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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, 1996
------------------
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 November 11, 1996
5,129,175 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, 1996 DECEMBER 31, 1995
------------------ -----------------
(Unaudited) (Unaudited)
ASSETS 000's Omitted
- ------ -------------
Current Assets
<S> <C> <C>
Cash $ - $ 134
Accounts receivable, net 10,698 10,853
Inventories 21,666 21,261
Marketable securities 227 177
Other current assets 1,996 2,114
-------- --------
Total Current Assets 34,587 34,539
Property, plant and equipment, net 13,050 13,562
Investments and long-term receivable 618 980
Net assets of discontinued segments 4,621 5,376
Intangible and other assets 3,200 3,080
-------- --------
Total Assets $ 56,076 $ 57,537
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of
long-term debt $ 804 $ 1,403
Accounts payable 4,447 6,838
Accrued expenses 2,167 3,221
Income taxes payable 1,473 301
-------- --------
Total Current Liabilities 8,891 11,763
Long-term debt 14,477 13,154
Stockholders' equity 32,708 32,620
-------- --------
$ 56,076 $ 57,537
======== ========
</TABLE>
Note 1. The consolidated balance sheet at December 31, 1995 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,
1996 1995
---- ----
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Sales $ 18,608 $ 19,257
Expenses
Cost of products 14,764 16,247
Selling, general & administrative 3,868 3,985
-------- --------
18,632 20,232
-------- --------
Operating Income (24) (975)
Other Expenses (income)
Interest 268 230
Investment and other income (153) (127)
-------- --------
115 103
Income (loss) from continuing
operations before income taxes
and minority interest (139) (1,078)
Income taxes (Benefit) (55) (347)
-------- --------
Income (loss) from continuing
operations (84) (731)
Discontinued Operations
Income from discontinued operations
net of income taxes (benefit) - 189
Gain on sale of discontinued
operations net of taxes - 1,409
-------- --------
Net income $ (84) $ 867
======== ========
Earnings (Loss) Per Common Share
Continuing operations $ (.02) $ (.14)
Discontinued operations . - .04
Sale of discontinued operations . - .27
-------- --------
Net Income (Loss) $ (.02) $ .17
======== ========
Weighted Average Common Shares
Outstanding 5,126,698 5,105,440
========= =========
</TABLE>
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
1996 1995
------ ------
(Unaudited) (Unaudited)
000's Omitted
-------------
<S> <C> <C>
Sales $ 59,074 $ 62,130
Expenses
Cost of products 46,025 50,952
Selling, general & administrative 12,246 12,633
-------- --------
58,271 63,585
-------- --------
Operating Income 803 (1,455)
Other Expenses (income)
Interest 786 640
Investment and other income (293) (532)
-------- --------
493 108
Income (loss) from continuing
operations before income taxes
and minority interest 310 (1,563)
Income taxes (Benefit) 117 (531)
-------- --------
Income (loss) from continuing
operations 193 (1,032)
Discontinued Operations
Income from discontinued operations
net of income taxes (benefit) - 1,014
Gain on sale of discontinued
operations - 1,409
-------- --------
Net income $ 193 $ 1,391
======== ========
Earnings (Loss) Per Common Share
Continuing operations $ .04 $ (.20)
Discontinued operations . - .20
Gain on sale of discontinued
operations . - .28
-------- --------
Net Income (Loss) $ .04 $ .28
======== ========
Weighted Average Common Shares
Outstanding 5,124,473 5,100,875
========= =========
</TABLE>
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
September 30,
1996 1995
------ ------
(Unaudited) (Unaudited)
000's Omitted
-------------
Operating activities:
<S> <C> <C>
Net income (loss) $ 193 $ 1,391
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 1,840 1,968
(Gain) Loss on sale of marketable
securities (50) (187)
Gain on sale of property (449) -
Decrease (increase) in current assets
Accounts receivable, net 154 1,335
Inventory (405) (1,608)
Other current assets (337) (671)
Increase (decrease) in current
liabilities
Accounts payable (2,778) (2,320)
Other current liabilities 427 (206)
Discontinued segment-noncash
charges and working capital
charges 535 678
Gain on sale of discontinued
operations - (1,409)
------- --------
Cash (used) provided from operations (870) (1,029)
Investing activities:
Property, plant and equipment
Purchases (755) (588)
Sales 633 -
Long-term investments and receivables
Sales - 184
Investing activities of
discontinued segment - (193)
Sales of discontinued operations - 6,804
Other items (118) (14)
------- --------
Cash (used) provided by investing
activities (240) 6,193
Financing activities:
Long-term debt
Additions - 345
Payments (1,270) (3,511)
Changes in lines of credit 2,246 (2,293)
Financing activities of
discontinued segment - 111
------- --------
Cash (used) by financing activities 976 (5,348)
------- --------
Increase in cash (134) (184)
Cash at beginning of period 134 184
------- --------
Cash at end of period $ - $ -
======= ========
</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, 1996, the
consolidated statements of operations and the consolidated statements of cash
flows for the three months ended September 30, 1996 and 1995 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, 1995 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 September 30, December 31,
1996 1995
------------ ------------
Inventories consisted of:
Raw Material $ 10,269 $ 8,688
Work in Process 2,744 3,884
Finished goods 8,653 8,689
-------- --------
$ 21,666 $ 21,261
======== ========
3. Stockholder's Equity
Stockholder's Equity is comprised of the following:
September 30, December 31,
1996 1995
------------ ------------
Common Stock $ 3,072 $ 3,073
Additional Capital 20,505 20,477
Retained Earnings 9,797 9,664
Net unrealized loss on
marketable securities (666) (594)
-------- --------
$ 32,708 $ 32,620
======== ========
6
<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 Months Ended Year Ended
September 30, September 30, December 31,
1996 1995 1996 1995 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% % 100.0% 100.0% 100.0%
Cost of sales 79.3% 84.4% 77.9% 82.0% 78.2%
Selling, general
administrative 20.8% 20.6% 20.7% 20.3% 21.7%
Interest expense 1.4% 1.2% 1.3% 1.0% 1.9%
Net income from
continuing operations ( .4%) (3.8%) .3% (1.7%) (1.0%)
</TABLE>
Net Sales
Net sales for the nine months ended September 30, 1996 decreased $649 compared
to sales for the same period in 1995. This decrease was made up of the
following:
Increase
(Decrease)
----------
Wireless Communication Equipment $ 2,345
Paper Manufacturing (5,089)
Specialty Manufacturing 347
Sales in the wireless communications equipment business segment increased due to
increased demand and the ability to source raw materials compared to the prior
year. Decreases in the paper manufacturing were due to decreased volume and
prices.
Cost of Sales
Cost of sales as a percentage of net sales decreased 4.1% to 77.9% for the nine
months ended September 30, 1996 from 82.0% for the
7
<PAGE>
nine months ended September 30, 1995. Cost of sales was 78.2% of net sales for
the year ended December 31, 1995. Details of this cost of sales as a percentage
of net sales for each segment follows:
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Wireless Communication Equipment 69.9% 78.1% 74.6% 76.4%
Paper Manufacturing 88.4% 92.5% 84.9% 89.7%
Specialty Manufacturing 85.1% 83.5% 85.6% 85.6%
Costs decreased in the wireless communications equipment manufacturing segment
due to increased efficiencies in the manufacturing process. Material costs,
primarily recycled paper fiber, have decreased since the end of 1995. Prices for
paperboard have decreased also but have generally lagged price decreases in raw
materials. Decreased volume in the paper manufacturing segment resulted in less
efficient absorbtion of fixed manufacturing costs compared to the prior year.
The decrease in the specialty manufacturing segment is due to the absorption of
a new product line of 1996.
Selling, General and Administrative Expenses
Selling general and administrative expenses which consist primarily of
commissions, marketing, salary and related costs, data processing, occupancy and
product development costs increased to 20.7% for the nine months ended September
30, 1996 from 20.3% for the nine months ended September 30, 1995. Selling
general and administrative expenses were 21.7% of net sales for the year ended
December 31, 1995. Details of selling, general and administrative expense by
segment follows:
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Wireless Communication Equipment $ 2,336 $ 2,167 $ 7,788 $ 7,482
Paper Manufacturing 673 677 1,978 2,229
Specialty Manufacturing 591 647 1,793 1,529
Corporate 521 482 1,367 1,349
Increases in the wireless communications segment are related to increased
product development expenses compared to the prior year and increased selling
costs on increased sales volume. Decreases in the paper manufacturing segment
are related to decreased variable selling costs of decreased sales compared to
the prior year. Increased selling salaries and reallocation of corporate
expenses caused the increase in the specialty manufacturing segment.
8
<PAGE>
Interest Expense
Interest Expense increased to 1.4% for the quarter ended September 30, 1996 and
1.3% for the nine months ended September 30, 1996 from 1.9% for year ended
December 31, 1995. This decrease is related to decreased debt levels compared to
1995.
Income Taxes
Income taxes represented a 38.0% effective tax rate for the quarter and nine
months ended September 30, 1996. This rate is made up of a 34% federal tax rate
and varying state tax rates. The effective tax rate for 1995 was 40.1%.
Inflation and Changing Prices
Inflation and changing prices for the nine months ended September 30, 1996 and
the nine months ended September 30, 1995 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 increased by $ 2,920 during the nine months ended September 30,
1996. The Company has credit available under its existing lines of credit at
September 30, 1996 in excess of $1,000,000.
Capital expenditures for the first nine months of 1996 were $755,000 which was
paid from operating cash flow and bank credit lines.
Capital expenditures for 1996 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 increased $405,000 from December 31, 1995.
9
<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.
In August 1995, the Company sold its' steel processing subsidiary for
$6.8 million in cash. Minority interests were decreased by $1.5 million and
long-term debt was decreased by this segments debt of $6.0 and payments on the
consolidated debt of the Company of $4.0 million.
Management will consider disposal of subsidiaries that do not earn an
adequate return or fit the long-term goals of the Company.
10
<PAGE>
ITEM 6. Exhibits and Reports of From 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, 1996.
11
<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, 1996
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 227
<RECEIVABLES> 10,698
<ALLOWANCES> 0
<INVENTORY> 21,666
<CURRENT-ASSETS> 34,587
<PP&E> 13,050
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,076
<CURRENT-LIABILITIES> 8,891
<BONDS> 0
0
0
<COMMON> 3,073
<OTHER-SE> 29,635
<TOTAL-LIABILITY-AND-EQUITY> 56,076
<SALES> 18,608
<TOTAL-REVENUES> 18,761
<CGS> 14,764
<TOTAL-COSTS> 18,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 268
<INCOME-PRETAX> (139)
<INCOME-TAX> (55)
<INCOME-CONTINUING> (84)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
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