> $(.28)
</TABLE>
