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 March 31, 1996
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Commission file number 33-31797
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ADAGE, INC.
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(Exchange name of registrant as specified in its charter)
Pennsylvania 04-2225121
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
400 Willowbrook Lane, West Chester, PA 19382
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(Address of principal executive officers) (Zip Codes)
(215) 430-3900
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(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 March 14, 1996
5,121,535 shares of Common Stock, par value $ .60 per share.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADAGE, INC.
Condensed Consolidated Balance Sheets
March 31, 1996 DECEMBER 31, 1995
--------------- -----------------
(Unaudited)
ASSETS 000's Omitted
- ------ -------------
Current Assets
Cash $ -- $134
Accounts receivable, net 12,189 10,853
Inventories 20,403 21,261
Marketable securities 254 177
Other current assets 2,113 2,114
------- -------
Total Current Assets 34,959 34,539
Property, plant and equipment, net 13,502 13,562
Investments and long-term receivable 1,177 980
Net assets of discontinued segments 5,424 5,376
Intangible and other assets 3,167 3,080
------- -------
Total Assets $58,229 $57,537
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of
long-term debt $1,024 $1,403
Accounts payable 4,208 6,838
Accrued expenses 4,217 3,221
Income taxes payable 702 301
------- -------
Total Current Liabilities 10,151 11,763
Long-term debt 14,794 13,154
Stockholders' equity 33,284 32,620
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$58,229 $57,537
======= =======
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
MARCH 31,
1996 1995
----------- -----------
(Unaudited) (Unaudited)
000's Omitted
-------------
Income
Sales $ 21,402 $ 20,267
Investment income 76 6
Other 36 85
----------- -----------
21,514 20,358
Costs and Expenses
Cost of sales 16,471 16,407
Selling, general & administrative 4,426 4,116
Interest 298 245
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21,195 20,768
Income (loss) from continuing
operations before income taxes 319 (410)
Provision for income taxes (benefit) 117 (156)
----------- -----------
Net income (Loss) from
continuing operations $ 202 $ (254)
Income from discontinued
operations net of taxes -- 376
Gain on sale of discontinued
operations net of taxes -- --
----------- -----------
Net income $ 202 $ 122
=========== ===========
Earnings Per Common Share
Continuing operations $ .04 $ (.05)
Discontinued operations -- .07
----------- -----------
Net Income $ .04 $ .02
=========== ===========
Weighted Average Common Shares
Outstanding 5,125,234 5,107,846
=========== ===========
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
ITEM 1 - FINANCIAL STATEMENTS - continued
ADAGE, INC.
Condensed Consolidated Statements of Cash Flows
FOR THE THREE MONTHS ENDED
MARCH 31,
1996 1995
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(Unaudited) (Unaudited)
000's Omitted
-------------
Operating activities:
Net income $ 211 $ 122
Adjustments to reconcile net income
to cash flows
Depreciation and amortization 707 788
Minority interest in discontinued
operations -- 98
(Gain) Loss on sale of marketable
securities (76) (6)
Decrease (increase) in current assets
Accounts receivable, net (1,336) (825)
Inventory 857 (98)
Other current assets 21 (50)
Increase (decrease) in current
liabilities
Accounts payable (3,018) (1,219)
Other current liabilities 1,413 1,036
Discontinued segment-noncash
charges and working capital
changes (47) 723
------- -------
Cash (used) provided from operations (1,268) 569
Investing activities:
Property, plant and equipment
Purchases (255) (513)
Long-term investments and receivables
Investing activities of
discontinued segment (48)
Sales of discontinued operations
Other items (124) (67)
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Cash (used) provided by investing
activities (379) (628)
Financing activities:
Long-term debt
Payments (413) (838)
Changes in lines of credit 1,926 797
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Cash (used)by financing activities 1,513 (41)
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Increase in cash (134) (100)
Cash at beginning of period 134 184
------- -------
Cash at end of period $ 0 $ 84
======= =======
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(000's Omitted)
1. Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of March 31, 1996, the
consolidated statements of operations and the consolidated statements of cash
flows for the three months ended March 31, 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 March 31,
1996 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 March 31,
1996 are not necessarily indicative of the operating results for a full year.
2. Inventories March 31, December 31,
1996 1995
--------- ------------
Inventories consisted of:
Raw Material $ 8,823 $ 8,688
Work in Process 2,121 3,884
Finished goods 9,459 8,689
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$ 20,403 $ 21,261
======== ========
3. Stockholder's Equity
Stockholder's Equity is comprised of the following:
March 31, December 31,
1996 1995
--------- ------------
Common Stock $ 3,073 $ 3,073
Additional Capital 20,477 20,477
Retained Earnings 9,866 9,664
Net unrealized loss on
marketable securities (132) (594)
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$ 33,284 $ 32,620
======== ========
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITIONS - $000 Omitted
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:
Percentage of Net Sales
Quarter Ended Year Ended
March 31, December 31,
1996 1995 1995
------ ------- -------
Sales 100.0% 100.0% 100.0%
Cost of sales 77.0% 80.9% 82.0%
Selling, general
administrative 20.7% 20.3% 20.3%
Interest expense 1.4% 1.2% 1.0%
Net Income (Loss) from
continuing operations 1.0% (1.2%) (1.7%)
Net Sales
Net sales for the three months ended March 31, 1996 increased
$1,135 or 5.6% compared to sales for the same period in 1995. This
change is made up of the following:
Increase (Decrease)
-------------------
Three Months Ended
March 31,
1996
-------------------
Paper Manufacturing $ (876)
Specialty Manufacturing 217
Wireless Communications Equipment 1,967
Sales in the Wireless Communications Equipment segment increased due to
increased production which was available to fill sales backlogs. The increase in
the Specialty Manufacturing segment was due to the acquisition of a new product
line in the third quarter of 1995. The decrease in sales in the Paper
Manufacturing segment was due to decreased demand for paperboard.
6
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Cost of Sales
Cost of sales as a percentage of net sales decreased 3.9% to 77% for the quarter
ended March 31, 1996 from 80.9% for the quarter ended March 31, 1995. Detail of
these changes by segment follow:
Quarter Ended
March 31,
1996 1995
---- ----
Paper Manufacturing 82.2% 85.2%
Specialty Manufacturing 86.1% 85.0%
Wireless Communications Equipment 73.7% 77.0%
Material costs, primarily recycled paper fiber, decreased during the first
quarter of 1996 compared to the first quarter of 1995. Prices for paperboard
increased during 1995. The cost of integrating a new product line into the
Specialty Manufacturing segment increased costs. These costs are expected to
decrease during 1996. Costs decreased in the Wireless Communications Equipment
segment due to increased production rates.
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 20.7% from 20.3% for the quarter ended March 31, 1996 from
the quarter ended March 31, 1995. Details of this change by segment follow:
Quarter Ended
March 31,
1996 1995
---- ----
Paper Manufacturing $ 645 $ 677
Specialty Manufacturing 609 547
Wireless Communications Equipment 2,816 2,167
Corporate 454 482
The increase in the Wireless Communications Equipment segment is related to
increased development expenses related to the engineering and development of new
products and increased sales costs related to higher sales volumes.
7
<PAGE>
Interest Expense
Interest Expense was 1.4% for the quarter ended March 31, 1996. 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 (benefit) represented a 38.0% effective tax rate for the quarter
ended March 31, 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%. The effective tax
rate for the quarter ended March 31, 1995 was 38.0%.
Inflation and Changing Prices
Inflation and changing prices for the three months ended March 31, 1996 and the
three months ended March 31, 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
Communications Equipment 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 increased by $2,032 during the quarter ended March 31, 1996.
This increase was due to the refinancing of the Company's bank debt during the
first quarter of 1996. This allowed the Company to reduce current maturities and
accounts payable. The Company has credit available under its existing lines of
credit in excess of $2,000,000.
Capital expenditures for the three months ended March 31, 1996 were $255 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. 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
8
<PAGE>
expects that capital expenditures will remain at this level for the foreseeable
future.
Inventories decreased $858 for the three months ended March 31, 1996.
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.
9
<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 March 31, 1996.
10
<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: May 14, 1996
11
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