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 June 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 August 8, 1996
5,125,355 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>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(Unaudited) (Unaudited)
ASSETS 000's Omitted
- ------ -------------
<S> <C> <C>
Current Assets
Cash $ 85 $ 134
Accounts receivable, net 10,833 10,853
Inventories 21,352 21,261
Marketable securities 229 177
Other current assets 1,668 2,114
-------- --------
Total Current Assets 34,167 34,539
Property, plant and equipment, net 12,860 13,562
Investments and long-term receivable 761 980
Net assets of discontinued segments 4,817 5,376
Intangible and other assets 4,589 3,080
-------- --------
Total Assets $ 57,194 $ 57,537
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current maturities of
long-term debt $ 893 $ 1,403
Accounts payable 5,482 6,838
Accrued expenses 3,172 3,221
Income taxes payable 1,347 301
-------- --------
Total Current Liabilities 10,894 11,763
Long-term debt 13,375 13,154
Stockholders' equity 32,925 32,620
-------- --------
$ 57,194 $ 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
FOR THE THREE MONTHS ENDED
--------------------------
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
(Unaudited) (Unaudited)
000's Omitted
Income
Sales $ 19,064 $ 22,606
Investment income (14) 188
Other 42 126
----------- -----------
19,092 22,920
Costs and Expenses
Cost of sales 14,790 18,298
Selling, general & administrative 3,952 4,532
Interest 220 165
----------- -----------
18,962 22,995
Income (loss) from continuing
operations before income taxes
and minority interest 130 (75)
Provision for income taxes (benefit) 55 (28)
----------- -----------
Net income (Loss) from
continuing operations $ 75 $ (47)
Income from discontinued
operations net of applicable -- 449
----------- -----------
taxes
Net income $ 75 $ 402
=========== ===========
Earnings Per Common Share
Continuing operations $ .01 $ (.01)
Discontinued operations . - .09
----------- -----------
Net Income $ .01 $ .08
=========== ===========
Weighted Average Common Shares
Outstanding 5,123,445 5,098,595
=========== ===========
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Income
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30, 1996 JUNE 30, 1995
------------- --------------
(Unaudited) (Unaudited)
000's Omitted
Income
Sales $ 40,466 $ 42,873
Investment income 62 194
Other 78 211
----------- -----------
40,606 43,278
Costs and Expenses
Cost of sales 31,261 34,705
Selling, general and administrative 8,378 8,648
Interest 518 410
----------- -----------
40,157 43,763
Income (loss) before income taxes 449 (485)
Provision for income taxes (benefit) 172 (184)
----------- -----------
Net income (loss) from
continuing operations 277 (301)
Income from discontinued
operations net of applicable
taxes -- 825
----------- -----------
Net income $ 277 $ 524
=========== ===========
Earnings Per Common Share
Continuing operations $ .05 $ (.06)
Discontinued operations . - .16
----------- -----------
Net Income $ .05 $ .10
=========== ===========
Weighted Average Common Share
Outstanding 5,123,445 5,098,595
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Cash Flows
FOR THE SIX MONTHS ENDED
---------------------------
JUNE 30, 1996 JUNE 30,1995
------------- ------------
(Unaudited) (Unaudited)
000's Omitted
Operating activities:
Net income (loss) $ 277 $ 524
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 1,617 1,379
(Gain) Loss on sale of marketable
securities (52) (35)
Decrease (increase) in current assets
Accounts receivable, net 20 (167)
Inventory (91) (1,149)
Other current assets (630) 103
Increase (decrease) in current
liabilities
Accounts payable (1,641) (301)
Other current liabilities 868 153
Discontinued segment-noncash
charges and working capital
changes 614 1,306
------- -------
Cash (used) provided from operations 982 1,813
Investing activities:
Property, plant and equipment
Purchases (450) (848)
Long-term investments and receivables
Additions and purchases (27) --
Investing activities of
discontinued segment -- (441)
Other items (518) (20)
------- -------
Cash (used) provided by investing
activities (995) (1,309)
Financing activities:
Long-term debt
Additions -- 361
Payments (1,590) (1,429)
Changes in lines of credit 1,556 976
Financing activities of
discontinued segment -- (134)
------- -------
Cash (used) by financing activities (36) (226)
------- -------
Increase in cash (49) 278
Cash at beginning of period 134 184
------- -------
Cash at end of period $ 85 $ 462
======= =======
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 June 30, 1995, the
consolidated statements of operations and the consolidated statements of cash
flows for the three months ended June 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 June 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 June 30,
1995 are not necessarily indicative of the operating results for a full year.
2. Inventories June 30, December 31,
1996 1995
-------- ------------
Inventories consisted of:
Raw Material $ 9,310 $ 8,688
Work in Process 2,302 3,884
Finished goods 9,740 8,689
-------- --------
$ 21,352 $ 21,261
======== ========
3. Stockholder's Equity
Stockholder's Equity is comprised of the following:
June 30, December 31,
1996 1995
-------- ------------
Common Stock $ 3,073 $ 3,073
Additional Capital 20,490 20,477
Retained Earnings 9,881 9,664
Net unrealized loss on
marketable securities (519) (594)
-------- --------
$ 32,925 $ 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 Six Months Ended Year Ended
June 30, June 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 77.5% 80.9% 77.3% 80.9% 78.2%
Selling, general
administrative 20.7% 20.0% 20.7% 20.1% 21.7%
Interest expense 1.1% 0.7% 1.3% 0.9% 1.9%
Income (loss) from
continuing operations
before income taxes .7% (.3%) 1.1% (1.1%) (1.6%)
Net Income from
continuing operations .4% (0.2%) .7% (0.7%) (1.0%)
</TABLE>
Net Sales
Net sales for the six months ended June 30, 1996 decreased $2,407 compared to
sales for the same period in 1995. This decrease was made up of the following:
Increase
(Decrease)
----------
Wireless Communication Equipment $ 773
Paper Manufacturing (3,217)
Specialty Manufacturing 191
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 3.4% to 77.5% for the six
months ended June 30, 1996 from 80.9% for the six months ended June 30, 1995.
Cost of sales was 78.2% of net sales for the year ended December 31, 1995.
Details of this cost of
7
<PAGE>
sales as a percentage of net sales for each segment follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Wireless Communication Equipment 74.6% 74.7% 74.1% 76.8%
Paper Manufacturing 84.6% 85.1% 83.3% 88.0%
Specialty Manufacturing 85.6% 88.1% 85.8% 85.0%
</TABLE>
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. The decrease in the specialty manufacturing segment
is due to the absorption of a new product line in the last quarter of 1995 and
first quarter of 1996. Costs decreased in the wireless equipment manufacturing
segment due to increased efficiencies in the manufacturing process.
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 six months ended June 30,
1996 from 20.1% for the six months ended June 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Wireless Communication Equipment $2,637 $2,511 $5,452 $5,314
Paper Manufacturing 660 799 1,305 1,553
Specialty Manufacturing 592 488 1,202 982
Corporate 392 636 846 1,061
Increases in the wireless communications segment are related to increased
product development expenses compared to the prior year. 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.
Interest Expense
Interest Expense decreased to 1.1% for the quarter ended June 30, 1996 and 1.3%
for the six months ended June 30, 1996 from 1.9% for year ended December 31,
1995. This decrease is related to
8
<PAGE>
decreased debt levels compared to 1995.
Investment Income
Investment income for the quarter ended June 30, 1995 was due to the settlement
of a class action suit related to a security previous owned by the Company.
Income Taxes
Income taxes represented a 38.0% effective tax rate for the quarter and six
months ended June 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 six months ended June 30, 1996 and the six
months ended June 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 $497,000 during the six months ended June 30, 1996.
The Company has credit available under its existing lines of credit in excess of
$1,000,000.
Capital expenditures for the first six months of 1996 were $450,000 which was
paid from operating cash flow and bank credit lines.
Capital expenditures for 1996 for the combined entity are not expected to exceed
$2.5 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 $91,000 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 June 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 there
unto duly authorized.
ADAGE, INC.
\s\ Robert T. Holland
------------------------
Robert T. Holland
Vice President - Finance
Date: August 14, 1994
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 85
<SECURITIES> 229
<RECEIVABLES> 10,833
<ALLOWANCES> 0
<INVENTORY> 21,352
<CURRENT-ASSETS> 34,167
<PP&E> 12,860
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,194
<CURRENT-LIABILITIES> 10,894
<BONDS> 0
3,073
0
<COMMON> 0
<OTHER-SE> 29,852
<TOTAL-LIABILITY-AND-EQUITY> 58,229
<SALES> 19,064
<TOTAL-REVENUES> 19,092
<CGS> 14,790
<TOTAL-COSTS> 18,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220
<INCOME-PRETAX> 130
<INCOME-TAX> 55
<INCOME-CONTINUING> 75
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
