ADAGE, INC.
1995 HIGHLIGHTS- SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
SELECT INCOME STATEMENT DATA Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales and revenues $ 81,798 $ 80,419 $ 63,411 $ 59,745 $ 40,284
Income (loss) from continuing
operations (784) 522 (606) 1 754
Discontinued operations 1,896 (1,580) 281 854 (132)
Cumulative effect of change in
accounting principle -- -- -- 234 --
---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ 1,112 $ (1,058) $ (325) $ 1,089 $ 622
========== =========== ========== ========== ==========
Income (Loss) per share from continuing
operations $ (.15) $ .10 $ (.12) $ .00 $ .22
Discontinued operations per share .37 (.31) .06 .17 (.04)
Cumulative effect of change in
accounting principle -- -- -- .04 --
---------- ---------- --------- ---------- ----------
Net Income (Loss) Per Share $ .22 $ (.21) $ (.06) $ .21 $ .18
========== ========== ========= ========== ==========
SELECTED BALANCE SHEET DATA Years Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Working capital $22,776 $24,504 $28,629 $22,920 $12,527
Total assets 57,537 78,912 77,300 71,693 52,672
Long-term debt 13,154 22,891 26,676 21,950 14,662
Total shareholders' equity 32,620 31,236 32,479 33,686 20,596
Dividends declared per share -- -- -- -- --
COMMON STOCK PRICE RANGE Price Per Share of Adage Common Stock
1995 1994 1993
---- ---- ----
High Low High Low High Low
----- ----- ----- ----- ----- -----
1st Quarter 5 7/8 4 3/4 7 1/8 5 1/2 6 1/8 4 1/4
2nd Quarter 6 3/8 4 3/4 6 1/4 4 1/2 5 7/8 3 1/4
3rd Quarter 6 5/8 5 3/8 5 1/4 4 1/4 6 1/4 4 1/4
4th Quarter 6 3 7/8 6 1/2 4 3/8 7 1/2 5 1/4
</TABLE>
1
<PAGE>
ADAGE, INC.
LETTER TO SHAREHOLDERS
During 1995, sales from continuing operations were $81,800,000, increasing
slightly from $80,400,000 in 1994. Continuing operations resulted in a $784,000
loss, or ($.15) per share, in 1995, compared to a $522,000 profit, or $.10 per
share, in 1994. When discontinued operations are included, net income amounted
to $1,112,000, or $.22 per share, in 1995, versus a loss of $1,058,000, or
($.21) per share, in 1994.
During the past year, exciting progress was made at RELM Communications, Inc.,
our wireless equipment company. In a program designed to improve RELM's
operating performance, key personnel were added to management and a number of
positions changed. Additionally, a new computer system was purchased which links
the entire company together, from the factory floor to the president's office.
The system, which was budgeted at $1,500,000, consists of a wide area network,
three local area networks and a total of 130 terminals. Training and loading of
data into the system has continued into 1996, and the benefits of this
investment should be felt in the second half of this year.
RELM's investment in product development and design engineering was
approximately $3,000,000 in 1995. This is expected to increase, keeping pace
with the planned development of a number of new products. However, to better
manage the R&D costs so necessary in this global business, strategic alliances
are being forged with other wireless equipment manufacturers. These alliances
have the added benefit of greatly reducing the time required to bring RELM's new
products to market.
In August 1995 we sold our steel subsidiary, Niagara Cold Drawn Corporation. As
a result, Adage debt and minority interests were reduced by $8,000,000. We also
realized a gain of $1,200,000 on the sale. However, efforts to sell our Fort
Orange Paper Company subsidiary were terminated. This industry experienced wide
fluctuations in performance due to unprecedented changes in the price of waste
paper. Resulting changes in the value of paper industry assets make it more
attractive in terms of profitability and cash flow to continue to operate Fort
Orange.
Allister Manufacturing Company, Inc., which manufactures and sells garage door
and gate operating systems, made significant improvements through the
development of new products and increases in manufacturing efficiencies. During
1995 Allister purchased a successful-selling line of commercial garage door
openers to complement its existing product line, and also became the exclusive
U.S. distributor for a line of Italian-made hydraulic gate operators. Allister
now has the most complete product line in its industry.
We believe that our efforts during this past year will lead to improving
margins, the introduction of successful new products, increased sales and
improved results for our shareholders in 1996.
Very truly yours,
ADAGE, INC.
Donald F. U. Goebert
Chairman and President
2
<PAGE>
ADAGE, INC.
STATEMENT OF CONSOLIDATED OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $ 81,798 $ 80,419 $ 63,411
Expenses
Cost of products 63,966 60,714 47,251
Selling, general and administrative 17,757 18,476 14,672
--------- -------- --------
81,723 79,190 61,923
--------- -------- -------
Operating income 75 1,229 1,488
Other expenses (income)
Interest expense 1,572 632 909
Restructuring charge -- -- 1,875
Investment and other income (188) (178) (320)
---------- --------- --------
1,384 454 2,464
--------- --------- --------
Income (loss) from continuing operations
before income taxes (1,309) 775 (976)
Income Taxes (Benefit) (525) 253 (370)
--------- --------- --------
Income (loss) from continuing operations (784) 522 (606)
Discontinued Operations
Income (loss) from discontinued operations
net of income taxes (benefit) 703 (75) 281
Gain (loss) on disposal of discontinued segments
net of income taxes (benefit) 1,193 (1,505) --
-------- -------- --------
1,896 (1,580) 281
-------- -------- ---------
Net Income (Loss) $ 1,112 $ (1,058) $ (325)
======= ======== ========
Earnings (Loss) Per Share of Common Stock
Continuing operations $ (.15) $ .10 $ (.12)
Discontinued operations .37 (.31) .06
------- ------- ------
Net Income (Loss) $ .22 $ (.21) $ (.06)
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ADAGE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash $ 134 $ 184
Accounts receivable net of allowance for doubtful
accounts of $381 in 1995; $634 in 1994 10,853 16,354
Inventories 21,261 29,425
Investment securities - trading 177 175
Prepaid expenses and other current assets 782 481
Refundable income taxes 142 114
Deferred income tax asset 1,190 1,290
-------- --------
34,539 48,023
Property, Plant and Equipment
Land 342 470
Buildings and improvements 5,667 6,982
Machinery and equipment 21,465 29,622
Accumulated depreciation (13,912) (16,473)
-------- --------
13,562 20,601
Capital projects in progress -- 535
-------- --------
13,562 21,136
Investments and Long-term Receivables
Investment securities - available for sale 634 504
Notes, property and other investments 346 437
Net assets of discontinued segment 5,376 5,983
-------- --------
6,356 6,924
Other Assets and Intangibles
Cost in excess of net assets of businesses
acquired, less accumulated amortization
of $245 in 1995 and $217 in 1994 853 881
Deferred financing charges and other assets 247 468
Deferred income tax asset 1,980 1,480
-------- --------
3,080 2,829
-------- --------
$ 57,537 $ 78,912
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term liabilities $ 1,403 $ 3,034
Accounts payable 6,838 13,735
Accrued compensation and related taxes 1,367 1,633
Accrued expenses and other current liabilities 1,854 5,117
Income taxes payable 301 --
-------- --------
11,763 23,519
Long-term Liabilities, less amounts classified
as current liabilities
Loans, notes and mortgages 11,921 22,274
Capital lease obligations 1,233 617
-------- --------
13,154 22,891
Minority interest in subsidiary -- 1,266
Commitments and contingencies
Stockholders' Equity
Common stock issued and outstanding - 1995
- 5,121,535 shares; 1994 - 5,098,555 shares 3,073 3,059
Additional capital 20,477 20,349
Retained earnings 9,664 8,552
Unrealized loss on investment securities -
available for sale (594) (724)
-------- --------
32,620 31,236
-------- --------
$ 57,537 $ 78,912
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ADAGE, INC.
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Common Stock
Beginning of year $ 3,059 $ 3,053 $ 3,135
Shares issued 14 6 --
Shares reacquired -- -- (82)
-------- -------- --------
End of year 3,073 3,059 3,053
Additional Capital
Beginning of year 20,349 20,314 20,849
Excess of market price over par value of
shares issued 128 35 --
Cost in excess of par value of shares reacquired -- -- (535)
-------- --------
End of year 20,477 20,349 20,314
Retained Earnings
Beginning of year 8,552 9,641 9,997
Net income (loss) 1,112 (1,058) (325)
Dividends on subsidiary's preferred stock -- (31) (31)
-------- -------- --------
End of year 9,664 8,552 9,641
Unrealized Loss on Investment Securities
Beginning of year (724) (529) (295)
Increase (decrease) in aggregate market value of
investment securities - available for sale 130 (195) (234)
-------- -------- --------
End of year (594) (724) (529)
-------- -------- --------
Total Stockholders' Equity $ 32,620 $ 31,236 $ 32,479
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
ADAGE, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 1,112 $(1,058) $ (325)
Adjustments to reconcile net income (loss) to
net cash from operations
Depreciation and amortization 2,375 3,201 2,687
(Gain) loss on disposal of discontinued segments (1,992) 2,430 --
(Gain) loss on disposal of property and
equipment, and other assets (12) 16 703
Gain on sale of investment securities (108) -- (139)
Minority interest in income of subsidiary -- 164 113
Deferred income taxes 449 (782) (110)
Other 14 53 128
Changes in current assets and liabilities
Accounts receivable 1,377 (2,147) (4,107)
Inventories (1,109) (3,082) (4,231)
Accounts payable (2,705) 8,028 (365)
Other current assets and liabilities (1,181) (540) 1,642
Discontinued segments-noncash charges and
working capital changes 928 (1,023) 18
------- ------- -------
Cash Provided by (Used in) Operating Activities (852) 5,260 (3,986)
------- -------
Cash Flows from Investing Activities
Purchases of property and equipment (734) (1,929) (2,958)
Proceeds from disposals of property and equipment 18 4 299
Proceeds from sale of subsidiary 6,789 -- --
Sales of investment securities-trading 182 -- 454
Sales and collections of long-term real estate
investments and receivables -- -- 764
Investing activities of discontinued segments -- (86) 1,004
------- ------- -------
Cash Provided by (Used in) Investing Activities 6,255 (2,011) (437)
------- ------- -------
Cash Flows from Financing Activities
Borrowings -- -- 6,309
Repayment of debt and capital lease obligations (3,986) (2,912) (3,411)
Net increase (decrease) in revolving credit lines (1,559) (181) 2,772
Deferred charges (50) -- (698)
Proceeds from issuance of common stock 142 -- --
Repurchase of common stock -- -- (617)
Financing activities of discontinued segments -- (11) (511)
------- ------- -------
Cash Provided by (Used in) Financing Activities (5,453) (3,104) 3,844
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
ADAGE, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS (CONTINUED)
(In Thousands)
Year Ended December 31,
1995 1994 1993
---- ---- ----
Increase (decrease) in cash $ (50) $ 145 $ (579)
Cash, Beginning of Year 184 39 618
------- ------- -------
Cash, End of Year $ 134 $ 184 $ 39
======= ======= =======
Supplemental Disclosure:
Interest paid $ 1,835 $ 1,418 $ 1,473
======= ======= =======
Income taxes paid $ 42 $ 145 $ 400
======= ======= =======
See notes to consolidated financial statements.
8
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accounts of the Company and its
majority owned subsidiaries have been included in the consolidated
financial statements. When the majority ownership of a subsidiary is
considered to be temporary or the company owns less than the
majority of the outstanding stock of a subsidiary, the equity method
is used to account for the investment. All significant intercompany
balances and transactions have been eliminated.
Inventories - Inventories are stated at the lower of cost or market,
determined by the first-in, first-out (FIFO) method. The Company's
steel processing subsidiary, disposed of in 1995, used the last-in,
first-out (LIFO) method.
Investment Securities - Investments that are purchased and held
principally for the purpose of selling them in the near term are
classified as "trading securities" and carried at fair value, with
unrealized gains and losses included in earnings. Other equity
securities not classified as "available for sale" and carried at
fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity. Realized gains and losses are
computed by the specific identification method on a trade-date
basis.
The classification of investment securities is determined by
management at the date of purchase.
Property, Plant and Equipment - Property, plant and equipment is
carried at cost and includes expenditures for new facilities and
those which substantially increase the useful life of existing
property, plant and equipment. Maintenance, repairs and minor
renewals are expensed as incurred. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts and the gain or loss on
disposition is credited or charged to income.
Depreciation - The Company provides for depreciation of property,
plant and equipment at rates designed to allocate the cost over the
estimated useful lives of the assets. Depreciation is generally
computed on the straight-line method using lives of 3 to 20 years on
machinery and equipment, 5 to 30 years on buildings and
improvements.
Deferred Financing Charges - These include costs incurred to obtain
financing. These costs are amortized over the life of the loans
using the interest method for term loans and straight-line method
for lines of credit.
Cash Flows - Cash includes time deposits, certificates of deposit
and highly liquid marketable securities with original maturities of
less than three months.
Real Estate - A portion of the real estate held by the Company is
for sale. This real estate is valued at lower of cost or estimated
net realizable value.
9
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cost in Excess of Net Assets of Businesses Acquired - Cost in excess
of net assets of businesses acquired is being amortized over periods
of 25 and 40 years.
Income Taxes - The Company files a consolidated federal income tax
return with its subsidiaries in which it owns 80% or more of the
outstanding capital stock.
The Company adopted the Financial Accounting Standards Board
Statement No. 109 Accounting for Income Taxes. Under this standard,
income taxes are recognized for the tax consequences of all events
that have been recognized in the financial statements, calculated
based on provisions of enacted tax laws, including the tax rates in
effect for current or future years. Deferred tax assets are
recognized subject to an assessment as to future realizability.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Earnings Per Share - Earnings per share are computed on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the years (5,105,860, 5,106,846, and
5,135,372, in 1995, 1994 and 1993, respectively).
Common Stock - Par value $.60 per share; authorized 10,000,000
shares, issued and outstanding 5,121,535 shares and 5,098,555 shares
at December 31, 1995 and 1994, respectively.
Presentation - Prior years financial statements have been restated
to conform with current presentation. Dollars are stated in
thousands (000 omitted) except for nontabular amounts in the notes
to the consolidated financial statements and per share data.
Fair Value of Financial Instruments - The Financial Accounting
Standards Board has issued FAS No. 107 Disclosures About Fair Value
of Financial Instruments, which requires disclosure of the fair
value of financial instruments. The fair value of the Company's
assets and liabilities which qualify as financial instruments under
FAS No. 107 approximate the carrying amounts presented in the
consolidated balance sheet.
New Accounting Standards - The Company intends to adopt the
provisions of FAS No. 120 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
FAS No. 123 Accounting for Stock-Based Compensation during 1996.
Management has not determined the effects, if any, on the Company's
financial statements upon implementation.
10
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE B INVENTORIES
Inventories consisted of the following:
December 31,
1995 1994
---- ----
Raw materials $ 8,688 $14,399
Work in process 3,884 2,062
Finished goods 8,689 3,691
Discontinued segment -- 9,273
------- -------
$21,261 $29,425
======= =======
At December 31, 1995 some portion of $15,200,000 of inventory of the
wireless equipment subsidiary is in excess of that subsidiary's
current requirements based on the recent level of sales. Management
has developed a program to reduce this inventory to desired levels
over the near term and believes no loss will be incurred on its
disposition. No estimate can be made of a range of amounts of loss
that are reasonably possible should the program not be successful.
Discontinued segment inventories consisted of the following at
December 31, 1994:
Raw materials $ 3,976
Work in process 385
Finished goods 4,912
--------
$ 9,273
========
The excess of current cost over LIFO inventory value at December 31,
1994 was $847,000.
1995 1994
-------- -------
Inventories valued at FIFO $ 21,261 $ 20,152
Inventories valued at LIFO - 9,273
--------- ---------
$ 21,261 $ 29,425
======== ========
NOTE C INVESTMENT SECURITIES
Investment securities at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
Cost Market Cost Market
---- ------ ---- ------
<S> <C> <C> <C> <C>
Common stocks:
Current - trading $ 177 $ 197 $ 252 $ 175
Long-term - available for sale 1,229 635 1,229 504
------ ------ ------ ------
$1,406 $ 832 $1,481 $ 679
====== ====== ====== ======
</TABLE>
11
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE C INVESTMENT SECURITIES (continued)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Gross unrealized losses on investment
securities - available for sale included
in stockholders' equity were: $ 594 $ 724 $ 529
===== ===== =====
</TABLE>
Realized gains and changes in unrealized gains or losses included in
investment income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Realized gains on investment securities $ 108 $ -- $ 139
Unrealized gains (losses) on trading invest-
ment securities 76 (35) 17
------ -------- ------
$ 184 $ (35) $ 156
===== ======= =====
</TABLE>
NOTE D PROPERTY, PLANT AND EQUIPMENT
Depreciation expense on property, plant and equipment for the years
ended December 31, 1995, 1994 and 1993 was $2,088,000, $2,912,000
and $2,541,000, respectively.
NOTE E DEBT
The debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Bank credit agreement expiring September 21, 1996 consisting of a
term loan and a revolving line of credit with availability based on
collateral levels to $15,000,000 and $20,000,000 at December 31,
1995 and 1994, respectively. The agreement is secured or guaranteed
by all the assets of the Company. The credit agreement requires
among other things maintenance of financial ratios and limits
certain expenditures. Interest varies according to a selection of
market interest rates.
Term loan portion requires monthly payments of $116,667 plus
interest which at December 31, 1995 was 10.5%. $ 2,094 $ 5,270
Revolving line of credit. At December 31, 1995
the interest rate was 10.25%. 9,376 10,935
</TABLE>
12
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE E DEBT (continued)
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Revolving line of credit with availability based on collateral
levels of $5,500,000 due June 30, 1996. The line is secured by
accounts receivable, inventory and equipment of the former
steel processing subsidiary. -- 4,503
Term loans secured by accounts receivable, inventory
and equipment of the former steel processing subsidiary
due in monthly installments. -- 2,144
Financing obligations secured by equipment of the
paper manufacturing subsidiary due in monthly install-
ments to 1999. Interest at December 31, 1995 was
8.97%. 1,371 2,213
---------- --------
Total debt 12,841 25,065
Amounts classified as current liabilities 920 2,791
----------- --------
Long-term debt $ 11,921 $ 22,274
======== ========
</TABLE>
As of December 31, 1995 and 1994 the Company had approximately
$3,000,000 and $4,998,000 of unused lines of credit available.
Maturities of long-term debt for the succeeding five years are:
1996 $ 920
1997 311
1998 242
1999 11,368
2000 --
On February 27, 1996 the Company borrowed $11,526,000 from a bank at
rates based on market indexes. The loan is a revolving line of
credit with availability based on collateral levels to $15,000,000
due February 27, 1999. The loan agreement is secured by
substantially all the assets of the Company and requires, among
other things, maintenance of financial covenants and limitations on
capital expenditures. The proceeds of the loan were used to repay
all amounts then outstanding and cancel the bank credit agreement
expiring September 21, 1996, and accordingly, those amounts have
been classified as long-term debt at December 31, 1995.
13
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE F LEASES
The Company leases equipment and real estate under capital and
operating leases. These leases require payment of all maintenance
costs.
Property, plant and equipment includes equipment purchased under
capital leases at December 31:
1995 1994
------ -----
Cost $1,751 $1,030
Accumulated depreciation 173 313
------- -------
Net carrying value $1,578 $ 717
====== =======
The Company occupies certain properties under long-term leases which
expire at various dates. Total rental expense for the years ending
December 31, 1995, 1994 and 1993 amounted to $718,000, $1,195,000
and $1,101,000, respectively.
Assets under capital leases are capitalized using interest rates
appropriate at the inception of each lease. Future minimum payments,
by year and in the aggregate under capital and non-cancelable
operating leases with initial remaining terms of one year or more
consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ --------
<S> <C> <C>
1996 $ 627 $ 713
1997 629 619
1998 410 568
1999 228 403
2000 133 272
Future years - 142
-------- -------
Total minimum lease payments 2,027 $ 2,717
=======
Amounts representing interest 311
--------
Present value of net minimum lease payments 1,716
Less current maturities 483
--------
Long-term obligations under capital-leases $ 1,233
=======
</TABLE>
NOTE G PENSION PLANS
The Company participates in a multi-employer pension plan. The plan
provides defined benefits for those employees covered by collective
bargaining agreements. Total amounts charged to pension expense and
contributed to the multi-employer plan were $174,000, $166,000, and
$157,000 for 1995, 1994 and 1993, respectively.
14
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE G PENSION PLANS (continued)
The Company also has defined contribution pension plans covering
certain employees. Contributions and costs are either a percent of
each covered employee's salary or basic contributions and totaled
$429,000, $369,000 and $334,000 in 1995, 1994 and 1993,
respectively.
In addition to contributory plans, the Company sponsors participant
funded retirement plans (401k) which are available to employees not
covered by other plans; the Company makes no contributions to these
plans.
NOTE H INCOME TAXES
The provisions for income taxes for the years ended December 31 are
based on income (loss) from continuing operations before income
taxes as follows:
1995 1994 1993
------ ------ -----
Current
Federal $ 255 $ - $ -
State 40 134 47
------ ------ ------
295 134 47
Deferred
Federal 371 (792) (171)
State 78 (75) -
------ ------- ------
449 (867) (171)
------ ------ ------
$ 744 $ (733) $ (124)
===== ====== ======
The provision for income taxes is provided in the statement of
consolidated operations as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Income (loss) from continuing
operations $ (525) $ 253 $ (370)
Income taxes (benefit) netted with:
Income (loss) from discontinued
operations 470 (61) 246
Gain (loss) on disposal of discon-
tinued segment 799 (925) --
------- ------ ------
$ 744 $ (733) $ (124)
====== ====== ======
</TABLE>
15
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE H INCOME TAXES (continued)
The components of consolidated income taxes (benefit) for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ----
<S> <C> <C> <C>
Federal income taxes (benefit) at
statutory rates 34.0% (34.0)% (34.0)%
State income taxes (benefit) net of
federal income tax benefit 4.0 (4.9) 6.9
Other 2.1 (2.0) (.5)
------ ------- ------
Effective Income Tax Rate 40.1% (40.9)% (27.6)%
==== ===== =====
</TABLE>
The deferred tax effect of temporary differences between financial
and tax reporting at December 31 is as follows:
1995 1994
-------- ------
Loss carryforward $ 2,720 $ 3,025
Asset reserves 1,732 2,048
Accrued expenses and other 433 637
Valuation allowance (1,300) (1,300)
------- ---------
Total deferred tax assets 3,585 4,410
Deferred tax liabilities 415 1,640
-------- ---------
Net deferred tax assets $ 3,170 $ 2,770
======= ========
FAS No. 109 requires a valuation allowance against deferred tax
assets if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not
be realized. The Company believes that some uncertainty exists with
respect to future realization of the total deferred tax assets due
to annual limitation of deductibility and expiration of loss
carryforwards, and because realization of this asset is contingent
on future earnings. Therefore, the Company established valuation
allowances relating to the realization of its deferred tax assets.
The net amount of the deferred tax asset considered realizable,
however, could vary in the near term if estimates of future taxable
income during the carryforward period change.
The Federal loss carryforward is attributed to the prior operation
of Relm Communications, Inc. This loss carryforward is limited to a
tax benefit of approximately $320,000 per year. If unused, the tax
loss carryforward benefit (at current rates) expires in the
following years:
2005 - $971,000; 2006 - $1,436,000; 2007 - $363,000
16
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE I MINORITY INTEREST
Minority interest in subsidiaries includes the minority common
stockholders' proportionate share in the common stock equity of the
subsidiaries. Minority interest also includes the redemption value
of preferred stock issues of the former steel processing subsidiary.
NOTE J RELATED PARTY TRANSACTIONS
The Company leased its headquarters and leases a manufacturing
facility from a corporation controlled by officers of the Company
(affiliate). Rentals under these leases were $187,000, $274,000, and
$353,000 for the years ending December 31, 1995, 1994, and 1993,
respectively. The Company managed rental properties owned by the
affiliate and other companies controlled by the officers for fees
related to a percentage of gross rents plus a percentage of new
leases signed. Property management fees received by the Company
during 1995, 1994 and 1993 from related parties were $124,000,
$154,000 and $204,000, respectively.
Included in future minimum lease payments is $984,000 for
non-cancelable operating leases due to the affiliate.
During the years ending December 31, 1994 and 1993 the Company
incurred $174,000 and $362,000, respectively, of freight and
shipping charges to a trucking company controlled by certain
officers of the former steel processing subsidiary.
During 1994 the Company's discontinued real estate development and
management segment sold development land to an entity that was
controlled by the Company's principal shareholder for $380,000. At
December 31, 1995 and 1994 receivables of $ -0- and $261,000,
respectively, were included in net assets of discontinued segment.
NOTE K SUPPLEMENTAL CASH FLOW INFORMATION
Property, plant and equipment acquisitions were debt financed; 1995
- $920,000, 1994 - $652,000, and 1993 -$103,000.
Interest of $460,000 was capitalized into properties under
construction and developed real estate in 1993.
17
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE L COMMITMENTS
A subsidiary company purchases steam from a company which has an
electric/steam co-generation plant on the subsidiary's property. The
subsidiary will purchase steam to 2012 at one half the subsidiary's
1986 steam generation cost adjusted for changes in the cost of fuels
from the 1986 base. The Company, as part of this agreement, leased
approximately 5 acres to the co-generation company to 2012 and has a
20 year renewal period of the steam purchase agreement. The annual
rental is $1.
NOTE M SEGMENT INFORMATION
The Company operates principally in three manufacturing industries:
wireless equipment; paper and specialty products. The real estate
development and management segment was discontinued in 1994, and the
steel processing subsidiary was sold in 1995. The Company's
operations in industry segments are as follows:
Wireless equipment - electronic wireless communication
equipment
Paper - recycled paperboxboard and printed folding cartons
Specialty products - access controls; garage door and gate
operators
Other industries - management, investing and financing
subsidiary activities; assets consist primarily of cash, short-term
investments and loans to subsidiaries
Operating profit (loss) is total revenue less operating expenses.
Total revenue by industry includes inter-segment sales. In computing
operating profit, none of the following items has been added or
deducted: general corporate expenses; interest expense; income
taxes; equity in loss of unconsolidated subsidiary; income or loss
on discontinued operations; extraordinary items; minority interest;
and the cumulative effect of changes in accounting principles.
1995 1994 1993
-------- -------- ------
Net Revenues
Wireless equipment $ 44,666 $ 47,249 $ 32,322
Paper manufacturing 28,585 25,496 24,241
Specialty manufacturing 10,953 10,528 10,399
Other industries -- -- --
Inter-segment elimination (2,406) (2,854) (3,551)
--------- --------- ---------
Consolidated 81,798 80,419 63,411
18
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE M SEGMENT INFORMATION (continued)
1995 1994 1993
------- -------- ------
Operating Profit (Loss)
Wireless equipment $ 894 $ 1,436 $ 926
Paper manufacturing 1,319 1,302 1,583
Specialty manufacturing (898) (395) (800)
Other industries (1,396) (672) (98)
Inter-segment elimination 156 (442) (123)
--------- ---------- --------
Consolidated 75 1,229 1,488
Assets
Wireless equipment $ 30,448 $ 32,281 $ 27,354
Paper manufacturing 13,252 13,714 14,414
Specialty manufacturing 4,793 5,622 5,452
Other industries 2,283 2,397 2,199
Inter-segment elimination 1,431 (573) (119)
Discontinued segments 5,330 25,471 28,000
--------- --------- -------
Consolidated 57,537 78,912 77,300
Depreciation
Wireless equipment $ 933 $ 956 $ 532
Paper manufacturing 1,047 1,127 1,131
Specialty manufacturing 99 76 130
Other industries 9 16 17
Discontinued segments -- 737 731
--------- --------- ---------
Consolidated 2,088 2,912 2,541
Purchases of Property, Plant and Equipment
Wireless equipment $ 1,227 $ 1,451 $ 1,935
Paper manufacturing 337 336 392
Specialty manufacturing 90 85 25
Other industries -- -- --
Discontinued segments -- 709 711
-------- ------- --------
Consolidated 1,654 2,581 3,063
The Company extends credit to the customers of its manufacturing and
processing segments, these are primarily:
Wireless equipment - electronics dealers and electric
utilities primarily in North America.
19
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE M SEGMENT INFORMATION (continued)
Paper - consumer product manufacturers in Northeastern
United States.
Specialty products - commercial building supply entities in
North America.
NOTE N STOCK OPTION AND OTHER STOCK PLANS
Adage has two plans whereby eligible officers, directors and
employees can be granted options for future purchases of Adage
common stock at the market price on the grant date. The options, if
not exercised within a specific time, expire. Other conditions and
terms apply to stock option plans.
The following is a summary of all stock option plans:
Options Outstanding
Option Price
Shares Per Share
------ ---------
Year ended December 31, 1993
Options granted 4,166 $5.75
Options expired (49,334) 7.87
-------- -----
December 31, 1993 145,465 $3.61-$9.50
Year ended December 31, 1994
Options granted 160,830 $4.62
Options expired (2,500) 9.50
-------- -----
December 31, 1994 303,795 $3.61-$7.87
Year ended December 31, 1995
Options exercised (2,674) $3.61
Options expired (65,418) 7.87
-------- -----
December 31, 1995 235,703 $3.61-$7.87
Shares become exercisable as options vest. Currently 106,744 are
exercisable. Future vesting is as follows:
1996 47,500
1997 41,250
1998 40,209
At December 31, 1995, 297,630 of unissued options were available
under the various plans.
20
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE O RESTRUCTURING CHARGE
In April 1993 the Company announced a restructuring program designed
to reduce costs and increase operating efficiency of its specialty
manufacturing segment and its corporate headquarters. The program
included, among other things, the downsizing of the work force and
consolidation or elimination of certain production and other
facilities. The restructuring program costs are shown as a separate
item in the statement of operations and resulted in an after tax
charge of $1,144,000 or $.22 per share.
NOTE P DISCONTINUED OPERATIONS
Real Estate Development and Management
In February 1995 the Company formulated a Plan to discontinue its
real estate development and management business segment. This
segment included subsidiaries which each own a particular real
estate development ("development"), to be sold in subdivided units
as improvement commercial land, or completed residential or
commercial properties. The Plan anticipates that each development
will be separately sold to different buyers and some unit sales will
occur in the normal course prior to the sale of the development. In
1994 the Company recorded a pretax estimated loss on disposal of
discontinued businesses of $2,450,000 which included valuation
allowances of $2,150,000 and a provision of $300,000 for costs
expected to be incurred prior to the sales. Prior years have been
restated to include the Company's real estate development and
management business segment as a discontinued operation.
The loss from discontinued operations net of tax benefit represents
the 1994 loss from this business segment.
The net assets held for sale represents the total assets less
related liabilities to be divested by the Company at estimated net
realizable values.
A summary of the net assets held for sale at December 31 is as
follows:
1995 1994
------ ------
Cash $ 203 $ 276
Accounts and notes receivable 71 328
Prepaid expense and office furniture 19 34
Completed properties, properties under
construction and lots available for
construction 1,331 2,987
Long-term real estate investments 5,755 4,636
Real estate mortgages (1,752) (1,730)
Other liabilities (251) (548)
------- -------
Net Assets held for sale $5,376 $5,983
====== ======
21
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE P DISCONTINUED OPERATIONS (continued)
The realization of the net assets held for sale is contingent on
concluding sales and obtaining approval of mortgage holders and the
Company's primary bank. The amounts the Company will ultimately
realize could differ materially in the near term from the amounts
assumed in arriving at the loss on disposal of the discontinued
operations.
Summarized results of operation and financial position data of the
real estate development and management business segment's
discontinued operations were as follows:
1995 1994
------- ------
Results of operations
Net revenues $2,615 $6,947
Operating profit (loss) (370) 243
Loss before income taxes (1,178) (213)
Income taxes (benefits) (445) (43)
------- --------
Net loss from discontinued operations $ (733) $ (170)
======= =======
Steel Processing
In August 1995 the Company sold its steel processing business
segment for approximately $6,789,000 in cash. The gain on the sale
was $1,193,000 after tax expense of $779,000. Prior years have been
restated to include the Company's former steel processing business
as discontinued operations.
Summarized results of operations and financial position data for the
steel processing business segment's discontinued operations were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Results of operations
Net revenues $34,285 $46,624 $37,533
Operating profit 5,095 6,078 5,349
Income before income taxes 1,173 1,302 925
Income taxes 470 480 361
Minority interest - 164 113
-------- -------- --------
Net income from discontinued
operations $ 703 $ 658 $ 451
======== ======== ========
Financial position at December 31, 1994
Current assets $13,532
Net property and equipment 6,810
Other assets 12
Total liabilities and deferred taxes (15,364)
-------
Net assets of discontinued operation $ 4,990
=======
</TABLE>
22
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE Q CONTINGENT LIABILITIES
From time to time, the Company may become liable with respect to
pending and threatened litigation, tax, environmental and other
matters.
Environmental
The Company is subject to federal, state and local environmental
laws and regulations concerning, among other matters, water
emissions and waste disposal.
General Insurance
Under the Company's insurance programs, coverage is obtained for
catastrophic exposures as well as those risks required to be insured
by law or contract. It is the policy of the Company to retain a
significant portion of certain expected losses related primarily to
workers' compensation, physical loss to property, business
interruption resulting from such loss and comprehensive general,
product, and vehicle liability. Provisions for losses expected under
these programs are recorded based upon the Company's estimates of
the aggregate liability for claims incurred. Such estimates utilize
certain actuarial assumptions followed in the insurance industry and
are included in accrued expenses.
Former Affiliate
In 1993 a civil action was brought against the Company by a
plaintiff to recover losses sustained on notes of a former
affiliate. The plaintiff alleges violations of federal security and
other laws by the Company in collateral arrangements with the former
affiliate. In response, the Company filed a motion to dismiss the
complaint in the fall of 1993, which the court has yet to rule on.
In February 1994 the plaintiff executed and circulated for
signature, a stipulation of voluntary dismissal. After the
stipulation was executed the plaintiff refused to file the
stipulation with the court. Subsequently the Company and others
named in the complaint filed a motion to enforce their agreement
with the plaintiff. The court has also yet to rule on that motion.
In a second related action, an adversarial action in connection with
the bankruptcy proceedings of the former affiliate has been filed.
In response to that complaint the Company filed a motion to dismiss
for failure to state a cause of action. Although the motion for
dismissal was filed during 1994, the bankruptcy court has not yet
ruled on the motion. The range of potential loss as a result of
these actions cannot be presently determined.
23
<PAGE>
ADAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE Q CONTINGENT LIABILITIES (continued)
In February 1996 the liquidator of the former affiliate filed a
complaint claiming intentional, fraudulent and negligent conduct by
the Company and others named in the complaint caused the former
affiliate to suffer millions of dollars of losses leading to its
ultimate failure. The complaint does not specify damages but an
unfavorable outcome could have a material adverse impact on the
Company's financial position. The range of potential loss cannot be
presently determined.
Management, with the advice of counsel, believes the Company has
meritorious defenses and the likelihood of an unfavorable outcome in
any of these actions is remote.
24
<PAGE>
Independent Auditor's Report
To the Board of Directors
and Stockholders of Adage, Inc.
West Chester, Pennsylvania
We have audited the accompanying consolidated balance sheet of Adage,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
statements of consolidated operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Adage, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
MAC DADE ABBOTT LLP
Paoli, Pennsylvania
February 28, 1996
25
<PAGE>
ADAGE, INC.
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 items from the consolidated statement of operations expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
Year Ended December 31,
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 78.2% 75.5% 74.5%
Selling, general & administrative 21.7% 23.0% 23.1%
Interest expense 1.9% 0.8% 1.4%
Income (loss) from continuing operations
before income taxes (1.6%) 1.0% (1.5%)
Net Income (Loss)from continuing operations (1.0%) .6% 1.0%
</TABLE>
Net Sales
Net sales for the year ended December 31, 1995 increased 1.7%. The details of
this increase is made up as follows:
Increase (Decrease)
Year Ended December 31,
1995 1994 1993
------- ------- ------
Paper Manufacturing $ 3,089 $ 1,255 $ 1,200
Specialty Manufacturing 425 129 (4,469)
Wireless Equipment Manufacturing (2,583) 14,927 9,317
Sales in the paper manufacturing segment increased in 1995, 1994 and 1993 due to
increased volume and prices. Increased sales in the specialty manufacturing
segment in 1995 and 1994 were due to increased unit volume. A portion of the
1995 increase ($113) was due to the acquiring of the Edwards Power Door line of
commercial operators in September, 1995. The decrease in 1993 was due to
decreased volume. The decrease in the wireless equipment segment in 1995 was due
to lower international sales of land mobile radios and lower sales of Demand
Side Management Switches to the electric utility industry. The Company has
targeted new non-traditional users for the demand side management products and
expects to expand sales to these customers. The 1994 and 1993 increases in sales
of the wireless equipment manufacturing segment was partially due to the
Bendix/King Mobile Communications product line which was acquired on September
15, 1993, and increases in other product lines in this segment.
26
<PAGE>
ADAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
Cost of Sales
Cost of sales as a percentage of net sales increased 2.7% to 78.2% for the year
ended December 31, 1995, and increased 1.0% from 74.5% to 75.5% for the year
ended December 31, 1994. Details of these changes by segment follow:
Year ended December 31,
1995 1994 1993
---- ---- ----
Paper Manufacturing 86.2% 83.8% 80.2%
Specialty Manufacturing 86.1% 83.7% 82.6%
Wireless Equipment Manufacturing 73.1% 71.0% 72.1%
Cost of raw materials increased in the paper manufacturing segment in 1995 and
1994 because of the increased demand for recycled secondary fiber. Cost of
recycled fiber increased to $170 per ton in 1995 compared to $85 per ton in
1994. Prices of fiber have been decreasing since mid 1995. Price increases in
this segment partially offset these increases. The Company expects that recycled
fiber costs will decrease in 1996. Specialty manufacturing costs increased in
1995 and 1994 due to increased steel and electronic component costs. Specialty
manufacturing costs decreased in 1993 due to a price increase and restructuring
in the first quarter of 1993 which lowered fixed overhead costs.
Costs increased in the wireless equipment manufacturing segment in 1995 due to
increased material obsolescence costs partially related to new products that
caused certain finished goods and raw materials to be reserved.
Costs decreased in the wireless equipment manufacturing segment in 1994 due to
higher manufacturing volumes which more efficiently absorbed fixed and variable
manufacturing costs. Costs in the wireless equipment manufacturing segment
increased in 1993 compared to 1992 due to the acquisition of the Bendix/King
Mobile Communications product line. All Bendix/King Mobile Communications
products sold in 1993 were not manufactured by the Company and accordingly had
lower margins.
Selling, General and Administrative Expenses
Selling general and administrative expenses which consist primarily of
commissions, marketing, product development, salary and related costs, data
processing and occupancy costs decreased to 21.7% for the year ended December
31, 1995 from 23.0% and 23.1% for the years ended December 31, 1994 and 1993
respectively. Details of these changes by segment follow:
Year ended December 31,
1995 1994 1993
---- ---- ----
Paper Manufacturing 9.6% 11.0% 13.0%
Specialty Manufacturing 22.3% 20.0% 25.1%
Wireless Equipment Manufacturing 24.5% 26.0% 23.8%
Corporate 2.5% 2.4% 3.0%
27
<PAGE>
ADAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
The decrease in 1995, 1994 and 1993 in the paper manufacturing segment were due
to increased sales volumes which created more efficient absorption of fixed
selling and administration costs and reductions in fixed overhead expenses
during 1994. The increase in 1995 in the specialty manufacturing segment was due
to the addition of sales personnel in conjunction with the purchase of the
Edwards Power Door line of commercial garage door operators and increases in
product liability costs. The decrease in 1994 in the specialty manufacturing
segment was primarily due to the effect of changes that were made in 1993 having
the impact of a full year of selling and administrative expense savings. The
decrease in the specialty manufacturing segment in 1993 was due to a
restructuring of this segment which took place in the first quarter of 1993
which lowered general and administrative expenses and fixed selling costs. The
wireless equipment manufacturing segment which was acquired in 1992 has higher
costs associated with engineering and product development.
These costs decreased in 1995 compared to 1994 due to staff reductions that
took place in mid 1994 being in effect for the entire year. These costs
increased in 1994 due to increased costs, primarily during the first quarter of
1994, related to the transfer of technology and product documentation related to
the purchase of the Bendix/King Mobile Communications Division in September,
1993. Selling general and administration expenses in this segment decreased as a
percentage of sales because of higher sales levels in 1993 compared to 1992.
Development costs in this segment are expected to increase in 1996.
Interest Expense
Interest expense increased to $1,572 for the year ended December 31, 1995 from
$632 for the year ended December 31, 1994. This increase was due primarily to
the inability to capitalize construction period interest of the Company's
discontinued real estate segment.
Income Taxes
Income taxes represented a 40.1%, 40.9% and 27.6% effective tax rates for the
years ended December 31, 1995, 1994 and 1993 respectively. This rate is made up
of a 34% effective federal tax rate and the respective state tax rates where the
company conducts business. The rate for 1993 which represents a tax benefit, is
lower due to state income taxes of profitable subsidiaries which could not be
offset.
Discontinued Operations
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.
In January, 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.
Management of the Company will consider disposal of subsidiaries that do not
earn an adequate return or fit the long-term goals of the Company.
28
<PAGE>
ADAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
Inflation and Changing Prices
Inflation and changing prices for the years ended December 31, 1995, 1994 and
1993 have contributed to increases in wages, facility and raw material costs.
Effects of these inflationary pressures were partially offset by increased
prices to customers. 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 costs.
Liquidity and Capital Resources
Working capital decreased by $1,728 during the year ended December 31, 1995.
This decrease was primarily related to better working capital management. The
Company has credit available under its existing lines of credit in excess of
$3,000 at December 31, 1995.
Capital expenditures for the year ended December 31, 1995 were $734. These
capital expenditures were financed from existing and new credit facilities and
cash flow of the Company.
Capital expenditures for 1996 for the combined entity are not expected to exceed
$1.5 million. The current credit agreement that the Company has restricts
capital expenditures. Management believes that these restrictions will allow the
Company to make the necessary capital expenditures during the term of the credit
agreement. 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 remain at
this level for the foreseeable future.
Inventories decreased $8,164 during 1995. Inventories decreased $9,273 due to
the sale of the steel processing segment. Inventories increased in the wireless
equipment and the paper manufacturing segments by $891 and $456 respectively,
and decreased in the specialty manufacturing segment by $238.
29
<PAGE>
DIRECTORS
DONALD F. U. GOEBERT, Chairman and President
GEORGE N. BENJAMIN III, Consultant,
Trig Systems, LLC
JAMES C. GALE, Managing Director,
Gruntal & Co., Inc.
ROBERT T. HOLLAND, Vice President, Secretary
and Chief Financial Officer
ROBERT L. MACDONALD, Professor (Retired),
The Wharton School, University of Pennsylvania
BUCK SCOTT, Private Investor
JOEL A. SCHLEICHER, Formerly Chief Operating
Officer,
Nextel Communications, Inc.
RALPH R. WHITNEY, JR., Principal,
Hammond, Kennedy, Whitney & Company, Inc.
OFFICERS
DONALD F. U. GOEBERT, President
ROBERT T. HOLLAND, Vice President, Secretary
and Chief Financial Officer
ADAGE COMPANIES
ALLISTER MANUFACTURING COMPANY, INC.
West Chester, Pennsylvania
Vista, California
FORT ORANGE PAPER COMPANY, INC.
Castleton-on-Hudson, New York
RELM COMMUNICATIONS, INC.
West Melbourne, Florida
Indianapolis, Indiana
Lawrence, Kansas
Norfolk, Nebraska
REGISTRAR & TRANSFER AGENT
AMERICAN STOCK TRANSFER & TRUST CO.
40 Wall Street, 46th Floor
New York, NY 10005
INDEPENDENT ACCOUNTANTS
MAC DADE ABBOTT LLP
Station Square Three
Paoli, PA 19301
STOCKHOLDER REPORTS
Additional copies of the Company's Annual Report or Form 10-K filed with the
Securities and Exchange Commission, excluding exhibits, can be obtained without
charge by writing to:
ADAGE, INC.
Investor Relations
400 Willowbrook Lane
West Chester, PA 19382
or call 610-430-3900
STOCK LISTING
The Company's stock is listed on the NASDAQ National Market System. The trading
symbol is ADGE.
30
<PAGE>
